Mirant's bonds traded up 10 points on an upbeat view of the company's performance post-bankruptcy and speculation it could be an acquisition target. Its 2.5% '21 bonds climbed to the 110-111 range, while its 5.75% '07 bonds rose to 122. Mirant's loans also traded up. Its '03 revolving credit jumped six points to 117.
Investors' positive view of the company and the energy sector as a whole came after news of NRG's planned acquisition of Texas Genco in a deal valued at $5.8 billion. The acquisition has a total enterprise value of $8.3 billion, including $4 billion in cash, $1.8 billion in common and preferred stock, and $2.5 billion of Texas Genco debt. Equity sponsors of Texas Genco raked in a big profit from the merger, making 400% on their original equity investments.
Since the sale, shares in power companies have soared. A trader said private equity firms are seeking to make a hefty profit in Mirant by buying its unsecured debt, which will be converted into equity when the firm emerges from bankruptcy. As part of Mirant's reorganization plan, the holders of $6.35 billion of unsecured claims against Mirant will receive 96.25% of the reorganized company's common stock.
Like NRG, analysts believe Mirant could be bought by a competitor. Mirant's debt has traded actively since the NRG/Texas Genco acquisition. A trader at a distressed debt investment firm said he had sold all the positions his company had in Mirant when the debt soared. "We made a lot of money on it," he said.
Mirant may not be the only acquisition target in the power sector. The analyst said Reliant Energy and Dynegy could also be bought as consolidation sweeps the sector. "People are very bullish. They see consolidation as a positive and expect it will continue."