Some Dynegy units file for Chp. 11 bankruptcy

Houston-based power plant operator Dynegy said Monday evening that it has reached an agreement to restructure up to $4 billion in debt and that five subsidiaries are seeking Chapter 11 bankruptcy protection.

“If this restructuring support agreement is successfully implemented, it will significantly reduce the amount of debt on the company’s consolidated balance sheet,” Dynegy said in a statment.

It said that wholly owned subsidiary, Dynegy Holdings, and four of its subsidiaries — Dynegy Northeast Generation, Hudson Power, Dynegy Danskammer, and Dynegy Roseton — filed voluntary petitions in U.S. Bankruptcy Court in New York.
Dynegy and its other subsidiaries continue to operate and aren’t affected by the Chapter 11 filings, according to a company news release.

The company — which ten years ago this month was on the verge of buying troubled rival Enron Corp. — missed a $43.8 million interest payment on some of its debt last week and canceled an attemp to solicit investors to swap old debt for new. That made a bankruptcy filing almost inevitable.

Dynegy owns about 11,600 megawatts of power generation capacity in the U.S. and 1,400 employees. Fewer than 300 workers are in the Houston headquarters.

Dynegy was started in 1984 as the Natural Gas Clearinghouse, a natural gas marketing company.

In 1997 it acquired the power plant operator Destec and in 1998 merged with Chevron’s natural gas business, changing its name to Dynegy.

Over the next several years it followed a path that many others in Houston followed – including Enron, El Paso Corp. and Reliant Energy – by creating companies that mixed energy trading operations with pipelines, power plants and businesses such as broadband data networks.

At the top of its game in early 2001, Dynegy was worth some $20 billion and on track for revenue of up to $80 billion by some accounts as it profited from soaring power prices in California. It was later accused of manipulating California’s power market and settled the case for $22.5 million.

In late 2001 Dynegy stepped up to acquire the much larger Enron for $9 billon as that company faltered under scrutiny of its accounting practices.

The deal fell apart when Enron issued a massive earnings restatement, followed by bankruptcy.

Dynegy almost fell victim to the Enron-initiated collapse of energy trading, but dramatic cost-cutting, asset sales and restructuring of debt under new CEO Bruce Williamson helped the company hang on.

In 2005 Dynegy sold its natural gas processing business to Targa Resources, making it a pure power generation company, and a year later it combined with power plant developer LS Power to increase its generation footprint by 60 percent.

By 2009, however, the LS deal was off and the company was selling off 4,800 megawatts of capacity with an eye toward making itself a more attractive takeover target.

Blackstone Group, the New York private equity firm, agreed to buy the company for $605 million last fall. But a number of investors balked at the large severance packages Dynegy executives would have received from the deal, which was rejected by shareholders.

The company’s biggest investor, billionaire Carl Icahn, put in an offer to buy the company, apparently in an effort to lure another buyer. None came forward so that deal also fell through.

Under the plan announced Monday night holders of over $1.4 billion of the Dynegy Holding’s senior notes, all unsecured obligations of DH, including $3.4 billion of senior notes, $200 million of subordinated notes, approximately $130 million of accrued interest will receive:

  • a $400 million cash payment;
  • $1.0 billion of new 7-year 11% secured notes to be issued by Dynegy and secured by the equity in the Company’s separate coal and gas-fueled generating businesses (or an additional cash payment of $1.0 billion, if the Company determines it can obtain the financing elsewhere on more favorable terms); and
  • $2.1 billion of Dynegy’s new convertible PIK notes maturing on December 31, 2015. Dynegy will have the right to redeem the notes at varying discounts through the end of 2013, and can make open market purchases of the notes with excess cash from operations. At maturity, the notes would mandatorily (is that really a word?) convert into 97% of the common equity of Dynegy to the extent not previously redeemed or retired. The equity in the Company’s separate coal and gas-fueled generating businesses will remain direct or indirect subsidiaries of Dynegy.