COLUMBUS, Ohio (AP) —Power provider Dynegy will sell eight plants plus another under development for about $1 billion in cash and $500 million in stock as the company attempts to bolster its finances and reduce debt.
Houston-based Dynegy reported Monday that its second-quarter loss widened by 27 percent as it wrote down the value of some of the plants it will sell to former development partner LS Power Associates and because of falling energy prices. The company said it will also slash expenses by $400 million to $450 million over the next four years.
Losses for the quarter ended June 30 totaled $345 million, or 41 cents per share, compared with $272 million, or 32 cents per share, in the year ago quarter. The year-ago loss was driven by mark-to-market losses of $481 million that reflect an updated estimate of what investments are worth based on current market values.
The second-quarter loss included a $405 million charge to write down the value of four plants, two of which will be sold to LS Power. Dynegy said it expects to record additional charges on the sale and a loss on the value of assets that currently are estimated at nearly $500 million.
Revenue rose 53 percent to $493 million from $322 million because of the year ago charge along with stronger production from its plants in the Midwest and Northeast. The company has strong operations in agribusiness and food processing, meaning it has avoided some of the declines seen by other power generators that serve the auto and steel industries.
Analysts surveyed by Thomson Reuters expect a loss of 4 cents per share. Such estimates typically exclude one-time charges.
The company, which had to lower its profit outlook several times as power prices fell this year, reaffirmed its latest projections of $680 million to $740 million in earnings before income taxes, depreciation and amortization. Including charges, the company expects to report a loss of $935 million to $975 million this year.
Because of charges associated with the deal from LS Power and its cost-saving programs, adjusted EBITDA will be $425 million to $550 million.
The company's prices for power generally are based on natural gas prices, which are down about 70 percent from a year ago.
Under the deal with LS Power, Dynegy will sell about a quarter of its generating capacity. LS Power also will receive $235 million in notes due in 2015. The deal is expected to close before the end of the year.
LS Power's remaining Class B shares of Dynegy will be converted into Class A shares representing about 15 percent of Dynegy. The Class B shares will be eliminated. The deal eliminates about 30 percent of Dynegy's shares.
Bruce Williamson, Dynegy's chairman, president and CEO, said the deal with LS Power will help the company reduce its near-term debt maturities and simplify the company's structure. The company has total debt of $5.1 billion.
"It was a long negotiation and we think that the package of assets that is leaving really leaves us still with a very strong, well positioned portfolio," Williamson told analysts on a conference call.
LS Power acquired its stake in Dynegy in 2006 when Dynegy spent $4.1 billion to buy LS Power's generating capacity. Dynegy also became 50-50 partners in building nine power plants already under development. The joint venture was dissolved this year because of constrained credit markets and economic uncertainty.
Three of the plants LS Power is buying were plants it had sold to Dynegy.
When the deal is done, Dynegy will have about 20 plants in seven states that will be more concentrated on its baseload coal and natural gas plants and less on plants used only at times of peak demand for power.
Year-to-date, Dynegy posted a loss of $680 million, or 81 cents per share, compared with a loss of $424 million, or 51 cents, a share, in the first half of 2008. Revenue so far this year has totaled $1.4 billion, up from $865 million in the first half of 2008.
Dynegy shares rose 30 cents, or 15.5 percent, to close at $2.23 Monday.