CEO returns Dynegy from brink of bankruptcy

Nov 04, 2003 01:00 AM

Dynegy, once close to the fate suffered by its fallen rival, Enron, has evolved into a different company. A year after edging toward bankruptcy, Dynegy is a comfortable distance from failure. Gone are the cash-draining energy trading and broadband initiatives that once seemed sexy and lucrative and so wowed Wall Street. The company has retained the steady power generation and natural gas liquids businesses that rank low on the glamour scale but are expected to be the foundation of Dynegy's future.
"It's nice a year later to be dealing with issues that are of a strategic nature rather than a financial restructuring nature," said CEO Bruce Williamson, who was lured away from Duke Energy in October 2002.

Dynegy's restructuring actually began before Williamson arrived -- the company had already decided to jettison its trading business. The tedious winding down of those contracts is almost finished, and Dynegy sold its telecom units earlier this year. The company also hopes to sell Illinois Power, a utility and its smallest and only regulated business. If the deal under negotiation with Chicago-based Exelon goes through, Dynegy's focus will be on reducing its debt and running its remaining businesses.
"That's an important strategic move," Williamson said. "When the economy is recovered, we want to get back to being a normal company looking for growth opportunities."

Williamson spent his first year on the job leading successful bank refinancings and a capital restructuring plan that postponed major repayments of the company's debt to the end of the decade and beyond. Those moves helped cut nearly $ 9 bn in debt to $ 7.4 bn and bonds went from 20 cents on the dollar back to the face value at which they were sold. Jim Hackett, president and COO of Oklahoma City-based Devon Energy, worked with Williamson at Duke and said his former colleague has surprised many with fast results in stabilizing Dynegy.
"Several years down the road, we'll see how effectively Dynegy can compete as power markets come back and business improvements allow them to start looking for growth," Hackett said.

Dynegy's credit ratings are still at junk levels, but credit rating agencies have put Dynegy on a positive or stable outlook, opening the possibility of an upgrade -- a tough sell in the post-Enron era. Analysts have complimented Williamson's performance, but note a true rebound is far from certain.
"He has really been good at making a clean sweep, but they still have a lot of problems," said Larissa Poindexter, head of the Poindexter Investment Management Group in Houston. "Enron's a casualty and Dynegy's probably going to make it, because he has vision."

Standard & Poor's analyst Craig Shere said in an October report on the energy sector that S&P still sees risks "as the industry is still hobbled by heavy debt in a weak operating environment." Fitch Ratings analyst Hugh Welton concurred in another October report, noting Dynegy's refinancings addressed solvency risks but hike interest costs that couldsuppress cash flows.
Welton said recovery depends not only on debt reduction, but also on improved "spark spreads" -- the profit margin of power generation -- "which is not likely to occur until 2006 at the earliest." Still, Dynegy's outlook is much different than when Williamson arrived.

Dynegy was scrambling to survive after energy trading dried up and investors fled the sector in the aftermath of Enron's swift implosion amid devastating revelations of hidden debt and inflated profits in late 2001. Like other energy merchants that sought to copy Enron, Dynegy faced investigations into trading practices and finances by prosecutors, regulators and hostile Californians seething over market manipulations during the power crisis of 2000 and 2001.
Also like its peers, the company endured layoffs, ousted management and tried to weather a weak energy market. Williamson, a pragmatic 44-year-old native Montanan, came to Dynegy optimistic that the company could right itself. Stock that had languished below a dollar rose on his word that the company was "not in bankruptcy mode."
"We were going to worry about employees, continue to serve customers, pay suppliers, work with the banks and pay them back," Williamson said recently after logging more than 3,000 miles in two days to visit Dynegy facilities in West Texas. "That was my tack. Chapter 11 was a cop-out. That's like saying, 'I borrowed money and now I don't have to pay it back."'

ChevronTexaco, Dynegy's largest shareholder with a 26.5 % stake, sustained losses last year as Dynegy's stock plunged by 95 %. The oil giant ended its natural gas marketing contracts with Dynegy as part of the merchant's exit from energy trading, but continues to be Dynegy's largest natural gas processing and liquids customer.
"ChevronTexaco management believes that under Bruce's leadership, Dynegy has made very good progress in addressing the many difficult issues facing the company," ChevronTexaco spokesman Stan Luckoski said.

Dynegy was the first of the energy merchants to settle regulatory investigations with the Securities and Exchange Commission and the Commodity Futures Trading Commission into improper accounting and trading. Talks with regulators and others in California are continuing.
Former Dynegy employees face criminal charges that have emerged from investigations into trading and accounting led by US Attorney Michael Shelby in Houston, who said Williamson's cooperation has helped ferret out potential wrongdoers. A former Dynegy finance executive charged with conspiracy and fraud in connection with an Enron-like deal to inflate cash flow in 2001 is scheduled to go on trial Nov. 3.
Williamson "has changed the standard operating procedures in such a way that honesty and candour is part of the company's business plan," Shelby said.

Source: AP
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