Dynegy missed interest payment in “game of chicken” with lenders

Dynegy Inc., the third-largest independent U.S. power producer, missed a $43.8 million interest payment today on its 8.375 percent notes due 2016, which will constitute an event of default if not paid after 30 days.

The missed interest payment won’t trigger “significant” cross-default provisions with other outstanding debt, the Houston-based company said today in a statement distributed by Business Wire.

Dynegy announced a distressed-debt exchange Sept. 16, seeking to swap up to $1.25 billion of outstanding bonds for cash and new debt worth 28 to 60 percent less than face value in an attempt to avoid a default. As of last week bondholders had tendered $90.9 million of the debt, or 7.3 percent of the total the company was seeking to exchange.

“It’s just another move in their game of chicken to force bondholders into the very punitive exchange offering,” Andy DeVries, an analyst for independent debt research firm CreditSights Inc. in New York, wrote in an e-mail today. “I guess that implies their negotiations aren’t going well.”

Dynegy is discussing options to manage its debt load with certain bondholders, according to the statement. Dynegy extended the deadline for the exchange offer for a third time to Nov. 3 at midnight, according to an Oct. 27 statement.

Franklin Advisers Inc. of San Mateo, California, is one of the largest Dynegy bondholder, owning notes with a face value of at least $1.26 billion, and second-largest shareholder, according to data compiled by Bloomberg. Its parent, Franklin Resources Inc., announced a 10.5 percent equity stake in the company in an Oct. 11 regulatory filing. Icahn Capital LP is the largest shareholder, the data show. Matthew Walsh, a spokesman at Franklin, declined comment.

Not a Default

“There is a 30-day cure period and by not paying the interest today it’s not an event of default,” Katy Sullivan, a Dynegy spokeswoman, said in a telephone interview. “So we can take advantage of the 30-day cure period to evaluate the options of Dynegy Holdings’ debt and continue those conversations with bondholders.”

The company’s $1 billion of 8.375 percent senior unsecured bonds due May 2016 fell 0.5 cent to 66.5 cents on the dollar Oct. 31 in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Holders of that debt were offered 65 cents on the dollar if they exchanged those securities by the Oct. 13 deadline.

Dynegy shares fell 7.36 percent to $3.40 at today’s close in New York. The stock, which traded above $50 in 2007, peaked for this year at $6.64 on July 13.