After spending the past two years shedding assets to shore up its balance sheet, Dynegy Inc. on Tuesday announced it is buying Sithe Energies and Sithe Independence LP from Exelon Corp., which includes a 1,042 MW combined-cycle power generation facility near Scriba, NY, four natural gas-fired merchant facilities in New York and four hydroelectric generation facilities in Pennsylvania.

The agreement gives Dynegy all of the outstanding stock of ExRes SHC Inc., the parent company of Sithe. Besides the physical assets, Sithe Independence holds a 750 MW firm capacity sales agreement with Con Edison, a subsidiary of Consolidated Edison Inc. The capacity sales agreement, which runs through 2014, provides annual cash receipts to Dynegy of approximately $100 million.

Sithe Independence also holds power tolling and financial swap contracts with a subsidiary of Dynegy. The acquisition by Dynegy transforms the tolling and swap contracts into Dynegy intercompany agreements, substantially eliminating their financial impact by retaining the net cash flows within 100%-owned Dynegy companies.

“This transaction represents a milestone in terms of addressing one of three remaining long-term tolling obligations by employing a transaction structure that simultaneously mitigates the financial effects of the tolling arrangements while expanding our physical power generation business in the recovering New York marketplace and acquiring a capacity sales contract with very strong cash flow,” said CEO Bruce A. Williamson.

The Dynegy CEO added that the acquisition “also clearly demonstrates our ability to add new assets to our portfolio and operate them as part of our low-cost scalable operations platform to deliver growth for our investors.”

Dynegy will pay Exelon $135 million in cash and consolidates $919 million in project debt. The principal and interest payments related to the consolidated debt will be substantially funded through 2014 by the proceeds from a long-term capacity sales contract with Con Edison, according to Dynegy. Credit Suisse First Boston acted as Dynegy’s financial adviser in connection with the transaction.

The transaction is subject to approval by the Federal Energy Regulatory Commission and the New York Public Service Commission, as well as Hart-Scott-Rodino review by the Federal Trade Commission.

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