Dynegy Holdings files for Chapter 11 bankruptcy

Dynegy Holdings, a unit of energy producer Dynegy Inc, filed for Chapter 11 bankruptcy Monday, according to court documents.

The filing, in Manhattan federal bankruptcy court, did not include Dynegy Inc, whose shareholders include billionaire investor Carl Icahn and investment firm Seneca Capital.

It could 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, has issued $3.5 billion in unsecured bonds, accounting for more than half of the parent company's debt.

It faced more than $700 million in lease payments over the next five years, including a Nov. 8 payment.

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 advisor.

A call to the parent company and to the lawyer who submitted the filing were not immediately returned Monday evening. (Reporting by Joseph Ax and Caroline Humer; editing by Carol Bishopric)