Yesterday, Dynegy Holdings, LLC and four affiliated entities filed for Chapter 11 bankruptcy protection in SDNY.
- AEGON USA Investment Management
- Avenue Capital
- Caspian Capital
- Franklin Advisors
- Venor Capital Management
- $400M in cash
- $1B of 11% Secured Notes issued out of Dynegy, Inc (the public holding company) backed by equity in GasCo and CoalCo (more on this later) - this amount if fungible based on lease rejection claims coming from the Roseton-Danskammer leases
- $2.1B of Convertible PIK Notes again issued out of Dynegy, Inc due 12/31/2015. If the notes are still outstanding at maturity, they will convert into 97% of DYN equity
- Specifically to the holders of the subordinate 8.316%: The plan contemplates, a 25 cent on the dollar treatment in lieu of contractual subordination ($200M outstanding for a total claim consideration of $50M)
"It is my understanding that, before the commencement of these chapter 11 cases, the Debtors engaged in discussions with representatives of both the PSEG Entities and certain of the Pass-Through Certificate Holders seeking to consensually restructure their obligations under the Lease Documents. These discussions ultimately proved unsuccessful. During those discussions, the Debtors indicated that, absent a consensual resolution, a bankruptcy filing by the Debtors was likely and that, in such case, rejection of the Lease Documents was probable. Upon information and belief, representatives of both the Pass-Through Certificate Holders and thePSEG Entities have analyzed and prepared substantially for the relief requested in the Motion to Reject. In fact, the Owner Lessors have had several months’ notice of the Debtors’ precarious financial situation and the likelihood that the Debtors would be forced to seek the relief sought herein if an acceptable out-of-court restructuring could not be accomplished. Public filings issued by the Debtors’ affiliates were clear on this point."
The litigation commenced by the Indenture Trustee is currently pending in the New York Supreme Court. The PSEG Entities sought injunctive relief in a lawsuit filed in the Delaware Chancery Court in July. The Delaware court denied plaintiffs’ request and both the Chancery court and the Delaware Supreme Court denied plaintiffs’ requests for interlocutory appeal. Plaintiffs' then voluntarily dismissed the Delaware action in August, 2011. The same PSEG entities filed another lawsuit in New York Supreme Court on November 4, 2011 asserting many of the same claims which the Delaware court found unlikely to succeed. That lawsuit remains pending. The Pass-Through Certificate Holders’ case was voluntarily dismissed in favor of the Delaware action.
- What you believe the price of the new 11% Secured Notes will trade to
- What you believe the price of the new Convert notes will trade to
- And to a lesser extent - the probability / chance that Roseton-Danskhammer rejection claims are significantly more than $300M and the whole plan has to be re-worked
"If the aggregate claims arising from the rejection of the Roseton / Danskammer leases are allowed by the bankruptcy court in an amount that is less than $300 million, the aggregate principal amount of New Secured Notes shall be reduced by an amount to be agreed for every dollar such claims are less than $300 million. If the allowed claims exceed $300 million and the condition to consummation of the chapter 11 plan requiring such claims to be capped at $300 million is waived as set forth below, the aggregate principal amount of New Secured Notes shall be increased by an amount to be agreed for every dollar such claims exceed $300 million. The adjustment amount to be agreed for increases in the New Secured Notes shall be the same as the amount for decreases in the New Secured Notes."
- 28.3% * $400M of cash = $113.2M
- 28.3% * $1 Billion of Notes = $280.3M * Assumed Trading Price of Bonds. I actually am more bullish on this piece of paper than the market given how much equity I think there is at GasCo and CoalCo (which secures the new notes). I assume that they trade at par+ (whereas many people are saying in the low to mid 90s). So $280.3 * 100 = $280.3
- 28.3% * $2.1 Billion of Convertible PIK Notes = $594.3M * Assumed Trading Price of Bonds. This is where things get real messy, and truly believe the swing factor here given the size and uncertainty of what will happen with this security.
- Aforementioned equity value of GasCo and CoalCo flows through to the Converts after deducting for 11% Notes. I would expect an IPO of one or both entities after litigation is resolved.
- The incentive factor here: If the converts are not called prior to 12/31/2015, they are then convertible into 97% of DYN's equity. It is imperative for equity holders to deal with this security prior to that. Of course, when you got Carl Icahn calling the shots, you never know what you are going to get as a bond holder