Dynegy gets credit tied to natural gas price

(AP Photo/David J. Phillip).

Houston-based Dynegy landed a $300 million line of credit recently, a pretty normal business transaction for any large company. But this one has a specific use.
The power plant operator can tap up to $40 million of the funds for every dollar that natural gas prices rise above $13 per million British thermal units, about where it’s trading now. In other words, Dynegy is making sure it has the funds on hand to help with even higher natural gas prices.
Dynegy is a pretty careful company, having been near collapse in the post-Enron meltdown of the merchant energy business. So for Dynegy officials to take out some insurance against high natural gas prices must mean they think things are going to stay ugly.
Dynegy CFO Holli Nichols puts it more nicely:

“The power sector is operating in a rising commodity price environment, and we believe our new letter of credit facility represents an innovative, cost-effective approach to supplementing our already substantial liquidity and flexible capital structure,” Nichols said in a statement. “In the event that natural gas prices continue to rise in a meaningful way, the new facility will become available and position us to pursue additional commercial opportunities at higher prices and thereby capture increased value for stockholders.”

Morgan Stanley Capital arranged the new credit facility and is also serving as the lender, letter of credit issuer and collateral agent.