Credit Suisse fends off usurpers to Mirant bond mandate

Having been bombarded with bids from investment banks looking to be tipped as joint-leads, Mirant Philippines opts to go with a one horse deal for its possible $1.2 billion high-yield bond issue.
After weeks of defending its sole lead manager status on the proposed bond deal for Philippine independent power producer (IPP) Mirant Philippines, Credit Suisse has put pen to paper and will be the lone manager on what could be AsiaÆs largest ever high-yield corporate offering.

The deal could be worth upwards of $1.2 billion, although no formal size has been determined. Mirant has $1.2 billion in loans maturing later this year. The borrower has yet to decide whether to fund that via a sole bond offering or via a combination of loan and bond deals

High-yield houses such as Deutsche Bank, Goldman Sachs, JPMorgan, and Morgan Stanley were all clamouring to try to get onto the deal as joint-leads. At its size it would have done wonders for their respective league table status. However their advances went unrequited when Mirant chose to stick with Credit Suisse.

In 2003, Mirant Corp, Mirant PhilippinesÆ parent company, became the 11th largest bankruptcy case in the United States following more than a year burdened by heavy debt, weak revenues and charges of bad corporate conduct. The Chapter 11 filing was preceded by $2.4 billion in losses in 2002, an audit that found $188 million in income overstatements, and allegations of price manipulation ultimately leading to CaliforniaÆs energy crisis of 2000.

Mirant's Philippine operations were excluded from the bankruptcy filing. Mirant PhilippinesÆ IPP contracts contain ôtake-or-payö clauses and guarantees allowing it to operate its business virtually risk-free.

However, Mirant Philippines has not been immune to controversy either. For example, it has been investigated for hazardous releases from its coal-fired power plants.

As yet, it remains to be seen whether a deal will actually materialise. With the market mired in volatility and uncertainty, there has been a massive risk reduction among investors in Asian debt.

The message from investors is that until some sort of calm returns to the global debt market they will only consider buying deals with a fair new issue premium.

Because of its size, the nature of the credit itself and the competition that went on behind the scenes, it will probably be the most closely watched deal to come to market all yearl. As one banker put it: ôThis deal has all the makings of being AsiaÆs high-yield deal of the year, if not the deal of the year, but it will be a high wire act for Credit Suisse to get it done and done well. Every DCM banker and his dog will be commenting on this one.ö

Earlier this month parent Mirant Corp announced a substantial increase in net income for the first quarter. Net income jumped to $467 million from only $11 million for the same period of 2004. Operating cash flow was pegged at $500 million, an amount already adjusted for bankruptcy payments. As of end-March, Mirant had cash and cash equivalents of $1.73 billion.

Mirant Philippines accounts for just under 40% of its parentÆs Ebitda.

Mirant was the first company that responded to the Marcos governmentÆs call for private sector assistance in developing the countryÆs energy sector. Mirant Philippines now owns and operates a number of the largest power plants in the country; these include a 1200-MW Sual coal-fired plant in Pangasinan and a 700-MW Pagbilao coal-fired generation facility in Quezon. In terms of total capacity Mirant generates 2,200 MW.

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