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8-K - DYNEGY INC 8-K 10-27-2010 - DYNEGY HOLDINGS, LLC | form8k.htm |
EX-99.1 - EXHIBIT 99.1 - DYNEGY HOLDINGS, LLC | ex99_1.htm |
Exhibit 99.2
Dynegy Acquisition by
The Blackstone Group L.P.
The Blackstone Group L.P.
Presentation to Proxy Advisory Firms
October 27, 2010
Cautionary Statement Regarding Forward-Looking Statements
This presentation contains statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as “forward looking statements.”
Discussion of risks and uncertainties that could cause actual results to differ materially from current projections, forecasts, estimates and expectations of Dynegy Inc. (“Dynegy”) is contained in
Dynegy’s filings with the Securities and Exchange Commission (the “SEC”). Specifically, Dynegy makes reference to, and incorporates herein by reference, the section entitled “Risk Factors” in
its most recent Form 10-K and subsequent reports on Form 10-Q, and the section entitled “Cautionary Statement Regarding Forward-Looking Statements” in its most recent definitive proxy
statement filed with the SEC on October 4, 2010. In addition to the risks and uncertainties set forth in Dynegy’s SEC filings, the forward-looking statements described in this presentation
could be affected by, among other things, (i) the timing and anticipated benefits to be achieved through Dynegy’s 2010-2013 company-wide cost savings program; (ii) beliefs and assumptions
relating to liquidity, available borrowing capacity and capital resources generally; (iii) expectations regarding environmental matters, including costs of compliance, availability and adequacy
of emission credits, and the impact of ongoing proceedings and potential regulations or changes to current regulations, including those relating to climate change, air emissions, cooling water
intake structures, coal combustion byproducts, and other laws and regulations to which Dynegy is, or could become, subject; (iv) beliefs about commodity pricing and generation volumes; (v)
anticipated liquidity in the regional power and fuel markets in which Dynegy transacts, including the extent to which such liquidity could be affected by poor economic and financial market
conditions or new regulations and any resulting impacts on financial institutions and other current and potential counterparties; (vi) sufficiency of, access to and costs associated with coal,
fuel oil and natural gas inventories and transportation thereof; (vii) beliefs and assumptions about market competition, generation capacity and regional supply and demand characteristics of
fuel oil and natural gas inventories and transportation thereof; (vii) beliefs and assumptions about market competition, generation capacity and regional supply and demand characteristics of
the wholesale power generation market, including the potential for a market recovery over the longer term; (viii) the effectiveness of Dynegy’s strategies to capture opportunities presented
by changes in commodity prices and to manage its exposure to energy price volatility; (ix) beliefs and assumptions about weather and general economic conditions; (x) beliefs regarding the
U.S. economy, its trajectory and its impacts, as well as Dynegy’s stock price; (xi) projected operating or financial results, including anticipated cash flows from operations, revenues and
profitability; (xii) beliefs and expectations regarding the Plum Point Project; (xiii) expectations regarding Dynegy’s revolver capacity, credit facility compliance, collateral demands, capital
expenditures, interest expense and other payments; (xiv) Dynegy’s focus on safety and its ability to efficiently operate its assets so as to maximize its revenue generating opportunities and
operating margins; (xv) beliefs about the outcome of legal, regulatory, administrative and legislative matters; (xvi) expectations and estimates regarding capital and maintenance
expenditures, including the Midwest Consent Decree and its associated costs; and (xvii) uncertainties associated with the proposed transaction between Dynegy and an affiliate of Blackstone
(the “Merger”), including uncertainties relating to the anticipated timing of filings and approvals relating to the Merger and the sale by an affiliate of Blackstone of certain assets to NRG
Energy, Inc. (the “NRG Sale”), the outcome of legal proceedings that have been or may be instituted against Dynegy and/or others relating to the merger agreement and/or the NRG Sale, the
expected timing of completion of the Merger, the satisfaction of the conditions to the consummation of the Merger with an affiliate of Blackstone and the NRG Sale and the ability to
complete the Merger. Any or all of Dynegy’s forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks,
uncertainties and other factors, many of which are beyond Dynegy’s control.
