Dynegy to issue notes, cash, warrants under Illinois Power agreement

New York, Oct. 3 – Dynegy Inc. said it reached agreement in principal with an ad hoc group of holders of Illinois Power Generating Co.’s bonds for a restructuring of the debt, according to a news release and an 8-K filing with the Securities and Exchange Commission

Under the tentative agreement, which is non-binding at this stage, Dynegy is proposing to issue $210 million of new seven-year senior notes for which it will be the issuer, to pay $139 million in cash and to issue 10 million warrants for its common stock with a seven-year tenor and a $35.00 per share strike price.

The consideration will be paid in exchange for Illinois Power’s $825 million of notes due 2018, 2020 and 2032.

The new Dynegy notes will be non-callable for two years, have terms and covenants consistent with the company’s existing bonds and pricing will match the yield on Dynegy’s bonds due 2023 at the time of issuance.

Included in the $139 million of cash is a $9 million payment that will be made to those bondholders who enter into a restructuring support agreement before a date to be set.

Illinois Power Holdings cash balances of $118.3 million along with $75 million of collateral synergies will be used to fund the cash payment.

Illinois Power will continue to make interest payments on its notes, but those payments will be subtracted from the proposed cash payment.

A consent solicitation will be started seeking the approval of Illinois Power’s noteholders to either an out-of-court restructuring or a pre-packaged Chapter 11 filing. The out-of-court route will be followed if holders of more than 97% of the notes support the restructuring. A pre-packaged Chapter 11 filing will be used if holders of less than 97% but at least 66.7% agree.

The ad hoc group, which owns 63.7% of the notes, has agreed not to transfer any of their notes before Oct. 14 or the execution of the restructuring support agreement, whichever comes first.

Illinois Power warned in August that it may lack the cash flow to repay its $300 million debt at maturity in 2018.

The company attributed the cash flow problems to weak energy prices, unsold capacity volumes, ongoing required maintenance and environmental expenditures and upcoming interest payments.

Possible solutions suggested at the time included restructuring Illinois Power’s debt, transitioning ownership of Illinois Power’s assets to its debtholders, deferring discretionary capital expenditures, continuing to shut down uneconomic generation and seeking bankruptcy protection.

Dynegy is a Houston-based power generator.

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