Dynegy Inc. announced Monday that its holding company and four additional subsidiaries have filed for Chapter 11 bankruptcy protection after reaching an agreement with its major investors, including billionaire Carl Icahn and Seneca Capital.
The Houston-based power company said Dynegy Holdings LLC (DH) and four subsidiaries — Dynegy Northeast Generation Inc., Dynegy Danskammer LLC, Hudson Power LLC and Dynegy Roseton — have filed voluntary petitions with United States Bankruptcy Court for the Southern District of New York, Poughkeepsie Division, as it seeks to restructure more than $4 billion of debt owed by DH.
“This marks an important next step in the company’s ongoing effort to restructure its consolidated balance sheet and to position its assets in a fashion that will maximize our operational flexibility,” Robert Flexon, CEO of Dynegy and DH, said Monday. “We look forward to working with our stakeholders to complete and implement this restructuring support agreement as quickly and efficiently as possible.”
Under the debt restructuring plan, DH’s major investors — which collectively hold more than $1.4 billion of DH’s senior notes — will be given first crack at recovering their losses. The company said all of DH’s unsecured debt — which includes $3.4 billion in senior notes, $200 million in subordinated notes and about $130 million in interest, plus payments for Danskammer and Roseton leases — will be exchanged for:
Dynegy said none of its power generation businesses, which serve the Midwest, Northeast and West, would be impacted by the bankruptcy filing.
Bondholders, who stand to take heavy losses from the restructuring plan, filed a lawsuit against Dynegy in New York State Supreme Court on Sept. 21. The plaintiffs allege that Dynegy committed fraud when it transferred equity interests — including the coal and natural gas-fueled power plants — to the parent company.
The bondholders include several hedge funds, including Oaktree Capital Management, Western Reserve Life Insurance, Caspian Capital Partners and Avenue Investments.
In its heyday, Dynegy was an energy marketing services company valued at $13 billion (see Daily GPI, June 5, 1998). But the company has declined due to low electricity rates, industry uncertainty, an investigation by federal regulators and falling credit ratings (see Daily GPI, May 13, 2002).
The company warned that it may have to file for bankruptcy in March, shortly after it turned down competing merger offers from Icahn affiliate IEH Merger Sub LLC and Blackstone Group LP (see Daily GPI, March 10; Feb. 23; Feb. 11). Dynegy also warned of a bankruptcy filing in 2002 (see Daily GPI, Aug. 16, 2002).
Icahn and Seneca are the top two shareholders of Dynegy.
Dynegy laid plans to reorganize its coal and natural-gas fueled power plants into separate subsidiaries in July (see Daily GPI, July 13).
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