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Dynegy Looks to Sell Midstream Business
Monday May 9, 4:19 pm ET
By Kristen Hays, AP Business Writer
Dynegy Announces Midstream Business for Sale, Posts First-Quarter Loss on Hefty Charges


HOUSTON (AP) -- Energy marketer Dynegy Inc. reported a first-quarter loss on Monday blamed on hefty charges associated with settlement of shareholder litigation, and said it is looking to sell its natural gas processing and liquids business this year. The company's stock soared more than 12 percent.
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The company's quarterly losses after paying $5 million of preferred dividends totaled $267 million, or 70 cents per share, compared with earnings of $65 million, or 14 cents per share, a year ago. The results include a $156 million charge related to last month's litigation settlement.

Dynegy said selling its midstream business would allow it to position itself as a power generation company for consolidation with others in the industry.

Bruce Williamson, Dynegy's chairman and chief executive, said current market interest in midstream assets and high commodity prices create a ripe environment for a deal.

"We think it's something we need to evaluate for our investors," he said.

Investors apparently liked the idea, as Dynegy shares rose 47 cents, or 12.5 percent, to close at $4.24 in trading Monday on the New York Stock Exchange, where they have traded between $3.21 and $6.09 in the past year.

Moody's Investors Service and Fitch Ratings both said they would review Dynegy's junk credit ratings for a possible upgrade because the company aims to use proceeds of a sale to pay down nearly half of its $5.5 billion in debt.

"The company's worth more separated than in one piece," said Gordon Howald, an analyst with Natexis Bleichroeder Inc. "I'd speculate that they would not make an announcement like this if there wasn't already a tremendous amount of interest."

Williamson said potential midstream buyers include partnerships and private equity firms. He declined to say whether Dynegy would later sell its power generation assets or acquire such assets from others, reiterating only that he anticipates consolidation in a debt-ridden merchant power sector with too many companies unable to sustain themselves alone.

Last month Dynegy agreed to pay $468 million to settle a class-action shareholder lawsuit, which had been scheduled to go to trial Monday. The suit alleged Dynegy misled investors in 2001 about a natural gas deal wrongly used to boost cash flow and by hiding an $850 million loan from Citigroup to preserve its credit rating.

Moody's said the settlement allows Dynegy to move ahead with selling its midstream business.

Dynegy said Monday its first-quarter revenue fell to $1.5 billion from $1.66 billion last year.

Analysts surveyed by Thomson Financial anticipated losses of 12 cents per share.

Dynegy also narrowed projected 2005 losses from core businesses to $130 million to $145 million from prior estimates of $183 million to $199 million.

The $54 million improvement stems from improved performance in midstream and power generation because of higher power and commodity prices.

Midstream earned $77 million, compared to $68 million in the first three months of 2004 excluding a $17 million gain from the sale of a liquefied natural gas plant in Hackberry, La. The power generation segment earned $109 million, compared to $139 million in the year-ago period because of the expiration of a power contract at the end of 2004.

Last year Dynegy sold Illinois Power Co. to St. Louis-based Ameren Corp. for $500 million in cash and $1.8 billion in assumed debt and preferred stock, leaving the company to focus on its remaining unregulated businesses. Williamson had previously said the midstream business wasn't for sale as Dynegy focused on avoiding bankruptcy after he took the helm in October 2002.

"It looks as though the restructuring makes sense, and it looks as though the time is right for (a midstream sale)," Howald said. "The numbers for midstream and power generation were good."





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