* Filing would not affect parent company - sources
* Bankruptcy petition could come within the next day
(Adds background, closing stock price, bylines)
By Caroline Humer and Michael Erman
Nov 7 Independent power producer Dynegy Inc
(DYN.N), which has been struggling to balance high debt costs
with low natural gas prices, is close to placing some assets in
bankruptcy, sources familiar with the situation said on
The filing for the unit, Dynegy Holdings, would not affect
the parent company, whose shareholders include billionaire
investor Carl Icahn and investment firm Seneca Capital, the
It could allow Dynegy Holdings to restructure expensive
leases on power plants and lighten its debt load. Dynegy Inc
warned back in March that it needed to restructure its $5
billion in debt or the entire company could end up bankrupt.
Dynegy Holdings, whose assets include two unprofitable
leased power plants, accounts for more than half of the parent
company's debt, having issued $3.5 billion in unsecured bonds.
It faces more than $700 million in lease payments over the next
Dynegy Inc last week ended up having to cancel a $1.25
billion debt exchange for Dynegy Holdings after investors
skeptical of the terms failed to show up. Dynegy Holdings last
week also skipped a $43.8 million interest payment to
The bankruptcy filing could come within the next day,
according to one of the sources, who was not authorized to
speak publicly on the situation.
The unit has a lease payment due on Nov. 8. The sources
said they do not expect the company to make that payment.
Dynegy Inc did not return a call requesting comment.
STRUGGLING WITH DEBT
The company has been struggling with its debt load as its
power business has been squeezed by rock-bottom natural gas
prices. 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, including by the
Roseton and Danskammer power plants at the center of the
While the bankruptcy filing would allow Dynegy Holding to
restructure the two power plant leases, it could also possibly
give bondholders a way to dispute the new corporate structure.
A spokesman for Avenue Capital declined to comment on the
possible bankruptcy filing.
Dynegy had been shopping a prearranged bankruptcy to
bondholders in the past few weeks. It was not clear on Monday
if the bankruptcy filing that sources now say is imminent will
have the support of the bondholders or not. A prearranged
bankruptcy filing can speed the court process and make it less
The move, which is designed to keep Dynegy Inc out of
bankruptcy while still enabling a financial restructuring,
would also protect Icahn's investment. He tried to buy the
company for $5.50 a share, or $665 million in February. Private
equity firm Blackstone Group (BX.N) had also tried to buy the
company, but failed to get shareholders to sign onto its $5 a
Dynegy shares fell 10.6 percent to close at $2.95 on the
New York Stock Exchange on Monday.
(Reporting by Caroline Humer, Michael Erman and Tom Hals;
Editing by Richard Chang)