Non-GAAP Financial Measures: This presentation contains non-GAAP financial measures including Enterprise Value, EBITDA, Adjusted EBITDA, EBITDAR, Adjusted EBITDAR, Net Debt , Adjusted
Net Debt, Net Debt and Other Obligations and Adjusted Debt. Reconciliations of these measures to the most directly comparable GAAP measures to the extent available without
unreasonable effort are contained herein. To the extent required, statements disclosing the definitions of such non-GAAP financial measures are included herein.
unreasonable effort are contained herein. To the extent required, statements disclosing the definitions of such non-GAAP financial measures are included herein.
WHERE YOU CAN FIND MORE INFORMATION
In connection with the Merger, Dynegy filed a definitive proxy statement with the SEC on October 4, 2010 and commenced mailing the definitive proxy statement and form of proxy to the
stockholders of Dynegy. BEFORE MAKING ANY VOTING DECISION, DYNEGY’S STOCKHOLDERS ARE URGED TO READ THE PROXY STATEMENT REGARDING THE MERGER CAREFULLY AND IN ITS
ENTIRETY BECAUSE IT CONTAINS IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. Dynegy’s stockholders are able to obtain, without charge, a copy of the definitive proxy
statement and other relevant documents filed with the SEC from the SEC’s website at http://www.sec.gov. Dynegy’s stockholders are also able to obtain, without charge, a copy of the
definitive proxy statement and other relevant documents by directing a request by mail or telephone to Dynegy Inc., Attn: Corporate Secretary, 1000 Louisiana Street, Suite 5800, Houston,
Texas 77002, telephone: (713) 507-6400, or from the Dynegy’s website, http://www.dynegy.com.
PARTICIPANTS IN THE SOLICITATION
Dynegy and its directors and officers may be deemed to be participants in the solicitation of proxies from Dynegy’s stockholders with respect to the Merger. Information about Dynegy’s directors
and executive officers and their ownership of Dynegy’s common stock is set forth in the proxy statement for Dynegy’s 2010 Annual Meeting of Stockholders, which was filed with the SEC on
April 2, 2010. Stockholders may obtain additional information regarding the interests of Dynegy and its directors and executive officers in the Merger, which may be different than those of
Dynegy’s stockholders generally, by reading the definitive proxy statement and other relevant documents regarding the Merger.
and executive officers and their ownership of Dynegy’s common stock is set forth in the proxy statement for Dynegy’s 2010 Annual Meeting of Stockholders, which was filed with the SEC on
April 2, 2010. Stockholders may obtain additional information regarding the interests of Dynegy and its directors and executive officers in the Merger, which may be different than those of
Dynegy’s stockholders generally, by reading the definitive proxy statement and other relevant documents regarding the Merger.
Forward-Looking Statements/Additional Information/
Participants in Solicitation
Participants in Solicitation
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Overview
• The Dynegy/Blackstone transaction is the result of a lengthy and extensive evaluation of
strategic alternatives by Dynegy to maximize stockholder value
strategic alternatives by Dynegy to maximize stockholder value
– Contacted 16 parties in the two years prior to announcement of the Blackstone transaction
– Evaluated potential asset sales and other alternatives, including a business combination with a
strategic partner
strategic partner
– Contacted 42 parties in 2010 during the “Go-shop” process with no proposal, let alone a superior
proposal, emerging
proposal, emerging
– This multi-year process has resulted in Blackstone’s current offer
• Dynegy believes Blackstone’s cash offer of $4.50 per share provides stockholders with
immediate fair value in cash and removes risks associated with market conditions, ongoing
regulatory uncertainties and Dynegy’s capitalization and cash requirements
immediate fair value in cash and removes risks associated with market conditions, ongoing
regulatory uncertainties and Dynegy’s capitalization and cash requirements
• Dynegy’s substantial leverage and forecasted negative free cash flow create a very
challenging liquidity position over time
challenging liquidity position over time
• Dynegy’s Board has concluded that the risks of continuing to operate as a stand-alone public
company significantly outweigh the potential upside of doing so
company significantly outweigh the potential upside of doing so
An affiliate of The Blackstone Group L.P. has agreed to acquire Dynegy Inc.
