UPDATE: Dynegy Posts Smaller 2Q Loss On Reorganization
August 08 2011 - 2:27PM
Dow Jones News
Dynegy Inc. (DYN) reported a smaller second-quarter loss on
increased generation in the Midwest as the company's new executive
team and board have been reorganizing the company and its
finances.
The company also said that it closed Friday on $1.7 billion of
debt financing for its power plant units, as part of a plan to
reorganize the company and its finances.
Dynegy Chief Executive Robert Flexon, who has been in his job
for about a month, declined to provide full-year profit guidance or
details on the company's financial restructuring plans.
Shares of Dynegy were recently trading down nearly 6.7% at about
$4.57, as the broader market fell.
The deeply indebted Houston power company recently split its
operations into separate units, with a larger unit holding its
natural gas-fired power plants, called Dynegy Power, and a second
unit holding its coal-fired power plants, called Dynegy Midwest
Generation. The company has a third unit, called Dynegy Northeast
Generation, for two East Coast power plants that are under lease
financing agreements with Public Service Enterprise Group Inc.
(PEG).
On Friday, the Delaware Supreme Court rejected a bid by PSEG to
hold up Dynegy's $1.7 billion deal over concern that the
restructuring would threaten PSEG's ability to collect on $790
million in lease payments.
The decision was a reprieve for Dynegy, which said in March that
it might have to file for bankruptcy if it could not find another
way to handle nearly $5 billion in debt.
While generation volumes in the Midwest--where most of the
company's power plants, fueled by coal, operate--rose by nearly
one-third, profit was down due to lower prices and the early
termination of a contract, said Dynegy Chief Financial Officer
Clint Freeland.
Profit was down in the West due to lower volumes as as
above-normal hydropower supply in the Pacific Northwest pushed down
prices. Profit in the Northeast was also down, with low natural gas
prices that have pressured power prices lower, the company
said.
With natural gas prices appearing flat into the next two years,
Dynegy has hedged most of the output from its gas-fired power
plants for 2011, about half for 2012 and 20% for 2013, said Dynegy
Chief Operating Officer Kevin Howell. The company has hedged a
smaller amount of output from its coal unit so that it can take
advantage of higher prices, he said.
Cash flow in the quarter fell nearly 90% due to the need to post
collateral for hedging transactions, make interest payments and pay
for litigation and restructuring activities, the company said.
As Dynegy restructures its financing and reduces some of its
hedging activities, the company expects to reduce the amount of
cash needed for collateral, Flexon said in a conference call with
analysts.
Dynegy may sell assets to raise cash, Flexon said, although he
declined to provide details.
Last year, the company's two top shareholders, Carl Icahn and
Seneca Capital Investments LLC, rejected a $4.50-a-share buyout
offer by Blackstone Group L.P. (BX).
In February, shareholders rejected an offer by Icahn to buy all
of Dynegy for $5.50 a share, after Seneca opposed the proposal.
Shortly after, Dynegy's top two executives resigned and its board
agreed to step down.
On Monday, Dynegy reported a loss of $116 million, or 95 cents a
share, compared with a year-earlier loss of $191 million, or $1.59
a share. Excluding mark-to-market gains and losses and other items,
earnings before interest, taxes, depreciation and amortization,
fell to $102 million from $124 million.
Analysts polled by Thomson Reuters most recently forecast a loss
of 49 cents.
Revenue rose 36% to $326 million.
-By Cassandra Sweet, Dow Jones Newswires; 415-439-6468;
cassandra.sweet@dowjones.com
--Nathalie Tadena contributed to this article.
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