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Rating Action:

MOODY'S ASSIGNS Ba3 RATING TO MIRANT NORTH AMERICA'S PROPOSED $1.5 BILLION SECURED CREDIT FACILITIES, B1 RATING TO ITS PROPOSED $850 MILLION SENIOR UNSECURED BONDS, B1 CORPORATE FAMILY RATING FOR MIRANT CORPORATION; OUTLOOK STABLE

02 Dec 2005
MOODY'S ASSIGNS Ba3 RATING TO MIRANT NORTH AMERICA'S PROPOSED $1.5 BILLION SECURED CREDIT FACILITIES, B1 RATING TO ITS PROPOSED $850 MILLION SENIOR UNSECURED BONDS, B1 CORPORATE FAMILY RATING FOR MIRANT CORPORATION; OUTLOOK STABLE

Approximately $5 Billion Of Debt Affected

New York, December 02, 2005 -- Moody's Investors Service has assigned a Ba3 rating to the proposed $1 billion six-year senior secured revolving credit facility and $500 million seven-year senior secured term loan facility of Mirant North America, LLC (MNA), an indirect subsidiary of Mirant Corporation (the new Mirant, after its exit from bankruptcy) and a B1 rating to the $850 million senior unsecured notes to be offered by MNA and Mirant Finance Corp. as co-issuers.

Proceeds from these proposed offerings will be used to provide exit financing to enable the new Mirant and various domestic subsidiaries to emerge from bankruptcy protection.

Moody's also assigned a Ba2 rating to approximately $970 million of existing secured pass-through trust certificates issued in connection with the leveraged leases of Mirant Mid-Atlantic, LLC (MIRMA), a B2 rating to $1.7 billion of senior unsecured notes to be reinstated at Mirant Americas Generation, Inc. (MAG), and a B1 Corporate Family Rating for the new Mirant.

The rating outlook is stable.

The plan of reorganization has been approved by creditors. If the plan is confirmed by the Bankruptcy Court, as is expected to occur this month, the new Mirant would emerge from bankruptcy soon after the confirmation date. The ratings are predicated upon the expectation that the company will exit from bankruptcy in the near future, under the plan that is in the process of being confirmed.

Under the plan of reorganization the new Mirant's consolidated domestic debt, including imputed debt obligations under MIRMA's leveraged leases, will be approximately $4.3 billion. In addition, there will be approximately $1.1 billion of non-recourse debt outstanding at Mirant's international businesses that were not parties to the bankruptcy filing. These amounts will be a reduction from approximately $10.2 billion of debt obligations (including imputed debt obligations under the MIRMA leveraged leases) pre-emergence from bankruptcy.

The ratings incorporate the following strengths:

1) The favorable cost positioning and locational value of Mirant's Mid-Atlantic based coal-fired base load generating units in the current high natural gas price environment provides a significant source of cash flow;

2) The diversity of the company's electric generating facilities with regard to regional location, fuel type and dispatch profile helps to temper operating risks;

3) Fairly strong cash flow that is derived from the company's international businesses, however, these results are dependent upon operations in emerging market countries with less stable power markets;

4) A reasonable prospective liquidity profile in 2006, with limited scheduled principal repayments in the near term, substantial cash balances, and expected availability under the new senior secured revolving credit facility.

However, the ratings also incorporate the following credit concerns:

1) Substantial exposure to volatile margins in the merchant power market due to limited hedging and the lack of long term power purchase agreements. While the company has hedged a majority of its fuel purchases and power sales for 2006, its position beyond 2006 is mostly unhedged;

2) A majority of the company's domestic generating plants are natural gas fired and are subject to current difficult market conditions. Many of the company's power plants are relatively old, require significant capital expenditures, and operate at less competitive heat rates than newer plants;

3) Heavy dependence by Mirant Corporation, MNA, and MAG upon dividends being upstreamed from MIRMA, with the risk that these distributions could be blocked if MIRMA fails to comply with the provisions of its leveraged lease obligations, including coverage tests for distributions;

4) The potential for unpredictable fluctuations in liquidity needs due to changes in commodity prices and counterparty collateral requirements.

