(Updates with Dynegy comment in 12th paragraph.)
July 22 (Bloomberg) -- Dynegy Inc., the power producer that warned earlier this year it may seek bankruptcy protection, was sued by units of Public Service Enterprise Group Inc. and LibertyView Credit Opportunities Fund LP over its plan to obtain $1.7 billion in restructuring loans.
Five LibertyView funds hold pass-through trust certificates issued in 2001 to finance a sale-leaseback transaction involving two power generation facilities in Newburgh, New York, according to the LibertyView complaint.
Dynegy provided an “unconditional guarantee” of the obligations of its units in the transactions, including lease payments, LibertyView said. The funds bought about $30 million of the certificates from November 2009 to July 2011.
Dynegy’s restructuring is an attempt to protect the value of its units that generate revenue from the “burdens of guaranteeing the repayment of financing provided by the certificates,” LibertyView said in the complaint, filed yesterday in New York state Supreme Court in Manhattan.
“The value of the funds’ certificates already has been damaged as a direct result of DHI’s proposed gutting of the guaranty, as evidenced by the market’s reaction to the announcement of the planned restructuring,” according to the complaint.
PSEG’s indirect subsidiaries, Roseton OL LLC and Danskammer OL LLC, filed a complaint in Delaware Chancery Court alleging they had about $270 million in investments at risk as of March 31, PSEG said today in a statement. The units are owner-lessors of two electric generating facilities.
Houston-based Dynegy, the third-largest independent U.S. power producer, said July 10 that it is seeking to refinance debt and change its corporate structure to avoid defaulting on its existing loan facility.
Dynegy said it will restructure its operations, with one unit owning a portfolio of eight primarily natural gas-fired power generation facilities and another owning a group of six coal-fired baseload facilities.
The Roseton and Danskammer generating stations lessee interests would be transferred to an ordinary subsidiary under Dynegy Holdings Inc., PSEG said in its statement.
The proposed transfer “is a violation of the DHI guaranty,” PSEG said in the statement. The units are seeking a court order barring Dynegy from consummating the transfers, according to the statement.
Norelle Lundy, a Dynegy spokeswoman, declined to comment on the specific complaints.
“We do not believe the claims have merit and we do not anticipate any delay in the refinancing,” Lundy said today in a phone interview.
The New York case is LibertyView Credit Opportunities Fund LP vs. Dynegy Holdings Inc., 651998/2011, New York state Supreme Court (Manhattan).
--With assistance from Richard Bravo in New York. Editors: Peter Blumberg, Steve Farr
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