in an all-cash transaction valued at ~$4.7 billion, including the assumption
of existing debt
in an all-cash transaction valued at ~$4.7 billion, including the assumption
of existing debt
Dynegy’s stock price could trade at or below its pre-announcement
stock price if the Blackstone transaction is not completed
stock price if the Blackstone transaction is not completed
• $4.50 per share cash offer, representing a substantial
premium to pre-announcement stock price
premium to pre-announcement stock price
– Transaction was announced August 13, 2010
– ~62% premium to August 12, 2010 closing price
($2.78/share)
($2.78/share)
– ~26% premium to prior 30-day average closing
price
price
• No financing conditions
• Board of Directors received written fairness opinions from
Goldman, Sachs & Co. and Greenhill & Co., LLC(5)
Goldman, Sachs & Co. and Greenhill & Co., LLC(5)
• Path to completion
– Requested FERC approval by October 29, 2010
– California Public Utilities Commission (notice
period ends November 11, 2010)
period ends November 11, 2010)
– Stockholder approval (meeting scheduled for
November 17, 2010)
November 17, 2010)
– New York Public Service Commission (expect to
receive consent order on or about November 18,
2010)
receive consent order on or about November 18,
2010)
– Concurrent closing of NRG/Blackstone transaction
• Expect to close by end of November 2010
Key Transaction Terms
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(1) Based on shares outstanding as of October 1, 2010. (2) As of June 30, 2010 and includes value of Central Hudson capitalized lease. (3) Based on Summary Financial Forecasts used by Dynegy’s Board of
Directors in evaluating the proposed transaction and does not represent Guidance estimates. Adjusted EBITDAR is calculated using estimated 2010, 2011 and 2012 Adjusted EBITDA of $517, $405 and $348
million, respectively, and adjusted to exclude Central Hudson lease expense of ~$50 million as it is included in net debt & other obligations. See definitive proxy statement for details surrounding assumptions.
(4) Merchant Power Peers reflect market-capitalization-weighted index which includes Calpine, Mirant, NRG Energy and RRI Energy performance as of October 20, 2010. (5) See definitive proxy statement for
the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Goldman Sachs and Greenhill & Co. in connection with their respective opinions. (6) Peer set
includes CPN, NRG and RRI (GenOn). CPN basic share count includes 44mm shares held in trust for settlement of future bankruptcy creditor claims and is pro forma for the Conectiv fleet acquisition and sale of
Colorado plants . RRI (GenOn) adjusted for merger of RRI Energy and Mirant at 2.835 fixed exchange ratio and includes $150mm of annual synergies per management forecast, with 0%, 50% and 100%
achieved in 2010, 2011 and 2012, respectively. NRG not pro forma for any recently announced but uncompleted acquisitions.
Directors in evaluating the proposed transaction and does not represent Guidance estimates. Adjusted EBITDAR is calculated using estimated 2010, 2011 and 2012 Adjusted EBITDA of $517, $405 and $348
million, respectively, and adjusted to exclude Central Hudson lease expense of ~$50 million as it is included in net debt & other obligations. See definitive proxy statement for details surrounding assumptions.
(4) Merchant Power Peers reflect market-capitalization-weighted index which includes Calpine, Mirant, NRG Energy and RRI Energy performance as of October 20, 2010. (5) See definitive proxy statement for
the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Goldman Sachs and Greenhill & Co. in connection with their respective opinions. (6) Peer set
includes CPN, NRG and RRI (GenOn). CPN basic share count includes 44mm shares held in trust for settlement of future bankruptcy creditor claims and is pro forma for the Conectiv fleet acquisition and sale of
Colorado plants . RRI (GenOn) adjusted for merger of RRI Energy and Mirant at 2.835 fixed exchange ratio and includes $150mm of annual synergies per management forecast, with 0%, 50% and 100%
achieved in 2010, 2011 and 2012, respectively. NRG not pro forma for any recently announced but uncompleted acquisitions.
Transaction Overview
The Blackstone Transaction is the Culmination of a
Lengthy and Extensive Evaluation of Strategic
Alternatives to Maximize Value for Dynegy Stockholders
Lengthy and Extensive Evaluation of Strategic
Alternatives to Maximize Value for Dynegy Stockholders
• In connection with recommending the Blackstone transaction to stockholders, Dynegy’s Board of Directors, in
consultation with its independent financial and legal advisors, undertook a comprehensive review of numerous
strategic alternatives including:
consultation with its independent financial and legal advisors, undertook a comprehensive review of numerous
strategic alternatives including:
– Continuing as a stand-alone entity
– A sale of Dynegy
– A business combination with a strategic partner
– A sale of Dynegy’s coal generating facilities or gas fired assets, including those gas fired assets located in the western region of the United
States
States
– The proposal received from Blackstone
• Goldman, Sachs & Co. and Greenhill & Co., LLC each provided a written fairness opinion to the Board of Directors
on August 13, 2010
on August 13, 2010
• Financial analyses presented to the Dynegy Board included:
– Multiples of select companies and transactions
– Transaction premiums
– Discounted cash flow
– Sum-of-the-parts
– Research analysts’ stock price targets
– Historical share price
Thorough Board Evaluation
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In connection with approving the transaction with Blackstone, Dynegy’s Board
analyzed numerous strategic alternatives and received written fairness opinions
analyzed numerous strategic alternatives and received written fairness opinions
Note: See definitive proxy statement for the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Goldman Sachs and Greenhill & Co. in
connection with their respective opinions.
