The future of Dynegy

Wonder what has been going on over at Dynegy since the company announced last week that its second effort to sell itself had collapsed and the US power producer’s top management was leaving?

My guess is that a lot of soul-searching has shareholders wishing they had accepted at least one of the buyout proposals they had been offered over the past few months. The company’s share price has been trending down since that second deal unravelled. And now Standard & Poor’s, the ratings agency, has cut its ratings on Dynegy. Here is what analyst Swami Venkataraman had to say:

The downgrade reflects the plethora of challenges facing the company — weak cash flows, the risk of a covenant default in June 2011, wholesale management turnover, and the company’s need to renew its revolving credit facility in 2012.

And, despite talk by the dissident shareholders who felt Dynegy should be getting a better deal, nobody has stepped forward to offer one. With the chief executive, Bruce Williamson,  having stepped down as director and chairman of the board and planning at the end of next week to leave his posts as president and chief executive, the company is paying those left in charge by the day to stick around.

Dynegy said it was paying David Biegler, a director of the company, as interim president and chief executive, in the capacity of an independent contractor. As of March 12, the day after Mr. Williamson’s last day, he will get a daily fee of $4,150 plus expenses for each day he primarily devotes to providing service to the company. Patricia Hammick will be paid the same daily fee in her role as chairman of the board. And each director that provides assistance to the company that is in addition to the level of service to Dynegy that would ordinarily be performed in the capacity as a member of the board or any committee thereof will get the same fee.

All fees will be in lieu of any meeting fees that would be otherwise payable. What all this adds up to is that the company has had to contract help by the day to keep itself running.

Meanwhile, it is in talks to get Carl Icahn to appoint some members to the board. Mr Icahn is the activist shareholder who failed to get sufficient votes in favour of his offer to buy the US power producer for $5.50 a share in cash. His offer was 10 per cent more than the final offer from Blackstone that he helped derail in November. His offer valued Dynegy’s equity at about $665m, up from the final $603m offer from Blackstone.

Seneca Capital, an activist fund that objected to both the offers by Blackstone and Mr Icahn as inadequate, has also been invited to offer up board members.

But nobody is running to rescue Dynegy. Mr Williamson made clear in November that its future was dim, that the company was running into trouble because of low natural gas prices (he said then that Dynegy’s balance sheet would “worsen, given future projections for low US natural gas prices”) and could not get out from under the constant restructuring of its debt load. Nobody wanted to believe him.

Shareholders seemed to think the company was worth more than Mr Williamson said, (he had encouraged them to accept the offers). As they now watch Mr Williamson pack up his things after eight years of restructuring and prepare to walk out of the company’s offices for the last time – with no buyers in sight – they are probably wishing they had believed him.

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