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Dynegy Inc. May Join Unit in Bankruptcy to Carry Out Settlement

Thursday, 14 June 2012 09:44
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Dynegy Inc. may file for Chapter 11 protection to carry out a settlement with creditors holding more than $2.7 billion of claims against Dynegy Holdings LLC, according to an outline of the company's revised Chapter 11 plan of reorganization.
Dynegy Inc. will also merge with Dynegy Holdings, with the parent being the surviving entity.  Details of the merger are still being worked out and should be filed by June 18, according to the plan.
Dynegy Holdings filed the revised plan on June 8 after Judge Cecelia Morris of the U.S. Bankruptcy Court for the Southern District of New York approved the settlement on June 1.
Under the revised plan, $200 million cash and 99% of the merged companies' stock will be given to holders of $4.2 billion general unsecured claims against Dynegy Holdings.
The claims include $3.487 billion on six issues of senior notes, $110 million for Resources Capital Management Corp.'s claim, $540 million on lease guaranty claims and $55 million on claims asserted by holders of subordinated debt.
The plan also provides for the distribution of 1% of the merged companies' stock to holders of administrative claims.
Only holders of general unsecured claims are entitled to vote on the revised plan.  Holders of priority claims, secured claims and so-called "convenience claims" are deemed to have accepted the plan.  Meanwhile, holders of securities claims and equity interests are not entitled to any recovery, and are deemed to have rejected the plan.
Judge Morris approved the settlement earlier this month after Dynegy debt holders dropped their opposition to the deal.
The debt holders including Claren Road Asset Management LLC, DO S1 Limited and Wells Fargo Bank N.A. accepted the settlement after Dynegy Holdings agreed to revise its terms, which include granting the bank a $55 million general unsecured claim against the company.
Claren and DO S1, which hold a portion of the $200 million worth of subordinated notes, had accused Dynegy Holdings of using the settlement to avoid the so-called "absolute priority rule."
Under the absolute priority rule, equity holders are entitled to nothing unless all creditors are paid in full or otherwise agree.
The settlement also drew flak from Cleo Zahariades, an investor in Dynegy Inc., who is suing the company's directors in Delaware Chancery Court over the sale of the coal-powered plan assets.
Although not a party to the settlement, Mr. Zahariades eventually dropped his objection, which Dynegy lawyers described as
"nuisance" and an attempt to obtain discovery for his suit in Delaware.
The settlement, meanwhile, drew support from Dynegy Inc., holders of senior debt, the committee representing general unsecured creditors, and David Hershberg, Dynegy Holding's manager.
In a statement, Robert Flexon, president and chief executive officer of Dynegy Inc., said approval of the settlement
"establishes the foundation for the remaining steps in the restructuring process."
The agreement calls for the settlement of lawsuits between Dynegy Holdings and its parent related to the transactions investigated by a court-appointed examiner including Dynegy Inc.'s acquisition of coal-powered plant assets.  The agreement also settles a lawsuit U.S. Bank N.A. brought against Dynegy Holdings and two other subsidiaries of Dynegy Inc.
As part of the settlement, Dynegy Holdings and Dynegy Inc. inked another agreement on June 5, under which the latter contributed and assigned to Dynegy Holdings its stake in Dynegy Coal Holdco, LLC.  In exchange, the parent company will have an administrative claim against Dynegy Holdings.
Through its subsidiaries, Houston, Texas-based Dynegy Inc. (NYSE: DYN) -- http://www.dynegy.com/ -- produces and sells
electric energy, capacity and ancillary services in key U.S. markets.  The power generation portfolio consists of approximately 12,200 megawatts of baseload, intermediate and peaking power plants fueled by a mix of natural gas, coal and fuel oil.
In August, Dynegy implemented an internal restructuring that created two units, one owning eight primarily natural gas-fired
power generation facilities and another owning six coal-fired plants.
Dynegy missed a $43.8 million interest payment Nov. 1, 2011, and said it was discussing options for managing its debt load with certain bondholders.
Dynegy Holdings LLC and four other affiliates of Dynegy Inc. sought Chapter 11 bankruptcy protection (Bankr. S.D.N.Y. Lead Case No. 11-38111) Nov. 7 to implement an agreement with a group of investors holding more than $1.4 billion of senior notes
issued by Dynegy's direct wholly-owned subsidiary, Dynegy Holdings, regarding a framework for the consensual restructuring
of more than $4.0 billion of obligations owed by DH.  If this restructuring support agreement is successfully implemented, it
will significantly reduce the amount of debt on the Company's consolidated balance sheet.
Dynegy Holdings disclosed assets of $13.77 billion and debt of $6.18 billion, while Roseton LLC and Dynegy Danskammer LLC each estimated $100 million to $500 million in assets and debt.
Dynegy Holdings and its affiliated debtor-entities are represented in the Chapter 11 proceedings by Sidley Austin LLP as their reorganization counsel.  Dynegy and its other subsidiaries are represented by White & Case LLP, who is also special counsel to the Debtor Entities with respect to the Roseton and Danskammer lease rejection issues.
Dynegy was advised by Lazard Freres & Co. LLC and the Debtor Entities' financial advisor is FTI Consulting.
The Official Committee of Unsecured Creditors has tapped Akin Gump Strauss Hauer & Feld LLP as counsel.
Bankruptcy Creditors' Service, Inc., publishes DYNEGY BANKRUPTCY NEWS.  The newsletter tracks the Chapter 11 proceeding undertaken by affiliates of Dynegy Inc. (http://bankrupt.com/newsstand/ or 215/945-7000).
Dynegy Inc. may file for Chapter 11 protection to carry out a settlement with creditors holding more than $2.7 billion of claims against Dynegy Holdings LLC, according to an outline of the company's revised Chapter 11 plan of reorganization.

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