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Dynegy reaches tentative agreement to restructure debt at Genco

DynegyInc. announced Oct. 3 that it has reached a tentative agreement torestructure $825 million in unsecured debt at affiliate , or Genco.The agreement was reached between Dynegy, Genco and an ad hoc group of Gencobondholders.

Under the proposed restructuring, $825 million in existing2018, 2020 and 2032 Genco notes will be exchanged for $210 million in newseven-year Dynegy unsecured notes; a $139 million cash consideration, fundedwith existing Illinois PowerHoldings LLC cash balances and collateral synergies; and 10 millionDynegy warrants with a seven-year tenor and strike price of $35 per share.

Key terms also include simultaneous solicitation of Genconoteholders to execute either an out-of-court restructuring or a prepackagedChapter 11 bankruptcy filing, and Genco will continue to make interest paymentson the notes with these payments netted against the proposed cash consideration.

The cash consideration includes Dynegy, Genco and the ad hocgroup agreeing that holders of the Genco notes who enter into a restructuringsupport will be paid their pro rata share of $9 million in cash upon completionof the transaction, according to an Oct. 3 news release and Form 8-K filing.

In the interim, members of the ad hoc group agreed not todispose of any of their Genco notes or enter into any swap or other transactionthat transfers the economics of their Genco notes prior to the earlier of theexecution of the restructuring support agreement and Oct. 14, the releasestates.

SunTrust Robinson Humphrey analyst Ali Agha, in a researchnote, called the announcement favorable, finding that the deal implies thepotential for $3 per share of incremental equity value for Dynegy's stock.

Dynegy said in May that it was IPH's Gencosubsidiary on the heels of announcing the shutdown of 1,835 MW of coal capacity in southernIllinois.

Dynegy President and CEO Robert Flexon said on an earningscall that the company intends to begin negotiating with the debt holders andreach a solution this year that would likely either result in a "moresustainable business model" or in the debtholders taking ownership of thethree Illinois Power Generating Co. plants: the 1,230-MW , the 915-MW and its 1,023-MWstake in the JoppaSteam facility.

UBS Securities LLC downgraded Dynegy to "neutral" from"buy" soon after the May announcement coupled with concerns aboutlower-than-expected auction results in the PJM Interconnection LLC market.