connection with their respective opinions.
• Over the past two years, Dynegy has explored a range of strategic alternatives in an
effort to enhance value for stockholders:
effort to enhance value for stockholders:
– Fall 2008: Discussions with NRG Energy
– Late 2008/Early 2009: Dynegy and its advisors solicited interest from 16 potential
acquirers or merger partners. Three parties engaged in preliminary discussions
regarding a possible acquisition or merger of equals. No transaction materialized
acquirers or merger partners. Three parties engaged in preliminary discussions
regarding a possible acquisition or merger of equals. No transaction materialized
– Summer/Fall 2009: Dynegy successfully completed the restructuring of LS Power’s
ownership and governance rights positions, including the disposition of certain assets
ownership and governance rights positions, including the disposition of certain assets
– Late 2009/Early 2010: Dynegy reviewed strategic alternatives with the benefit of its
simplified capital structure and governance positions, including stand-alone plans and
potential business combinations or sale transactions
simplified capital structure and governance positions, including stand-alone plans and
potential business combinations or sale transactions
– Early 2010: Dynegy re-engaged in discussions with one of the companies with which
Dynegy previously held preliminary discussions, but no transaction materialized
Dynegy previously held preliminary discussions, but no transaction materialized
Lengthy & Extensive Board Process
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– Spring/Summer 2010: Re-engaged with NRG, focusing on a transaction involving a
potential subsequent sale by NRG of Dynegy’s coal assets. NRG expressed concern
regarding its ability to dispose of the coal assets on acceptable terms and advised
Dynegy that it did not want to proceed with an acquisition of Dynegy
potential subsequent sale by NRG of Dynegy’s coal assets. NRG expressed concern
regarding its ability to dispose of the coal assets on acceptable terms and advised
Dynegy that it did not want to proceed with an acquisition of Dynegy
– Summer 2010: Blackstone contacted Dynegy to inquire about performing due diligence
to purchase Dynegy in an all-cash acquisition. Blackstone and NRG discussed the
acquisition by NRG of certain Dynegy gas-fired assets concurrent with the proposed
Dynegy/Blackstone transaction
to purchase Dynegy in an all-cash acquisition. Blackstone and NRG discussed the
acquisition by NRG of certain Dynegy gas-fired assets concurrent with the proposed
Dynegy/Blackstone transaction
– The Dynegy Board negotiated extensively with Blackstone to reach an agreement
Lengthy & Extensive Board Process (cont’d)
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Blackstone’s offer, with its substantial premium, was the culmination
of a lengthy and extensive process and provides the greatest value for
Dynegy stockholders
Dynegy stockholders
• Dynegy and its financial advisors actively solicited superior offers for 40 days following the
Blackstone announcement
Blackstone announcement
– Solicited 42 parties and the opportunity was widely publicized
– 8 confidentiality agreements were signed and extensive data was provided
– No proposals were received
– Merger agreement provides for a break-up fee of only 0.5% of total enterprise value during the “Go-
shop” process
shop” process
§ Post “Go-shop,” break-up fee represents 1.1% of total enterprise value
• Dynegy’s “Go-shop” process was a broad, public process that the financial and industry
communities at large were aware of, and any interested party had every opportunity to submit
what it felt constituted a superior offer to the Blackstone offer
communities at large were aware of, and any interested party had every opportunity to submit
what it felt constituted a superior offer to the Blackstone offer
• Despite the broad solicitation of potentially interested parties, no party made a proposal, let
alone a superior proposal, during the “Go-shop” process
alone a superior proposal, during the “Go-shop” process
“Go-Shop” Process to Maximize Value
Blackstone’s offer is the only offer received and provides immediate
stockholder value, while eliminating risk
Dynegy will Continue to Face Significant Challenges and Its
Ability to Operate Could be Attended by Significant Risks
Ability to Operate Could be Attended by Significant Risks
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The Proposed Transaction with Blackstone Eliminates
the Substantial Risks of a Stand-Alone Strategy
the Substantial Risks of a Stand-Alone Strategy
Dynegy believes that while long-term fundamentals remain intact...
