Dynegy Unveils $1.25B Restructuring

HOUSTON – Energy marketer Dynegy Inc. unveiled a $1.25 billion capital restructuring plan Monday in a bid to strengthen its balance sheet.

The move comes as the entire energy sector continues to reel from disintegration of energy trading giant Enron Corp., which has sent investors fleeing from companies they believe may face similar risks.

Dynegy said it will gain about $750 million from asset sales and reductions in capital expenses and will raise another $500 million from a stock offering next year.

The company also anticipates growth of about 12 percent in 2002, lower than previous expectations of up to 25 percent, as the changes are put in place.

``Enron's financial collapse was an unprecedented event and, as such, it is appropriate for participants in the merchant energy sector to examine ways to strengthen their balance sheets,'' said Chuck Watson, Dynegy's chairman and chief executive.

``For its existing business model, that addresses market concerns, increases our capital strength and reduced our debt, while reflecting a long-term conservative approach to capital management,'' Watson said.

Dynegy addressed its liquidity after Moody's Investors Service on Friday downgraded several of the Houston-based company's units - including Dynegy Holdings, Dynegy's primary operating company - though refrained from reducing the company's long-term debt to junk status.

The same day, Moody's downgraded San Jose-based Calpine Corp.'s credit rating to junk, raising doubts about Calpine's ability to repay $11.6 billion in debt. However, Calpine said in a statement Monday that its operations were not significantly affected by the action.

Both companies are among major power wholesalers feeling the fallout from the demise of Enron, which Dynegy had agreed to buy for $8.4 billion before abandoning the deal. Once the world's largest energy wholesaler, Enron's swift collapse has hurt the stocks of most of its competitors, reflecting concerns that its downfall will affect the entire power industry.

Watson and other officials said Dynegy differed from Enron in a number of ways, and urged rating agenices to take notice.

``I welcome the rating agencies trying to take some of the art out of ratings and get back to the science,'' Watson said. ``I hope they differentiate companies appropriately and don't paint companies with the same brush.

Shares of Dynegy, which have lost half their value over the past month, were off $2.02 to $22.92 in early afternoon trading on the New York Stock Exchange.

Dynegy's announcement came after another competitor, Houston-based El Paso Corp., unveiled last week a plan to strengthen its balance sheet with $2.25 billion in asset sales and a $900 million reduction in capital spending.

As a result of the restructuring, Dynegy said it would earn between $2.30 and $2.35 per share in fiscal 2002, well below the $2.56 projected by analysts surveyed by Thomson Financial/First Call.

Dynegy also said would take a $125 million fourth-quarter charge on reserves for the company's exposure to Enron, costs associated with the terminated deal, and restructuring expenses related to it Illinois Power unit.

Moody's said Friday that Dynegy's ratings remain under watch for another downgrade because of litigation between Enron and Dynegy over the failed merger and Dynegy's intention of acquiring one of Enron's prized pipelines.

When Enron filed for Chapter 11 bankruptcy in New York Dec. 2, the company also sued Dynegy, claiming its smaller rival illegally terminated the deal and had no right to the Northern Natural Gas Co. pipeline.

Dynegy countersued in Texas state court, claiming it rightly walked away from a failing company and has a right to the pipeline in exchange for a $1.5 billion investment in Enron.

``Give us the pipe or give us the money, that's the deal,'' Steve Bergstrom, Dynegy's president and chief operating officer, said Monday.

Rob Doty, Dynegy's chief financial officer, said the company has $900 million in cash and credit and that he was confident Dynegy can run its business ``under any circumstances.''

Merrill Lynch analyst Carl Kirst said Dynegy should not face any kind of liquidity crunch. ``Even should they have to post additional collateral to trading counterparties, Dynegy can cover its entire book for under $400 million.''