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Creditors Accuse Mirant of Fraud

CalPERS is among 10 investors in lawsuit that alleges power firm has looted a subsidiary.

June 12, 2003|Kathy M. Kristof and Elizabeth Douglass | Times Staff Writers

The California Public Employees' Retirement System and other bondholders have sued beleaguered power company Mirant Corp., alleging that the company was systematically looting a subsidiary that had issued $2.5 billion in bonds to CalPERS and other investors.

The suit, which was made public Wednesday, deals another blow to Atlanta-based Mirant, which is struggling to fend off bankruptcy after posting a $2.4-billion loss for 2002.

Mirant spokesman James Peters said the company believes that the suit is without merit and will be dismissed.

He added that the litigation was not unexpected, given that the firm has filed a debt reorganization plan that pledges as collateral assets of Mirant subsidiaries, which independently owe hundreds of millions of dollars to creditors.

"We are committed to repaying our creditors in full with interest and preserving value for our many stakeholders," Peters said. "Our goal is to do this out of court."

CalPERS, the nation's largest public employee pension fund, is part of a group of 10 creditors owed $300 million by Mirant Americas Generation, a wholly owned subsidiary of Mirant that owns and operates 22 power generating plants in California and five other states.

Mirant has suffered from a slump in power prices and has been scaling back operations and attempting to renegotiate credit agreements to survive. The company said in April that it may be forced to file for bankruptcy protection if it can't come to terms with its creditors.

The lawsuit by CalPERS and other Mirant creditors alleges that the power firm already has drained nearly $1 billion in improper dividend payments from Mirant Americas, cutting the firm's available cash flow by 85% and making it hard for Mirant Americas to pay its creditors.

Mirant has used the company's subsidiaries "as if they were Mirant's own cash piggy bank," the suit alleges.

Mirant's recently proposed debt restructuring plan, which would require existing creditors of both Mirant and Mirant Americas to exchange their bonds for new bonds with slightly different terms, would further imperil Mirant Americas' creditors by making their claims subordinate to the claims of the creditors of the parent company, CalPERS' suit claims.

CalPERS has asked the court to block the exchange offer and award $1 billion in damages. Among other things, the suit accuses Mirant of fraud and breach of fiduciary duty.

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