Dynegy Inc. (DYN) sold 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 said the sale raised its liquidity to about $3 billion, enabling it to pay off near-term debt and absorb near-term losses.
Dynegy’s cash from operations for generation was $690 million at the end of the third quarter of fiscal 2009 compared with $764 million in the year-ago period. Dynegy expects to record a GAAP loss of $1.1 billion to $1.2 billion in fiscal 2009. The trend is expected to continue in fiscal 2010 where the company expects a GAAP loss of $175 million to $250 million.
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.
The company is in a better position, particularly following the LS Power transaction, to play its role in the merchant power space, whose long-term prospects also appear to be improving. Dynegy’s rationalized and consolidated asset portfolio has helped improve the visibility of its underlying earnings 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.
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