Thank you for sharing!

Your article was successfully shared with the contacts you provided.
The Southern Co. on Wednesday fired back at Mirant Corp., saying its one-time subsidiary filed for Chapter 11 bankruptcy protection because of its own financial missteps and an industrywide crisis caused by the collapse of Enron Corp. Southern’s attack came in its response to a $2 billion suit Mirant filed in a Texas federal court in June. Mirant has blamed its former parent for many of its financial woes, saying Atlanta-based Southern stripped it of cash and burdened it with debt before unloading the insolvent subsidiary through an initial public offering and subsequent spinoff. Mirant filed for reorganization under Chapter 11 of the federal bankruptcy code in 2003. Southern’s answer to the suit was drafted by a team of Jones Day attorneys including Atlanta-based partners G. Lee Garrett Jr. and Janine C. Metcalf. The response said Mirant’s money problems arose after the spinoff and resulted from, among other things, Mirant’s credit-rating downgrade in wake of the crisis in the energy industry triggered by Enron’s 2001 bankruptcy. The response also said Mirant continued to “pursue a rapid growth strategy” after its separation from Southern, thereby refuting its earlier claim of being insolvent at the time of the spinoff. In addition, Southern said it “misled no one” with regard to the $1.9 billion in dividends and other payments Mirant paid to its former parent company. Mirant had claimed Southern gave it assets, then did an about-face and required payments, plus interest. Those payments “were lawful and had nothing to do with Mirant’s bankruptcy,” the Southern response stated. “Contrary to the allegations in the amended complaint, the pre-spinoff dividends, loan repayments and transfer of subsidiaries were fully disclosed in Mirant’s IPO prospectus, and an examination of Mirant’s loan documents reveals that all parties understood and treated the intercompany debt as debt, not equity.” Southern also denied Mirant’s allegations regarding Southern’s longtime law firm Troutman Sanders. Mirant had cited Troutman Sanders for a possible conflict of interest in its work for both sides of Mirant’s initial public offering and spinoff. The firm served as Mirant’s primary outside counsel prior to the bankruptcy filing. Troutman Sanders managing partner Robert W. Webb Jr. could not be reached Wednesday to discuss the case. Thomas E. Lauria, a Miami-based partner at White & Case who is lead counsel for Mirant in the case against Southern and the Chapter 11 reorganization, said Southern’s answer did nothing to refute his client’s claims. “While Southern was in control of Mirant, they caused Mirant to incur a bunch of debt. They caused Mirant to pay a bunch of cash to Southern, and as a consequence of which, they now owe a bunch of cash to the Mirant bankruptcy estate,” Lauria said. The litigation comes as Mirant struggles to emerge from bankruptcy and regain some of its former luster on Wall Street. The company has begun filing complaints against a long list of parties who allegedly contributed to its bankruptcy woes — including accounting firm Arthur Andersen, which, as a result of its role in the fall of Enron, is now a shell of its former self. Mirant was created as a Southern Co. subsidiary in the early 1990s to take advantage of business opportunities in the unregulated sector of the energy industry. According to its Web site, Mirant produces and sells electricity in the United States, the Caribbean and the Philippines. The company also operates a commodities trading center in Atlanta that deals in electricity, natural gas, coal and oil. During the last half of the 1990s, Mirant grew rapidly: Its reported net income from trading operations rose from $18 million in 1995 to $372 million in 1999. But the go-go years at Mirant were undermined by financial arrangements that benefited Southern at the expense of its budding subsidiary, according to the Mirant complaint. On Oct. 2, 2000, Mirant completed an initial public offering of 19.7 percent of its common stock. Six months later, Southern distributed the remaining Mirant stock to its shareholders, each of whom received 0.398 Mirant shares for each Southern share owned. Mirant began experiencing liquidity problems soon after the spinoff, and on Dec. 19, 2001, Moody’s downgraded the energy company’s credit rating to junk status. That same month, the Enron scandal further fueled Mirant’s credit problems by causing bankers to re-evaluate the industry’s risk. Mirant filed for Chapter 11 bankruptcy on July 14, 2003. The company’s stock, which reached a high price of $47.20 in May 2001, closed at 88 cents per share Wednesday. Mirant is expected to emerge from bankruptcy some time after Sept. 30. Southern Co. stock closed a $33.47 per share on Wednesday. Mirant and the Official Committee of Unsecured Creditors of the Mirant Corporation filed the suit as part of the bankruptcy proceedings in the U.S. District Court for the Northern District of Texas. The bankruptcy petition is In re Mirant Corp., No. 03-46590-DML.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.