Dynegy Bondholders Agree To Restructure $1.4 Billion Of Debt

Dynegy Inc. (DYN) said it has reached an agreement with some of its bondholders to restructure $1.4 billion of debt held by subsidiaries of the company that filed for bankruptcy late Monday.

The Houston-based power company put its subsidiary Dynegy Holdings LLC and four affiliates under protection in U.S. Bankruptcy Court in Poughkeepsie, N.Y. as it struggles to cope with roughly $6.2 billion in debt, according to court papers. In its petition, the holding company said its assets are worth about $13.8 billion.

Last week, Dynegy Holdings skipped a $44 million interest payment in a move that could lead to default.

For months, the company has sought relief for $3.5 billion in debt owed to bondholders. Last week, Dynegy terminated a debt exchange offer after the proposal had few takers.

In its latest offer, Dynegy wants to swap $3.4 billion of senior notes, $200 million of subordinated notes, $130 million in interest and payments associated with leases on two power plants, in exchange for a $400 million cash payment, $1 billion of new 11% secured notes to be issued by Dynegy and secured by the equity in the company's separate coal and gas-fueled generating businesses, and $2.1 billion of new notes that would convert into Dynegy stock Dec. 31, 2015. Dynegy could redeem those notes at "varying discounts" through the end of 2013.

Dynegy said it would provide $1 billion in an additional cash payment, rather than the $1 billion in 11% notes, if the company were able to obtain financing for it.

Dynegy is hoping that others will join the agreement in the next 30 days, Dynegy spokeswoman Katy Sullivan said late Monday.

Dynegy Holdings had to file for bankruptcy to enable the agreement, Sullivan said. She declined to name any of the bondholders in the agreement, but said the company planned to file details about the proposed restructuring of the holding company's debt on Tuesday with the U.S. Securities and Exchange Commission.

Dynegy plans to firm up details of the agreement by Dec. 7 and hopes to complete the transaction by Aug. 1, according to a company statement.

Dynegy has asked the bankruptcy court to release it from two leases it has with indirect subsidiaries of Public Service Enterprise Group Inc. (PEG) to operate two aging power plants in Newburgh, N.Y. Obtaining relief from the leases is a condition of the agreement with bondholders, Dynegy said.

PSEG subsidiaries Resources Capital Management Corp., Roseton OL LLC and Danskammer OL sued Dynegy on Friday, saying the company had threatened bankruptcy to get out of $500 million in lease liabilities.

The PSEG units bought Dynegy's Roseton and Danskammer plants for $920 million and leased them back to the company in deals safeguarded by guaranties and tax indemnities, according to court documents. The plaintiffs alleged that Dynegy has attempted to erase those protections in "a series of fraudulent transfers" that removed more than $1 billion worth of value from the reach of creditors.

-By Cassandra Sweet, Dow Jones Newswires; 1-415-269-4446; cassandra.sweet@dowjones.com

--Katy Stech and Peg Brickley contributed to this article.

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