Power provider Dynegy Holdings LLC has filed a new reorganization plan that could give greater recovery to junior bondholders than a prior plan and that takes into account a recent settlement with Public Enterprise Group Inc. (PEG) allowing Dynegy to break leases at two New York state power plants.

In a Thursday filing with the U.S. Bankruptcy Court in Poughkeepsie, N.Y., Dynegy said unsecured noteholders owed about $4 billion will share $400 million in cash and $2.1 billion in new convertible preferred stock. Dynegy's new plan increases by $15 million the amount in new senior notes they will receive, to $1.015 billion.

The holders of the subordinated notes, owed about $216 million, also have the option of collecting 35 cents on the dollar for their notes, up from 25 cents in a plan filed last December.

A spokeswoman for Dynegy said the company hopes to emerge from bankruptcy protection this summer.

Dynegy's new plan, which a judge will consider sending for a creditor vote next month, takes into account a PSE&G settlement that allows the utility company a $110 million claim and $7.5 million in cash in exchange for ending a legal fight against Dynegy.

The proposal also addresses one of the more pressing issues in Dynegy's bankruptcy case, the bondholders whose leases were secured by the power plants. The rejection of the leases could sharply reduce the amount of money owed to those bondholders, who are suing Dynegy in state court over a refinancing done by Dynegy before it filed for bankruptcy.

Dynegy's proposal says that if the bondholders are eventually allowed to claim more than $300 million, every dollar above that $300 million will be added to the amount of the new senior notes that are issued to all unsecured creditors. Every dollar below $300 million, if the claim is for less than that, will be subtracted from the amount of the new senior notes. The plan Dynegy filed in December had similar wording.

The bondholders' state court suit against Dynegy alleges that an asset shift last year was designed to shield shareholders -- including a fund controlled by Carl Icahn -- from a bankruptcy at the expense of bondholders.

The September asset transfers capped a series of transactions that reshuffled the structure and location of Dynegy's assets, two months before the company and four subsidiaries filed for bankruptcy.

The holders of the bonds secured by the leases last month won a bid to get an examiner appointed in the case. The examiner, Quinn Emanuel Urquhart & Sullivan LLP's Susheel Kirpalani, earlier this week said he wants to subpoena both Dynegy and its advisers as part of his investigation into the asset transfers.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.)

-By Joseph Checkler; Dow Jones Newswires; 212-416-2152; joseph.checkler@dowjones.com

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