25 June 2002 – Energy trading company Dynegy said on Monday that it will take $450m in charges against second quarter earnings, cut its dividend and sell more assets including its UK gas storage business in order to shore up its balance sheet.
Despite the announcement, credit rating agency Fitch still cut the company’s credit rating to junk status leading to a 15 per cent fall off in share price.
Dynegy said it would cut its dividend to 15 cents from 39 cents and is planning an IPO for its Dynegy Energy partners unit.
Dynegy has never recovered from its botched attempt too rescue Enron last year and has now had to put in place an emergency plan to raise $1.4bn.
Speaking to analysts on Monday, Dynegy President and COO Steve Bergstrom said the company believes the merchant energy model still works, and that in recent layoffs, the company avoided losing specialized expertise in its trading operations.
He, however, said that, while gas trading appears to be strong, there was no doubt that power-trading volumes have gone down and liquidity thinned out, and may remain thin the next few years. For this reason, he said, the company is cutting back power trading to just the company’s generation assets.
Dynegy executives said they have based a new plan to strengthen liquidity on the assumption that both Moody’s Investor Services and Standard & Poor’s credit agencies will downgrade the company to below investment grade, as Fitch did earlier today.
Dynegy said it plans to make what new disclosures of the company’s operating cash flow by segment, by contractual characteristic and on its risk management and mark-to-market operations in the next 10-K filing with the US Securities and Exchange Commission.
The company also said it would take a $450m charge to earnings in the second quarter, with $300m associated with “telecom impairment.” Dynegy Comptroller Mike Mont said the company had a $300m on-balance sheet investment in the company’s 16 000-mile fibre-optic network, with an additional $365n in leasing commitments and some $170m to $180m, on a discounted basis, in maintenance and collocation space.
Dynegy bought the UK gas storage firm from BG for $590m in cash in July 2001.