One of the country’s most troubled energy firms has reorganized itself and simplified its borrowing structure in a bid for survival.
The entire board of electricity producer Dynegy resigned earlier this year, along with much of the senior executive leadership, leaving the once high-flying firm adrift just ahead of the summer peak-generation season. With new management in place for the past month, and a new board of directors sworn in on June 15, the company’s second-quarter results were met with more curiosity than ire by investors and analysts accustomed to extreme volatility in the company’s outlook.
Calling the past year “challenging,” new Dynegy CEO Bob Flexon sketched out a new strategy that divides the company’s assets by fuel rather than geography, with the two main portfolios in natural gas and coal. The realignment along fuel lines will mean greater operational synergies and “best practice” optimization, Flexon said, as well as enhancing the company’s financial flexibility.
Dynegy used the earnings call to detail a same-day announcement that it had completed a $1.7 billion refinancing. The new credit facilities include a $1.1 billion five-year senior secured term loan available to the natural gas fired generating capacity, called Dynegy Power LLC, as well as a five-year $600 million facility for Dynegy Midwest, the company’s new coal-focused operating unit.
Company executives sought to banish the ghost of looming liquidity problems at the company from the call with analysts on August 8, saying they had more than $1 billion on call across the company’s units.
Looking Past The Loss
Dynegy narrowed its losses in the second quarter, although losses over the six month period remained much wider than in the preceding year. The company lost $116 million in the second quarter of 2011 but $193 million the first half of this year, a shift from a $191 million in the second quarter of 2010 but only a $46 million loss marked in the first six months of 2010.
The company’s results mirrored the unevenness of electricity pricing across the US in 2011.
The US Energy Information Administration reported bumpy pricing for power across the country in the first six months of 2011, with Northwestern hydropower production playing a significant role.
While Midwestern prices were supported by hot weather, prices in the Northeastern US were weighed down despite record usage by the availability of natural gas from the Marcellus Shale. Power prices for 2012-2013 have shown signs of rising over the past seven months in the Midwest Independent System Operator region despite flat prices for natural gas, as traders and customers fret over the impact of emissions rules from the Environmental Protection Agency on coal-fueled units in the region.
