Houston-based Dynegy Inc.'s recent filing for Chapter 11 bankruptcy protection and planned merger with its Dynegy Holdings LLC (DH) unit, which was already in bankruptcy, has drawn differing reactions from the two major credit rating agencies, Moody's Investors Service and Standard & Poor's Rating Services (S&P).

In response to the bankruptcy court approving Dynegy's settlement with creditors, the parent company agreed to enter Chapter 11 and merge with the holdings unit, and shortly after making that move Moody's confirmed the "B" and "C" ratings for the companies involved while S&P lowered the parent company's rating to "D" and assigned a "CCC+" with a negative outlook for Dynegy Power LLC., which is not part of the bankruptcy proceedings; thus far creditors have not tried to pull it into Chapter 11.

Last November the independent power company with more than 7,000 MW of gas-fired generation, said DH and four subsidiaries -- Dynegy Northeast Generation Inc., Dynegy Danskammer LLC, Hudson Power LLC and Dynegy Roseton -- had filed voluntary petitions with United States Bankruptcy Court for the Southern District of New York, Poughkeepsie Division, as it sought to restructure more than $4 billion of debt owed by DH (see Daily NGI, Nov. 9, 2011).

Moody's said it was maintaining a "stable" outlook for the Dynegy Power because the unit will remain a "nondebtor subsidiary" of Dynegy and it believes that the current reorganization plan in the bankruptcy court will be approved. "While we believe that the current plan of reorganization has a reasonably good likelihood of being approved, in the unlikely event that it is not approved, we believe that the potential for a Dynegy Power bankruptcy will have increased."

Moody's pointed out that Dynegy's units produce more than 11,000 MW of electricity in several different regions, with 6,771 MW being gas-fired baseload and peaking generation plants, about half of which is concentrated in three plants in California.

Even with its "negative" outlook, S&P said it "does not appear that DH's creditors seek to bring Dynegy Power into the bankruptcy proceeding," adding that the ratings agency "would lower the rating if we think there is a greater chance that Dynegy Power could be pulled into the bankruptcy proceedings."

Dynegy Power has issued $1.1 billion in credit facilities that are due in 2017, S&P said. It said DH creditors would eventually get Dynegy Power under the proposed reorganization plan, so there is no incentive to pull the unit into the proceedings now.

When the reorganization plan is approved by creditors, Dynegy said that all of the company's assets now spread among several units would be held under a single holding company, Dynegy Inc.. Currently, subsidiaries outside the Chapter 11 proceedings own and operate the company's fleet of 16 generation plants: eight gas-fired; six coal-fired; and two dual-fuel plants (gas-oil and gas-coal).

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