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Dynegy Extends Debt Exchange as Bondholders Withdraw Offers

Dynegy Inc. extended for a second 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 with lower face value.

Bondholders tendered $90.8 million as of yesterday, the Houston-based company said in an Oct. 20 statement, or 7.3 percent of the total amount the company is seeking to exchange. On Oct. 13, the original deadline for the offer, bondholders had tendered $100.5 million of notes, or 8 percent of the total amount sought.

The third-largest independent U.S. power producer offered its bondholders cash and new debt worth 28 percent to 60 percent less than the face value of their notes in an exchange meant to avoid default. The new deadline for holders to swap their debt is Oct. 27 at midnight, New York time.

“It gives us more time to continue conversations with bondholders,” Katy Sullivan, a Dynegy spokeswoman, said in a telephone interview. “This extension doesn’t change the terms of the offer. There are lots of possibilities in terms of managing the debt and we’re exploring a range of options.”

The company’s $550 million of 7.5 percent senior unsecured bonds due June 2015 rose 1.25 cents to 70 cents on the dollar at 9:25 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Holders of that debt were offered 72 cents on the dollar if they exchanged those securities by Sept. 28, or 67 cents if swapped by the original Oct. 13 deadline.

Biggest Bondholder

Franklin Advisers Inc. of San Mateo, California, is the largest Dynegy bondholder, owning notes with a face value of at least $1.13 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 Franklin spokesman, didn’t immediately return a call seeking comment. NRG Energy Inc. and Calpine Corp. are the largest independent U.S. power producers.

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.

Power Plants

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.

If the power producer doesn’t garner sufficient interest in the distressed-debt exchange then it would risk a default since its coal and gas units don’t have enough money to pay the interest on the outstanding bonds, Andy DeVries, an analyst for independent debt research firm CreditSights Inc. in New York, said in an Oct. 16 telephone interview.

Dynegy rose 5.6 percent to $3.61 at 12:31 p.m. New York time. The stock, which traded above $50 in 2007, peaked for this year at $6.64 on July 13.

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