Judge signs order approving Dynegy reorganization plan

On Sept. 10, Judge Cecelia Morris officially issued an order confirming the joint Chapter 11 reorganization plan for Dynegy Holdings LLC and Dynegy Inc. (OTC: DYNIQ).

Dynegy Holdings (DH) and related companies, including Dynegy Northeast Generation Inc. (DNE), in November 2011 sought Chapter 11 protection at the U.S. Bankruptcy Court for the Southern District of New York. These companies at the time mainly controlled lease rights to coal-fired capacity at the Danskammer power plant and gas-fired capacity at the Roseton plant, both in New York state. At first, parent Dynegy Inc. tried to stay out of bankruptcy, but, pushed by lenders, it sought Chapter 11 protection in July of this year.

Notable is that during the Dynegy Holdings case, the Dynegy companies gave up the leases with entities controlled by Public Service Enterprise Group (NYSE: PEG) for the Danskammer and Roseton power plants, but agreed to keep operating them while they and PSEG mounted an effort to sell those assets. The Sept. 10 approval order said: “Notwithstanding anything herein, DH’s equity interests in DNE shall be held by Reorganized Dynegy until consummation of a sale of such equity interests pursuant to section 363 of the Bankruptcy Code or confirmation of a plan of reorganization or liquidation for DNE. Further, nothing in this Confirmation Order shall prejudice or otherwise impair the ability of DNE’s equity interests to be sold free and clear of any liens, Claims, Causes of Action, interests, security interests and other encumbrances and this Court shall retain jurisdiction to approve any such sale.”

In a Sept. 5 statement issued after a hearing that day where Judge Morris verbally approved the plan, Dynegy Inc. said: “The Court’s confirmation sets the stage for Dynegy to emerge from bankruptcy as planned on or prior to October 1, 2012. Prior to emergence, Dynegy Holdings will merge with and into Dynegy Inc. with Dynegy Inc. being the surviving company. The Plan substantially strengthens Dynegy’s balance sheet by converting approximately $4 billion of senior and subordinated debt into equity. Dynegy is seeking to have the common stock and warrants that will be issued pursuant to the Plan listed on the New York Stock Exchange following emergence.”

“Today’s confirmation hearing marks a significant milestone towards the finish line of Dynegy’s successful restructuring process. Our renewed financial strength and flexibility positions us well in today’s challenging power markets,” said Robert Flexon, Dynegy President and CEO, in the Sept. 5 statement. “We appreciate the focus and commitment of our employees, and all of the stakeholders involved throughout the restructuring process. We’re excited for our future and the combination of our motivated employees, high-quality assets and financial strength provides the foundation for success in the days to come.”

Dynegy Inc.’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 approximately 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 in Illinois, and a separate portfolio under Dynegy Northeast Generation consists of about 1,693 MW from two power plants which are primarily natural gas-fired peaking and baseload coal facilities.

Said PSEG’s Aug. 2 Form 10-Q filing about the Dynegy matter: “On December 13, 2011, affiliates of [PSEG Energy Holdings LLC] and Dynegy reached a settlement agreement resolving disputes that had arisen between them with regard to Dynegy Holding’s (DH) rejection of the Dynegy leases. The settlement agreement resolves certain disputes regarding the Dynegy leases, including claims under our Tax Indemnity Agreement with DH. The original terms of the settlement agreement included a cash payment of $7.5 million, which was received on January 4, 2012, and the Bankruptcy Court’s allowance of a $110 million claim against DH. On June 1, 2012, an amended and restated settlement agreement entered into by DH, Dynegy and their creditors was approved by the Bankruptcy Court and became effective on June 5, 2012. As part of that settlement, Energy Holdings, DH and the creditors of DH agreed to commence a process to sell the Roseton and Danskammer facilities; the agreement allocates proceeds from the sale of the facilities to pay DH’s creditors, including the lease bondholders, and grants the lease bondholders claims in agreed upon amounts against DH in its bankruptcy proceedings.”

The PSEG Form 10-Q added: “On December 30, 2011, the effective date of the court order authorizing the Dynegy lease rejections, the leases no longer qualified for leveraged lease accounting treatment under GAAP since the lease agreements were effectively terminated. As a result, Energy Holdings wrote off the $264 million gross lease investment against the previously recorded reserve. As the owner of the two plants, Energy Holdings’ lessor entities ceased leveraged lease accounting, and recorded the generation assets and related nonrecourse project debt on their balance sheets at their respective fair values. DH remains responsible for the operations, including the financial obligations, of these lessor entities.”

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.