Dynegy Inc. said Tuesday that one of its subsidiaries is seeking bankruptcy protection as part of a plan that will force bondholders to take heavy losses while shielding major investors including billionaire Carl Icahn.
The Houston power company, which serves utilities in the Midwest, Northeast and the West, made the decision after struggling for years with lower electricity prices, falling credit ratings, and infighting among investors over competing takeover offers.
As part of its bankruptcy filing, Dynegy said it has agreed with some of its bondholders on a plan that would restructure $4 billion in debt. The deal "will significantly reduce the amount of debt on the company's consolidated balance sheet," Dynegy said in a statement.
It allows the company to deal with its debts while keeping its coal and gas-fired power plants running in "a fashion that will maximize our operational flexibility," Dynegy President and CEO Robert Flexon said in a statement.
None of its power generating businesses will be impacted by the bankruptcy filing, the company said.
As debts rose to more than $5 billion this year, Dynegy worked behind the scenes to protect the company. Instead of selling assets to raise cash, the company reshuffled its businesses so that the parent company owned power plants and other assets while a subsidiary issued the bonds.
Bondholders have cried foul, and in September, they filed a lawsuit in the Supreme Court of the state of New York alleging that Dynegy illegally protected some assets from claims they could make in bankruptcy court.
Meanwhile, the company tried to negotiate with bondholders, offering them a deal that analysts said would have forced bondholders to lose 60 percent to 72 percent of what they were owed. That deal fell apart last week, and the company decided not to make a $43.8 million interest payment.
Dynegy said Tuesday that Dynegy Holdings LLC and four of its subsidiaries have filed a voluntary petition in the U.S. Bankruptcy Court for the Southern District of New York. The parent company and its other subsidiaries are not seeking relief, and Dynegy said they will continue to operate with no impact from the limited Chapter 11 filings.
Dynegy said the agreement focuses on a framework for restructuring obligations owed by Dynegy Holdings. Subsidiaries of Dynegy Holdings involved in the filing include Dynegy Northeast Generation Inc., Hudson Power LLC, Dynegy Danskammer LLC and Dynegy Roseton LLC.
Dynegy sells electricity to grids and utilities in the Midwest, the Northeast and the West.
Shares increased 50 cents, or 17 percent, to $3.45 in premarket trading. They tumbled 11 percent Monday in anticipation of the bankruptcy announcement.