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.

Dynegy Bankruptcy examiner to be appointed

The motion for an examiner was made by U.S. Bank NA, as indenture trustee for the Roseton and Danskammer SLOB bonds. In response, Judge Cecila G. Morris, the bankruptcy judge for the Dynegy case has ordered the appointment of an independent examiner for the bankruptcy of Dynegy Holdings. The examiner will study a series of transactions including a restructuring that took place a few months before the bankruptcy filing. As a result of this restructuring, the valuable coal and natural gas assets were re-organized into bankruptcy remote entities while the HoldCo and Dynegy Northeast were forced to file for bankruptcy.
Bankruptcy examiners are appointed to study allegations of fraud, dishonesty and mismanagement. In this particular case, the charge of fraudulent conveyance is the most pertinent in my opinion. In fact, there is a precedent regarding fraudulent conveyance: in mid-2010, the Tribune Company’s exit from bankruptcy collapsed after a bankruptcy examiner identified fraudulent conveyance in the LBO of Tribune Company. However, this case is not as straight forward: Would Dynegy Holdings have survived without the restructuring and have market conditions worsened since the restructuring? Please email me if you are interested in discussing further.
Discalimer: I have no position in Dynegy and do not plan to initiate one in the next 48 hours.