Dynegy Says Likely to Violate Debt Covenants in 2011, May Force Bankruptcy

Dynegy said in a 10-K filing Tuesday that it may be forced to seek bankruptcy protection if it cannot obtain liquidity to replace existing credit agreements, as it is likely that Dynegy will fall out of compliance with existing debt covenants.

In the 10-K, Dynegy said:

"Our financing agreements governing our debt obligations require us to satisfy specific financial covenants. Using the latest available forward commodity price curves and considering our current derivative contracts, we project that it is likely that we will not be able to comply with our EBITDA to Consolidated Interest Expense covenant, particularly in the third and fourth quarters of 2011. Our failure to comply with the financial covenants would have a material adverse impact on our business, financial condition, results of operations and cash flows. If we are unable to successfully execute our plan to amend or replace our Credit Facility or otherwise obtain additional sources of liquidity, it may be necessary for us to seek protection from creditors under Chapter 11 of the U.S. Bankruptcy Code, or an involuntary petition for bankruptcy may be filed against us."

Dynegy said the potential additional sources of liquidity could include asset sales, among other mechanisms.

Ernst & Young LLP, Dynegy's accountant, said that Dynegy's projection that it is likely that Dynegy will not be able to comply with certain debt covenants throughout 2011, "raises substantial doubt about Dynegy Inc.'s ability to continue as a going concern."

For the year 2010, Dynegy reported a narrowed loss of $234 million versus $1.2 billion a year ago. The fourth-quarter loss was $164 million, versus $355 million a year ago.