MNA is a newly-created indirect holding company formed to provide the new Mirant exit financing. Mirant Finance Corp. was formed and exists solely for the purpose of serving as a co-issuer of the $850 million senior unsecured notes.

MNA will be organized as the parent of Mirant Mid-Atlantic, LLC (MIRMA), which owns or leases Mirant's approximately 5,300 megawatts of generation facilities in the Mid-Atlantic, and also has subsidiaries that own approximately 1,400 megawatts of generating capacity in New England, 2,300 megawatts in California, 538 megawatts in Texas, and 835 megawatts in Michigan. MIRMA represents a substantial portion of Mirant's consolidated cash flow, and funds upstreamed from MIRMA are expected to be a critical source for the funding needs of MNA and MAG.

In addition to the previously stated strengths and credit concerns, the Ba3 rating for MNA's proposed $1 billion six-year senior secured revolving credit facility and the Ba3 rating for its proposed $500 million seven-year senior secured term loan facility consider the benefits of the collateral package. This includes a first priority security interest in substantially all of the assets of MNA's New England, California and Zeeland subsidiaries. Moody's believes that the security interest in approximately 2,400 megawatts of generating plants in California and about 1,400 megawatts of generating plants in New England collectively represent the majority of the hard asset collateral value and provide significant collateral coverage. The security also includes the equity of MIRMA, which owns more than 3,400 megawatts of baseload and peaking generating facilities located in Maryland and Virginia.

The senior credit facilities include covenants that place restrictions on asset sales and require 50% of excess cash to be used for reduction of the term loan. The provisions of the senior credit facilities will include an interest coverage test, and limits on debt incurrence and capital expenditures.

The B1 rating for MNA's proposed issuance of $850 million of senior unsecured notes considers the collateral granted for the senior secured credit facilities, which effectively subordinates the senior unsecured notes.

The B2 rating for MAG's $1.7 billion of reinstated senior unsecured notes reflects the structural subordination of debt at MAG relative to the debt at MNA.

The Ba2 rating for MIRMA's $970 million secured pass through certificates reflects financial ratios that are substantially stronger than the other rated entities. MIRMA's rating also considers its direct holding of some of Mirant's most competitively positioned generating assets. The pass through certificates also benefit from a liquidity provision in the form of a $75 million rent reserve, which represents more than 8 months of 2006 lease payments. However, the rating also considers MIRMA's weaker affiliates and ultimate parent and the expected reliance upon dividends from MIRMA to meet obligations at upstream legal entities.

MIRMA's lease coverage ratio (defined as funds from operations plus cash lease expenses less capital expenditures divided by cash lease payments) is greater than 2 times on a trailing twelve month basis, and adjusted funds from operations (FFO adjusted for the principal component of the lease payments) are expected to be more than 20% of the outstanding pass through certificates. Given the current advantageous pricing environment for MIRMA's baseload coal units and the company's significant hedged position for 2006, our expectation is that these ratios will improve at least for the near term.

The stable rating outlook reflects Moody's expectation that the negative impacts of high natural gas prices on Mirant's predominantly gas fired generating portfolio will be balanced by strong cash flow from its coal fired assets, and also considers that a portion of the gas fired fleet is located in markets with a more favorable outlook, particularly California. The stable outlook also incorporates the expectation that the new Mirant will generate consolidated cash flow of at least 10% of total consolidated debt, and that this ratio will gradually improve as the company uses excess cash flow to reduce its debt burden.

Mirant Corporation is an independent power producer that owns or leases a portfolio of electricity generating facilities totaling 17,600 megawatts. MAG, MNA and MIRMA are indirect wholly-owned subsidiaries of Mirant Corporation. Mirant is headquartered in Atlanta, Georgia.

New York
Daniel Gates
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Scott Solomon
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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