Utility company Dynegy Inc. said Wednesday that it reached an agreement with creditors that will allow the company move forward with bankruptcy proceedings for one of its subsidiaries.

The agreement ends disputes over $2.5 billion in claims related to Dynegy Holdings LLC. The agreement will be filed as a settlement in the Dynegy Holdings Chapter 11 bankruptcy case, and must still be approved by the court and agreed to by other creditors who have not yet signed on to the deal. Dynegy Holdings LLC and four of its subsidiaries filed for bankruptcy protection on Nov. 7, with a plan to restructure $4 billion in debt.

Dynegy CEO Robert Flexon said the settlement could end legal disputes that might have dragged on for years. He said the company is now on track to put the Dynegy Holdings Chapter 11 case behind it during the third quarter.

Dynegy, based in Houston, operates power plants and sells electricity on the open market. It has struggled for years with falling electricity prices and infighting among investors over competing takeover offers. Its credit ratings have suffered as well.

Dynegy Holdings' bankruptcy proceedings have been contentious. Even before the filing, bondholders sued the company, alleging that Dynegy illegally protected some assets from claims they could make in bankruptcy court. Instead of selling assets to raise cash, Dynegy reshuffled its businesses so that the parent company owned power plants and other assets while a subsidiary issued bonds.

Last month a court-appointed examiner said Dynegy's subsidiary fraudulently transferred coal power assets to the parent company, which is not in bankruptcy protection.

Flexon said the settlement will end the dispute over those assets, avoiding potentially years of litigation.

The new agreement says that unsecured creditors will get common stock in the reorganized company. Under the current plan, those creditors were slated to get new senior secured notes and preferred stock.

The unsecured creditors' equity stake would be 99 percent of the reorganized company.

The agreement covers a group of Dynegy Holdings' debt holders, including US Bank, PSEG and certain lease holders. The agreement does not include any holders of Dynegy Holdings' $200 million in subordinated capital income securities that are due 2027.

Shares of Dynegy fell 13 cents to 39 cents in afternoon trading.