Dynegy Holdings, a unit of energy producer Dynegy Inc , filed for Chapter 11 bankruptcy on Monday, according to court documents.
Dynegy Inc, whose shareholders include billionaire investor Carl Icahn and investment firm Seneca Capital, and its other subsidiaries have not filed for bankruptcy, Dynegy Inc said.
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The company said on Monday it had reached an agreement with some of its investors to restructure Dynegy Holdings debt through bankruptcy court.
The company said investors representing more than $1.4 billion of Dynegy Holdings' $3.4 billion in senior notes had agreed to the refinancing, which would include a $400 million cash payment and the issuance of two different kinds of notes.
The agreement would allow the unit to restructure expensive leases on power plants and lighten its debt load. The parent company warned in March that it needed to restructure $5 billion in debt or face bankruptcy for the entire company.
Dynegy Holdings, whose assets include two unprofitable leased power plants, accounts for more than half of the parent company's debt.
The lease payments on those plants, Roseton and Danskammer, would be included in the deal announced on Monday. The company said it would ask the bankruptcy court to end the leases, subject to approval from state and federal regulatory agencies.
Dynegy Holdings and four of its subsidiaries listed $13.8 billion in assets and $6.2 billion in debts as of Sept. 30 in their bankruptcy filing.
Dynegy Holdings faced more than $700 million in lease payments over the next five years, including a Nov. 8 payment.
The proposal announced Monday would replace $3.4 billion in senior notes, $200 million in subordinated notes, $130 million in accrued interest, and lease payments on the two power plants.
In exchange, the company would offer $400 million in cash, $1 billion in new seven-year 11-percent notes secured by equity in the company's coal and gas-fueled generating businesses, and $2.1 billion in convertible notes that mature at the end of 2015.
The agreement calls for final documents by Dec. 7. A company spokeswoman said other investors would have an opportunity to decide whether to participate as negotiations continue.
Dynegy had been shopping a prearranged bankruptcy to bondholders in the past few weeks.
Last week, Dynegy Inc was forced to cancel a $1.25 billion debt exchange for Dynegy Holdings after skeptical investors failed to show up. Dynegy Holdings last week also skipped a $43.8 million interest payment to noteholders.
The court filing names the New York law firm Sidley Austin as its general bankruptcy counsel and FTI Consulting as its financial adviser.
The subsidiaries of Dynegy Holdings that also filed for bankruptcy are Dynegy Northeast Generation Inc, Hudson Power, Dynegy Danskammer and Dynegy Roseton.
The combination of debt load and rock-bottom natural gas prices have put pressure on Dynegy. It refinanced $1.7 billion in debt this summer.
Bondholders of Dynegy Holdings such as Avenue Capital Group have been angered by a recent shuffling of assets that has put most of the company's power plants beyond their reach. Several lawsuits have been filed over the move.
The filing also protects Icahn's investment. He tried to buy the company for $5.50 a share, or $665 million in February. Private equity firm Blackstone Group had also tried to buy the company, but failed to get shareholders to sign onto its $5 a share bid.
Dynegy shares fell 10.6 percent to close at $2.95 on the New York Stock Exchange on Monday. (Reporting by Joseph Ax and Caroline Humer; editing by Carol Bishopric and Vinu Pilakkott)