Zacks_Analysts' Blog : Dynegy Re-extends Debt-Swap Offer - Analyst Blog

Electric utility Dynegy Inc. (DYN) announced a second extension of its debt exchange offer by a week. Now the ongoing exchange offer for approximately $1.25 billion principal amount of outstanding notes, debentures and capital income securities of Dynegy Holdings, LLC, its direct, wholly-owned subsidiary, for Dynegy's new Senior Secured Notes with a coupon rate of 10% due 2018 will expire on October 27, 2011 from the earlier date of October 20, 2011. Last week the company extended the offer from the earlier date of October 13 to October 20.

The second extension comes on the heel of lukewarm response to the exchange offer from investors. Dynegy announced that till the evening of October 13, holders had validly tendered approximately $100.5 million in principal, spread among several classes of notes, for exchange. This was less than 10% of the offer indicating the market sees the offer as undervalued.

Earlier Dynegy’s failed attempts to go private with the two acquisition offers from The Blackstone Group L.P. (BX) and Icahn Enterprises, L.P. (IEP) had put the company in dire straits. The market was abuzz with rumors that the company would buckle under $4.5 billion in debt and file for bankruptcy. Pushed into a tight corner, the company in the second quarter of 2011 completed a $1.7 billion debt refinancing deal and separated its coal-fueled and gas-fueled power generation units.

Over the longer run, the company however would be upbeat once the Midwest power market improves, given its geographically-disparate customer base and diversified power generation portfolio.

Looking forward, the performance of the company will improve only through increases in power prices, drops in reserve-capacity margins and improvement in wholesale electricity demand. Additionally, the completion of internal restructuring and the successful closing of the new separate credit facilities will facilitate and give operational and financial flexibility to the company.

However, the tepid pace of the U.S. economic recovery begs whether the company will be able to generate the requisite cash flow for its needs. The company presently retains a short-term Zacks #3 Rank (Hold) in line with its long-term Neutral recommendation on the stock.

Houston-based Dynegy Inc., through its subsidiaries provides wholesale power, capacity and ancillary services to various groups of customers in six states in the Midwest, the Northeast and the West Coast. Its diversified nature underlines its advantage in terms of regional differences in power prices and weather-driven demand.