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
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
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
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
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
Corporate Finance Group
Moody's Investors Service
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service