Dynegy Holdings files bankruptcy plan with some returns for creditors

The Dynegy Holdings LLC unit of Dynegy Inc. (NYSE: DYN) on Dec. 1 filed a proposed plan of reorganization and accompanying disclosure statement with the U.S. Bankruptcy Court for the Southern District of New York that provides for the treatment and satisfaction of all claims against Dynegy Holdings.

That includes its senior and subordinated notes and its guaranties of its Roseton and Danskammer lease obligations. Roseton and Danskammer are power plants in New York, with Dynegy saying that low power prices for those facilities are a drag on its earnings.

If confirmed by the bankruptcy court, the Dynegy Holdings reorganization plan will settle all pending and potential causes of action related to Dynegy’s out-of-court restructuring efforts and will materially reduce the debt on its consolidated balance sheet, Dynegy said in a Dec. 1 statement. The plan filing represents an important step toward the resolution of Dynegy Holdings’ Chapter 11 case and the successful implementation of the restructuring support agreement announced on Nov. 7.

“The filing of the proposed Plan of Reorganization represents an important milestone in DH’s chapter 11 case and maintains momentum toward DH’s expeditious emergence from bankruptcy in 2012,” said Robert Flexon, President and CEO of both Dynegy Inc. and Dynegy Holdings. “We continue to work with our stakeholders and appreciate the support of significant creditors as we work toward lessening Dynegy’s overall debt load.”

Under the terms of the proposed reorganization plan and consistent with the previously announced restructuring support agreement, all creditors holding unsecured obligations of Dynegy Holdings, including $3.4bn of senior notes, $200m of subordinated notes, approximately $130m of accrued interest, and the guaranty obligations associated with the Roseton and Danskammer leases, will receive various things. That includes a $400m cash payment, subject to adjustment as set forth in the plan.

The creditors would also get $1bn, subject to adjustment as set forth in the plan, of new 11% senior secured notes due 2018 to be issued by Dynegy and secured by the equity and assets of certain entities owning the company’s separate coal and gas-fueled generating businesses, or an equivalent cash payment, if the company obtains the financing elsewhere on no less favorable terms.

Creditors would, in addition, get $2.1bn of Dynegy’s new convertible preferred stock. The convertible preferred stock will not be convertible at the option of the holders but will mandatorily convert into common stock comprising 97% of Dynegy’s fully diluted common stock on Dec. 31, 2015, if not earlier redeemed. Dynegy will have the right to redeem the convertible preferred stock, subject to certain restrictions, at varying discounts through the end of 2013.

The reorganization plan and disclosure statement have not been approved by the bankruptcy court and are subject to further negotiations with stakeholders. Once the disclosure statement is approved, Dynegy Holdings will begin soliciting its creditors for approval of its plan.

Dynegy’s subsidiaries produce and sell electric energy, capacity and ancillary services in key U.S. markets. The Dynegy Power LLC power generation portfolio consists of about 6,771 MW of primarily natural gas-fired intermediate and peaking power generation facilities. The Dynegy Midwest Generation LLC portfolio consists of approximately 3,132 MW of primarily coal-fired baseload power plants.

Dynegy to jettison units at two New York plants

The Dynegy Northeast Generation LLC portfolio consists of about 1,693 MW from two power plants, Roseton and Danskammer, which are primarily natural gas-fired peaking and baseload coal generation facilities. As part of this bankruptcy proceeding, Dynegy Holdings is looking to reject leases for units at these two power plants, effectively turning control of those units back to owner Public Service Enterprise Group.

Dynegy Danskammer LLC owns units 1, 2, 5 and 6 at the Danskammer plant. Units 1 and 2 are “peakers” with a net capacity of 129.7 MW. They use natural gas and fuel oil as their primary fuels. Units 5 and 6 are emergency diesel generators with net capacities of 2.5 MW each and currently are not in operation and are not connected to the power grid. Dynegy Danskammer leases Units 3 and 4 from an affiliate of PSEG, with these two units to be turned over to PSEG if the court agrees to breaking the facility lease. These two coal units have a net capacity of 373.4 MW.

Dynegy Roseton LLC leases both units at the Roseton plant from an affiliate of PSEG, with these units to also be turned over to PSEG under the lease termination proposal. These units are “peakers” with a net capacity of 1,200 MW and use natural gas and fuel oil as their primary fuels.

Dynegy argues against alternative bankruptcy options

In its Dec. 1 press release about the plan filing, Dynegy didn’t get into the alternatives to the Chapter 11 reorganization plan, but did describe in the disclosure statement the impacts of Chapter 7 dissolution of Dynegy Holdings. In a Chapter 7 case, a trustee would be named to liquidate the properties and interests in property of Dynegy Holdings for distribution to its creditors.

“The Plan Proponents believe that liquidation under chapter 7 would result in smaller distributions being made to creditors than those provided for under the Plan because of (i) the increased costs and expenses of a liquidation under chapter 7 arising from fees payable to a trustee for bankruptcy and professional advisors to such trustee; (ii) the erosion in value of assets in the context of the expeditious liquidation required under chapter 7 and the ‘forced sale’ environment in which such a liquidation would likely occur; (iii) the adverse effects on the salability of business segments as a result of the likely departure of key employees and the loss of customers; and (iv) the substantial increases in claims which would have to be satisfied on a priority basis or on parity with creditors in the Chapter 11 Case of DH,” said the disclosure statement.

Another alternative is a Chapter 11 plan or plans proposed by other interested parties. “Such a plan of reorganization might involve a reorganization and continuation of the business of DH, the sale of DH as a going concern or an orderly liquidation of the properties and interests in property of DH,” the disclosure statement said. “With respect to an alternative plan of reorganization, the Plan Proponents have examined various other alternatives in connection with the process involved in the formulation and development of the Plan. The Plan Proponents believe that the Plan, as described herein, enables holders of Claims to realize the best recoveries under the present circumstances.”

A combination of dwindling liquidity due to declining revenues, resulting from lower prices over the past two years and unprofitable leases at Roseton and Danskammerm were primary reasons for the Chapter 11 filing, said the disclosure statement. The annual consolidated revenue for Dynegy Holdings peaked in the year ending Dec. 31, 2008 at $3.324bn, and has since declined to $2.468bn in 2009 and $2.323bn in 2010. As further illustration of the steep decline in revenue, for the nine month period ending Sept. 30, 2010, Dynegy Holdings reported consolidated revenues of $1.872bn, and for the nine month period ending Sept. 30, 2011, it reported consolidated revenues of $1.347bn.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.