Dynegy Inc. (DYN) through its wholly-owned subsidiary, Dynegy Holdings Inc. repurchased approximately $830 million of its senior unsecured notes. The notes consist of $420 million of its outstanding 6.875% Senior Unsecured Notes due 2011 and approximately $410 million of its outstanding 8.75% Senior Unsecured Notes due 2012. This represents 83% of the company’s Senior Unsecured Notes due 2011 and 2012. The total consideration for the transaction, inclusive of consent fees, was approximately $875 million.
 
Dynegy’s cash from operations for generation was $690 million at the end of the third quarter of 2009 compared to $764 million in the year-ago period. Adjusted free cash flow from the power generation business was $346 million for the nine month period ending Sep 30, 2009. Subsequently, Dynegy in the first half of Dec 2009 boosted its liquidity to about $3 billion by the sale of its five peaking and three combined-cycle generation assets, as well as its remaining interest in a project under construction in Texas to New York-based private equity firm LS Power.
 
Dynegy Inc. produces and sells electricity and ancillary services in key U.S. markets. The power generation portfolio consists of approximately 13,000 megawatts of base load, intermediate and peaking power plants fueled by a mix of natural gas, coal and fuel oil.
 
Our continued positive view of Dynegy shares reflects the level of progress that management has made in rationalizing the business portfolio and strengthening the company’s financial health. Dynegy has recorded a subdued performance in recent times owing to higher mark-to-market losses on account of rising forward power prices.
 
Nevertheless, we expect this trend to reverse over the longer term as higher forward prices incurred will invariably lead to higher margins, while sales volumes will also improve in the electricity market. With its focus on electricity operations and diversified power-generation fleet, Dynegy is well prepared to take full advantage of the situation. Thus we maintain our market Neutral recommendation on the shares.
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