Dynegy reaches agreement in principle with most creditors

Earlier this week, Dynegy Holdings LLC said it has reached an agreement in principle with most creditors; the only group excluded is the subordinated notes. Under the preliminary pact, HoldCo unsecured bonds will get 99% of the equity and current shareholders will get 1%, with warrants to buy additional shares for a total ownership stake of 13.5%. The owners of the Roseton and Danskammer secured lease obligation bonds will receive a $540 million claim plus half the proceeds from the sale of the plants for a maximum total recovery of $571 million.
However, not all note holders have signed on to the plan and subordinated bondholders support the appointment of a chapter 11 trustee to oversee the bankruptcy. I believe it is likely the Judge will order the appointment of an Independent chapter 11 trustee because current management was discredited in the examiner’s report.  Please email me if you are interested in discussing further.

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Dynegy, examiner finds constructive fraudulent transfer

In a somewhat expected move, the independent examiner for the NY bankruptcy court, Susheel Kripalani, opined that the sale of the coal plants (CoalCo) for $1.25 bln was equivalent to the transfer of hundreds of millions of dollars away from creditors at DHI to shareholders at Dynegy Inc. My first read of the filing indicates its positive for unsecured bonds, negative for the equity and neutral for the Roseton & Danskammer leaseholders.  Please email me if you are interested in discussing the ramifications.

Which part of the Dynegy capital structure to play in, post filing

As per my recovery estimates below, I believe the senior unsecureds offer the best risk/ return reward at this time.  The unsecureds are trading below my worse case valuation and offer significant upside from these levels.

The main variables to these recovery estimates are: a)Natural gas prices; b) Bankruptcy Judge’s interpretation of the use of Bankruptcy Code 502(b)(6) to limit the claims arising from the rejection of the Roseton and Danskammer leases; and c) How long the bankruptcy process takes.

dyn recovery