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Dynegy deal involving more than $2.5B in claims OK'd

by Kelsey Butler | Published June 6, 2012 at 11:53 AM

A New York judge has approved a deal that will resolve more than $2.5 billion in claims of Dynegy Inc.'s bankrupt subsidiary, Dynegy Holdings LLC.

Judge Cecelia Morris of the U.S. Bankruptcy Court for the Southern District of New York in Poughkeepsie on June 1 approved the deal, according to a statement from the debtor that day.

In the statement, Robert C. Flexon, Dynegy and Dynegy Holdings president and CEO, said the deal "marks a significant move forward in [Dynegy Holdings'] Chapter 11 case and establishes the foundation for the remaining steps in the restructuring process. We are pleased that all major creditor groups are now a part of the settlement agreement and look forward to their continued support as we work together towards a fall 2012 Chapter 11 emergence date."

Under terms of the May 1 agreement, the debtor will give unsecureds 99% of the common equity in the reorganized company.

That deal is a departure from the debtor's earlier plan, under which unsecured creditors would have received $1 billion in new 11% senior secured notes due 2018 issued by Dynegy Inc. and $2.1 billion in preferred stock in Dynegy Inc. They also would have received $400 million in cash.

But under the mediated deal, the unsecureds will now get $200 million in cash as well as nearly all the reorganized equity, according to an April 4 statement. Dynegy Holdings would hold onto the other $200 million in cash for "general corporate purposes."

Under the agreement, Dynegy stockholders will receive a claim entitling them to receive the remaining 1% of the common stock of reorganized Dynegy Holdings. Dynegy shareholders will also receive five-year warrants to purchase 13.5% of the common stock of the reorganized debtor to be exercisable at an equity value of $4 billion, the statement said.

Under terms of the deal, disputes related to certain leases will be resolved by awarding U.S. Bank NA a fixed allowed unsecured claim, the statement said.

U.S. Bank is the holder of certain trust certificates used by Public Service Enterprise Group Inc. units Roseton OL LLC and Danskammer OL LLC to purchase the debtor's power-generating facilities in Newburgh, N.Y. Roseton OL and Danskammer OL bought the Newburgh facilities from Dynegy on May 8, 2001, and entered a sale-leaseback agreement with debtors Dynegy Roseton LLC and Dynegy Danskammer LLC.

Through the deal, holders of the lease notes will be entitled to 50% of the proceeds from the potential sale of the facilities, provided that their total recovery does not exceed $571 million. The other Dynegy Holdings unsecured creditors will be entitled to the remaining 50% of proceeds, the statement said.

The Houston-based debtor on May 31 struck a deal with holders of Dynegy Holdings' $206 million of subordinated capital income securities, due 2027.

Under the terms of the deal, subordinated noteholders Claren Road Credit Master Fund Ltd. and CQS DO S1 Ltd. agreed to accept $55 million for their claims. The noteholders will also receive about $16 million in accrued interest. Wells Fargo Bank NA, which serves as indentured trustee for the notes, also agreed to the deal.

Under the terms of the agreement, Claren Road, CQS and Wells Fargo agreed to withdraw their objections to the settlement with Dynegy Holdings' other creditors.

Morris on March 12 tapped examiner Susheel Kirpalani of Quinn Emanuel Urquhart & Sullivan LLP to oversee mediation with Dynegy Holdings' creditors in an effort to craft a new reorganization plan.

A request for the appointment of a Chapter 11 trustee in the case has been adjourned, according to court papers.

U.S. Trustee Tracy Hope Davis on March 11 filed a motion requesting the appointment of a trustee for the Houston electricity producer claiming an examiner's report that found a fraudulent transfer of assets "at a minimum, demonstrates gross mismanagement on the part of current management."

Davis also asserted that Dynegy Holdings' board had "repeatedly breached its fiduciary duties" to the company.

The deal approved by Morris would also resolve all potential causes of action related to the Sept. 1 transfer of Dynegy Holdings' interest in coal power assets division CoalCo Inc. to nonbankrupt parent Dynegy Inc.

In a March 9 report, Kirpalani asserted that the debtor transferred its interest in CoalCo to Dynegy Inc. for less than 70% of its $1.25 billion stated value in September, a few weeks before Dynegy Holdings' Nov. 7 bankruptcy filing.

"Over the spring and summer of 2011, Dynegy devised and implemented a plan to move assets away from the reach of Dynegy Holdings' unsecured creditors in order to encourage, for lack of a better word, such creditors to accept less than full payment and at the same time permit a recovery for stockholders," Kirpalani said in court papers.

Morris on Dec. 16 had approved a motion for the appointment of an examiner, and the judge tapped Kirpalani to serve in the role on Jan. 11, court papers show.

U.S. Bank had requested an examiner on the grounds that the debtor allegedly misrepresented facts and illegally transferred the CoalCo assets to Dynegy Inc. with no notice to creditors or other third parties.

Dynegy Inc. restructured out of court in August and wasn't included in Dynegy Holdings' Chapter 11 filing. Carl Icahn's Icahn Capital LP owns 15% of Dynegy Inc.

James F. Conlan, Jeffrey E. Bjork, Paul S. Caruso, Matthew A. Clemente, Steven M. Bierman and John G. Hutchinson at Sidley Austin LLP are debtor counsel. FTI Consulting Inc. is financial adviser. Thomas E. Lauria and Gerard Uzzi of White & Case LLP are counsel to Dynegy Inc. Lazard is Dynegy Inc.'s financial adviser.

Anton R. Valukas, David J. Bradford, Daniel R. Murray and Heather D. McArn of Jenner & Block LLP represent PSEG.

Peter Friedman, John J. Rapisardi and George A. Davis of Cadwalader, Wickersham & Taft LLP are counsel to U.S. Bank.

Ira S. Dizengoff, Michael S. Stamer and Arik Preis of Akin Gump Strauss Hauer & Feld LLP represent the official committee of unsecured creditors.

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Dynegy deal involving more than $2.5B in claims OK'd

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