Bloomberg News

PSEG Units Lose Bid to Halt Dynegy Restructuring Transaction

July 29, 2011

(Updates with judge’s ruling in third paragraph.)

July 29 (Bloomberg) -- Two Public Service Enterprise Group Inc. units lost a bid to halt Dynegy Holdings Inc. from pursuing a restructuring that they claim will violate guarantees on lease obligations they hold.

Delaware Chancery Court Judge Donald Parsons Jr. denied the PSEG units’ request for an injunction barring Dynegy from following through with the restructuring transactions, saying their claims were unlikely to succeed.

“The plaintiffs have failed to show either a probability of success” on breach of contract claims or the existence of “imminent irreparable harm” before a trial, Parsons Jr. said in a 57-page opinion released today in Wilmington.

PSEG’s indirect subsidiaries, Roseton OL LLC and Danskammer OL LLC, had about $270 million in investments at risk as of March 31, according to a July 22 statement. The units bought two power plants from Dynegy in 2001 for about $920 million and leased the facilities back to the Dynegy units under long-term agreements. About $790 million in lease payments remain outstanding, lawyers for the PSEG units said in the complaint.

The PSEG units claim they received guarantees from Dynegy for the lessee’s obligations.

Kevin Brady, an attorney for Roseton OL and Danskammer OL, and Samuel Nolen, a lawyer for Dynegy, didn’t immediately return calls seeking comment on the ruling.

Refinancing Debt

Houston-based Dynegy Inc., 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.

Under the restructuring two units would be formed, one owning a portfolio of eight primarily natural gas-fired power generation facilities and another owning a group of six coal- fired facilities. The units would be “bankruptcy remote,” insulating them if affiliates become insolvent.

The proposed transfer “is a violation of the DHI guaranty,” PSEG said in the statement. PSEG’s units argued that the assets of the transferred gas and coal plants backed Dynegy’s guarantee.

The Roseton and Danskammer generating stations lessee interests would be transferred to a unit under Dynegy Holdings that isn’t “bankruptcy remote,” PSEG said in its statement and in the complaint.

The case is Roseton OL LLC vs. Dynegy Holdings Inc., 6689, Delaware Chancery Court (Wilmington).

--With assistance from Phil Milford and Steven Church in Wilmington, Delaware. Editors: Michael Hytha, Mary Romano

To contact the reporter on this story: Michael Bathon in Wilmington, Delaware, at mbathon@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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