Dynegy Inc. announced 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.

Consequently, Fitch Ratings joined other agencies in cutting the rating of Dynegy Holdings LLC (DH) from “CC” to “D,” which is default status.

The Houston-based power company said DH and four subsidiaries — Dynegy Northeast Generation Inc., Dynegy Danskammer LLC, Hudson Power LLC and Dynegy Roseton — have filed voluntary petitions with U.S. 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.

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.

Fitch upgraded DH’s unsecured bond rating from “CCC/RR4” to “CCC/RR2,” and its subordinated capital trust securities rating from “C/RR6” to “C/RR5.” The firm also changed its outlook on Dynegy from “Negative” to “Evolving.”

Bondholders, which stand to take heavy losses from the restructuring plan, filed a lawsuit against Dynegy in New York State Supreme Court on Sept. 21.

In its heyday, Dynegy was was one of the original energy marketing services companies, with a value of $13 billion (see NGI, June 8, 1998). But the company, which restructured following Enron Corp.’s bankruptcy — Dynegy had at one time tried to buy Enron — has declined due to low electricity rates, industry uncertainty, an investigation by federal regulators and falling credit ratings (see NGI, May 13, 2002).

The company warned of a possible bankruptcy filing in March, shortly after it turned down competing merger offers from Icahn affiliate IEH Merger Sub LLC and Blackstone Group LP (see NGI, March 14; Feb 14). Dynegy also warned of a bankruptcy filing in 2002 (see NGI, Aug. 19, 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 NGI, July 18).

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