With an interim CEO and the report Tuesday that it spilled more red ink last year, Houston-based independent power producer Dynegy Inc. warned Wednesday in a 10-K Securities and Exchange Commission filing that it may file for bankruptcy if it doesn't renegotiate new terms with its creditors. In the meantime, four new directors joined the Dynegy board on Wednesday.

Last month the company announced a senior management shakeup as it terminated an offer to be bought by a unit controlled by billionaire Carl Icahn, a major shareholder in the company (see Daily GPI, Feb. 23). CEO Bruce Williamson and CFO Holli Nichols resigned, effective this Friday (March 11), and five board members decided to step down at the annual shareholders meeting set for June 15.

On Tuesday Dynegy reported continuing quarter-over-quarter and year-over-year losses, albeit smaller than the 2009 red ink -- 4Q2010 showed a loss of $164 million ($1.36/share), compared with $355 million ($2.33) in losses for the same period the previous year; for all of 2010, Dynegy lost $234 million ($1.95), compared with $1.2 billion ($7.60) in losses for all of 2009.

Still operating 17 electric generation plants in six states, Dynegy said in the SEC filing that it is trying to rework its largest, $1.8 billion credit facility, which it expects to be a smaller amount for a higher cost of borrowing. Thus, the company faces the prospect of potentially having to take on more debt or sell more equity.

Noting in the SEC filing that there is no assurance it will be successful with any of its current options, Dynegy said it could file for Chapter 11 bankruptcy or be forced into an involuntary one.

"Continued low power prices over the past two years have had a significant adverse impact on our business," Dynegy said in the SEC filing. "Further, as our credit rating has declined, counterparty requirements for posting collateral in support of our risk management positions have become more stringent. Over the next 12 months, we expect that we will continue to need to utilize our credit facility through the issuance of letters of credit and/or through the drawing of cash, or secure additional sources of capital to continue to meet our operating needs."

The latest developments come after two buyout offers by its major shareholders -- Icahn and Seneca Capital -- were rejected by a majority of Dynegy shareholders despite being recommended by the board (see Daily GPI, Feb. 10). Three of the four new directors announced Wednesday were nominated by either Icahn or Seneca.

The quick action in approving the new directors "demonstrates the board's commitment to an expeditious and orderly transfer of leadership at Dynegy," said Board Chairman Patricia Hammick. "The board has recognized the desire of our stockholders to pursue a different path for the company...the new directors will take the lead in charting a course forward -- both in selecting new board members and new executive leadership."

In February a merger agreement with billionaire Icahn's Icahn Enterprises LP failed to get enough shareholder support to complete the deal, so it automatically was terminated. Icahn's offer originally had a late January deadline and then one earlier this month, both of which were extended, ostensibly to await federal regulatory approvals (see Daily GPI, Feb. 11).

Recommended by the Dynegy board, the Icahn tender offer was for $5.50/share, or $665 million in aggregate, for Dynegy. Icahn earlier had announced that approximately 5.4 million shares (4.41%) of Dynegy's common stock had been tendered as of the end of the business day Feb. 9, the previous deadline for the tender offer. The offer had initially been scheduled to expire Jan. 25.

Earlier in 2010 one of the company's solicited bids -- from a private equity firm, The Blackstone Group -- for $4.50/share initially and raised to $5/share subsequently was rejected by shareholders, too.

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