Dynegy will negotiate with creditors of one of its units after an investigation found a transaction by the power company was fraudulent and the U.S. government called for a trustee to take over management.
Dynegy and Dynegy Holdings LLC, the unit Dynegy put into bankruptcy last year, will meet with creditors in an attempt to reach a deal on a restructuring plan following the findings of an examiner’s report.
“We think this case deserves — and we think creditors deserve — the ability to sit down, focus and try to get to that kind of plan,” Thomas R. Kreller, a lawyer for Dynegy bondholder Franklin Advisers, said at the hearing.
Dynegy, based in Houston, was in court Monday after the examiner’s report released Friday found the conveyance of coal- fired plants from the holding company to the parent was a fraudulent transfer done for the benefit of shareholders at the expense of creditors.
The U.S. Trustee, part of the Justice Department that monitors bankruptcy proceedings, asked Morris to appoint a trustee to manage the units in bankruptcy. The examiner’s report demonstrates “gross mismanagement on the part of current management,” U.S. Trustee Tracy Hope Davis said in a court filing.
“The mismanagement of the debtors by their current management to the financial detriment of the debtors’ creditors provides cause for the appointment of an independent fiduciary to manage the affairs of these debtors,” Davis said.
Dynegy said in a statement March 9 that it takes the examiner’s findings “seriously” and will review the report to determine its effect on the bankruptcy case. Dynegy fell 26 cents, or 34.6 percent, to 50 cents in New York Stock Exchange composite trading.
At Monday’s hearing, U.S. Bankruptcy Judge Cecelia Morris in Poughkeepsie, New York, told the examiner, Susheel Kirpalani, to organize the negotiations. She set another hearing for April 4.
“We look forward to working with Mr. Kirpalani and Dynegy Holdings’ creditors to maintain an open and productive dialogue to make progress in the chapter 11 proceeding,” Katy Sullivan, Dynegy’s spokeswoman, said in an e-mail.
A bankruptcy plan that has been proposed for Dynegy Holdings “needs to be substantially modified,” Andrew Rosenberg, a lawyer for bondholders said at the hearing.
Dynegy is the fourth-largest U.S. independent power producer by revenue, according to data compiled by Bloomberg. Independent power producers don’t own power lines and get no revenue from state or federally regulated rates.