UK banks hit by energy firm failure

TWO British banks have been hit by the largest US bankruptcy so far this year, with Royal Bank of Scotland and Barclays owed close to $300 million (£189 million) by power producer and trader Mirant.

Atlanta-based Mirant filed for Chapter 11 bankruptcy protection after failing to agree a voluntary restructuring with its creditor banks and bondholders despite months of talks.

It is the 10th largest bankruptcy filing in US history, with assets of about $15 billion. As with others in the sector, the company has been hit by the sputtering US economy and the extended fallout from the collapse of Enron.

According to court papers, RBS's exposure to Mirant, headed by chairman and chief executive Marce Fuller, totalled $184.1 million while that of Barclays was $112.7 million. Both were among the company's 25 largest unsecured creditors.

But the filing made it clear that in some cases the banks may hold the debt on behalf of unnamed customers and may not themselves be exposed to the liability.

Officials from the two banks were not immediately available for comment. Mirant's other major creditors are some of the biggest US and European lenders. JP Morgan Chase Bank had exposure of $430.4 million, State Street Bank & Trust had $486.1 million, Credit Suisse First Boston $307.9 million and Morgan Stanley $195.7 million.

The court filings said that Mirant listed $20.6 billion in assets and $11.4 billion in debt, comprising-bank loans and bonds. That makes it the largest bankruptcy filing since WorldCom a year ago.

Mirant is the third major energy producer to file for bankruptcy protection in recent months, joining NRG and National Energy Group. All were hurt by higher energy input costs, lower contract prices and accounting changes that followed Enron's demise.

Mirant, which operates power plants in 14 US states, had losses of $2.4 billion last year. It filed for bankruptcy protection after failing to agree a deal to pay off a $1.125 billion loan that fell due yesterday, and defaulting on a bond exchange programme.

A spokesman for Mirant blamed its creditors for the failure. The company 'failed to obtain timely support from key lenders, which in turn created substantial uncertainty in the marketplace', he said.

'With uncertainty as to the timing of the recovery of power prices and the slow economic recovery in the US, it became clear that a comprehensive financial reorganisation was the best approach for our stakeholders.'

Unlike Enron, which made most of its income from energy trading, Mirant made more than 90% of its revenue from its generating arm.