NEW YORK (CNN/Money) - Shares of Mirant Corp. tumbled in early trading Thursday after Wall Street firm Merrill Lynch lowered its rating to "sell" from "neutral."

Mirant (MIR: down $0.43 to $2.27, Research, Estimates) stock lost more than 23 percent of its value on the news.

"We believe that the probability of achieving an out-of-court debt restructuring by the July 14 midnight deadline has declined below 50 percent, maybe well below," Merrill analyst Elizabeth Parrella said in a report.

"Mirant's $1.125 billion bank term loan matures on July 15, and the alternative to an out-of-court deal is a bankruptcy filing," she added.

The Atlanta-based energy producer hopes to refinance its debt outside of bankruptcy court but has also asked its bondholders and bank lenders to approve a prepackaged bankruptcy plan, according to Reuters.

The prepackaged bankruptcy would be easier for Mirant to achieve than an out-of-court agreement since fewer banks and bondholders are needed for approval.

"To our knowledge, neither Citibank nor Credit Suisse First Boston has yet agreed to support Mirant's plan," Parrella wrote.

"If there were a strong consensus in the bank group in favor of the plan, and more time was needed to persuade 'holdout' banks, we believe that steps would have been taken already to extend the deadline," the analyst wrote.

Late last month, Mirant said the out-of-court debt exchange offer had the support of two-third of its bondholders. Support from 85 percent is required for approval.

Several domestic power producers have been faced with restructuring hefty debt loads since the collapse of energy trader Enron Corp. sent investor confidence in the non-regulated power markets into a tailspin.

While companies like Reliant Resources Inc. (RRI: down $0.16 to $6.16, Research, Estimates) and Allegheny Energy Inc. (AYE: down $0.53 to $7.77, Research, Estimates) reached last-minute restructuring deals, NRG Energy Inc. of Xcel Energy Inc. (XEL: down $0.22 to $14.43, Research, Estimates) and PG&E National Energy Group from PG&E Corp. (PCG: down $0.26 to $21.56, Research, Estimates) have already filed for bankruptcy protection.  

-- Reuters contributed to the story