The Odd Dynegy Bankruptcy… Good for Stockholders (DYN, BX, IEP)

It has happened before, but it is rare.  Very rare.  A bankruptcy that is good for shareholders. Dynegy Inc. (NYSE: DYN) is seeing a sharp rise in its common stock after some of the financial units filed for Chapter 11 bankruptcy protection.  The move is a after a series of recent debt restructuring efforts that did not come entirely to fruition.

What makes this so interesting is that two buyout offers came from The Blackstone Group LP (NYSE: BX) and Carl Icahn’s Icahn Enterprises LP (NYSE: IEP) failed to secure a merger almost a year ago.

The move effectively aims to protect the parent company from shareholders, including Carl Icahn, and appears to be coming at the expense of bondholders.  The company has reached an agreement with holders of more han $1.4 billion in senior notes issued by the Dynegy Holdings subsidiary and it appears to be setting the tone for the restructuring of more than $4 billion of Dynegy Holdings’ obligations. This appears to have no impact on the power generation assets. Where the issues are coming is that Dynegy has restructured and now the parent owns the assets but certain subsidiaries on the hook for the debt in a move obviously meant to protect the parent company in restructuring efforts.

Dynegy shares are up 25% at $3.70 on very active volume and the 52-week trading range is $2.35 to $6.92.

JON C. OGG