by Madalina Iacob
Dynegy’s ring-fenced subsidiary Illinois Power Generating (Genco)tapped legal counsel Latham & Watkins and financial advisor Ducera Partners to assist in its restructuring negotiations with creditors and with its parent, said two sources familiar with the matter.
For its part, Dynegy is working with White & Case and Lazard, both of which represented the company through its Chapter 11 process in 2012. Dynegy acquired Genco’s 2,895 MW portfolio of coal fired plants from Ameren Corp a year after it emerged from bankruptcy and kept its USD 825m debt non-recourse to Dynegy, except for a USD 25m guarantee.
The parties are still trying to reach a consensual out-of-court restructuring that would transfer control of the assets to Genco bondholders. The noteholders are working with Houlihan Lokey and Willkie Farr.
“Genco hired the advisors for contingency planning and to protect the [subsidiary’s] interests,” said one of the sources familiar.
As part of a restructuring, Genco may shut down some of its uneconomic plants. The company announced on 2 September that it would retire its Newton Power Station unit 2 by 15 September. Energy market conditions didn’t improve enough to support building a scrubber to capture sulfur dioxide emissions, so the company opted to close the plant since it didn’t comply with Illinois pollution standards, according to the press release.
Genco has been under pressure from weak commodity and power prices and ongoing required maintenance and environmental expenditures, which continue to drain liquidity. While Genco has enough liquidity to cover its obligations through the end of 2016, it won’t be able to address a USD 300m unsecured note when it matures in 2018, the sources noted.
Genco had USD 88m of liquidity as of 30 June, based on USD 76m of cash and USD 12m available under its USD 39m revolving credit.
The USD 275m 7.95% senior unsecured notes due 2032 last traded at 38.75 on 6 September, down from 40.5 on 4 August, according to MarketAxess.
Calls to Dynegy, Latham and Ducera were not returned.