Dynegy Inc. (DYN), the third-largest independent U.S. power producer, asked a New York judge to dismiss a lawsuit by Avenue Investments LP that claims the company stole assets from bondholders in a restructuring.
Bondholders led by Avenue sued Houston-based Dynegy in New York State Supreme Court on Sept. 21, seeking to undo the company’s restructuring, which Avenue said improperly removed coal-fired power plants from the reach of bondholders and transferred them to stockholders.
Dynegy asked Justice Bernard Fried in Manhattan to dismiss the complaint in court documents filed on Oct. 31, saying that New York is the wrong jurisdiction and that the Avenue bondholders don’t have standing to sue, to pursue so-called fraudulent conveyance claims or to bring derivative claims for breach of fiduciary duty.
“This lawsuit was plainly designed to interfere with Dynegy’s exchange offer by communicating to participants that plaintiffs would challenge the exchange after the fact,” Dynegy said in the court documents.
Dynegy said July 10 that it would restructure 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.
Dynegy yesterday said that it missed a $43.8 billion interest payment on its 8.375 percent notes due 2016, which will constitute an event of default if not paid after 30 days. The company 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 percent 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. 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.
The case is Avenue Investments LP v. Dynegy Inc., 652599/2011, New York state Supreme Court (Manhattan).
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