Dynegy Extends Distressed-Debt Exchange Ahead of Bond and Lease Payments
Dynegy Inc. (DYN) extended for a third time the deadline for its distressed-debt exchange, which would swap as much as $1.25 billion of its outstanding notes for cash and new securities worth less than face value.
Bondholders tendered $90.9 million as of yesterday, the Houston-based company said in an Oct. 27 statement, or 7.3 percent of the total amount the company is seeking to exchange. The third-largest independent U.S. power producer is negotiating with its creditors ahead of $220 million of bond interest and lease payments it has coming due in November and December, according to an Oct. 6 report by Macquarie Capital USA.
On Sept. 15, Dynegy offered its bondholders cash and new debt worth 28 percent to 60 percent less than face value of their notes in an exchange meant to avoid a default. The latest deadline for holders to swap their debt is Nov. 3 at midnight, New York time, according to the statement.
“We expect the restructuring struggle to drag on for at least several months, and we anticipate that Dynegy will make the debt and lease payments due beginning November to avoid entering bankruptcy as it tries to solidify the option value for Dynegy stock,” Angie Storozynski, a New York-based analyst for Macquarie, wrote in an Oct. 14 report. “A series of exchange offers is likely, as is a series of court fights on the restructuring plan.”
The company’s $1 billion of 8.375 percent senior unsecured bonds due May 2016 rose 1 cent to 67.5 cents on the dollar at 4:19 p.m. yesterday 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 rose 5.1 percent to $3.72 at yesterday’s close in New York. The stock, which traded above $50 in 2007, peaked for this year at $6.64 on July 13.
“We extended the exchange offer to continue the dialogue with the bondholders,” Katy Sullivan, a Dynegy spokeswoman, said in a telephone interview.
Dynegy said July 10 it would restructure the company in order to avoid violating an earnings-to-interest covenant in its loan agreement. The company created two units, one owning eight natural gas-fired power generation facilities and another owning a group of six coal-fired facilities, both of which would be “bankruptcy remote,” insulating them if affiliates become insolvent, according to a statement.
Avenue Investments LP sued Dynegy on Sept. 21, claiming Dynegy stole assets from holders of $3.6 billion in notes in the restructuring.
The bondholders are seeking to undo the transaction, calling it a “fraudulent conveyance” that removed the coal- fired power plants from the reach of lenders and transferred them to shareholders, according to the lawsuit filed in New York State Supreme Court. Dynegy’s Sullivan said at the time that the company doesn’t comment on pending litigation.
NRG Energy Inc. and Calpine Corp. are the two largest U.S. independent power producers.
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