Anticipated timing to realize the upside of the sector has been significantly delayed due
to the recession and other factors.
to the recession and other factors.
There are several market and company-specific challenges in the near- to medium-
term, many of which are beyond Dynegy’s control, that pose a significant risk to
reaching a recovery.
term, many of which are beyond Dynegy’s control, that pose a significant risk to
reaching a recovery.
• Low and declining commodity prices and a weak economy
• Weak financial conditions/prospects compound significant refinancing risk
• High leverage and fixed costs in a low commodity price environment
• Regulatory and environmental risk and uncertainty
• $1.1 billion negative cash flow through 2015 (per Summary Financial Forecasts); would be $1.6
billion using September 7, 2010 commodity curves
billion using September 7, 2010 commodity curves
– This $500 million increase in projected negative cash flow represents ~92% of Dynegy’s
current equity value
current equity value
Absent significant improvements in BOTH commodity prices and the
financial condition of Dynegy, operating as a stand-alone company involves
substantial risk to Dynegy stockholders
financial condition of Dynegy, operating as a stand-alone company involves
substantial risk to Dynegy stockholders
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Source: Summary Financial Forecast, Bloomberg / CSI market data as of October 20, 2010, NYMEX. Commodity price curves through 2012 based upon price curves as of the applicable date and commodity price assumptions after 2012
were based upon price curves as of the applicable date and adjusted based upon management’s fundamental outlook. 5-year Natural Gas Forward Average reflects average of monthly forwards for the calendar years 2010 - 2015 as of
the applicable date. DYN share prices represent closing prices for August 12, 2010, June 7, 2010, September 25, 2009, and September 26, 2008 , as applicable. Following the transaction announcement, Dynegy’s stock price has not
correlated to the price decline in natural gas.
were based upon price curves as of the applicable date and adjusted based upon management’s fundamental outlook. 5-year Natural Gas Forward Average reflects average of monthly forwards for the calendar years 2010 - 2015 as of
the applicable date. DYN share prices represent closing prices for August 12, 2010, June 7, 2010, September 25, 2009, and September 26, 2008 , as applicable. Following the transaction announcement, Dynegy’s stock price has not
correlated to the price decline in natural gas.
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• Forward natural gas prices have
fallen consistently over the last
two years
fallen consistently over the last
two years
• Decline of 42% in the 2010-2015
average forward curve since Sep
2008
average forward curve since Sep
2008
• Decline of 15% since Jun 7, 2010
• Decline of 7% since transaction
announcement
announcement
• Dynegy’s stock price is highly
correlated with natural gas prices
that continue to fall
correlated with natural gas prices
that continue to fall
• Dynegy’s high leverage increases
its risk profile, which increases its
stock price sensitivity to natural
gas prices
its risk profile, which increases its
stock price sensitivity to natural
gas prices
Natural Gas Price (Henry Hub $/mmbtu)
Conditions have continued to deteriorate since Blackstone’s offer.
We believe focusing on closing the transaction is in stockholders’ best interest
Commodity Prices Continue to Fall
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Adjusted EBITDA Highly Sensitive to Changes
in Commodity Price Environment
in Commodity Price Environment
• Individual sensitivities are not necessarily additive
• Assumes an unhedged portfolio and is not representative of any particular year
• As hedges are not 100% perfect, and exposure post-2011 is essentially unhedged,
significant commodity price exposure still exists
significant commodity price exposure still exists
– 2012 is ~25% hedged
• Reflects potential impact of changes in commodity prices on Dynegy’s portfolio
+ / - $1 per MMBtu Change in Natural Gas (1)
+ / - $0.50 per MMBtu Change in Delivered PRB Coal (2)
Adjusted EBITDA Sensitivities - Unhedged Portfolio ($ mm)
Source: Management estimates (1) Assumes completely unhedged portfolio. (2) Assumes only Baldwin, Havana and Wood River in operation.
• Rising CDS levels imply that the credit markets have an
increasingly negative view of Dynegy
increasingly negative view of Dynegy
– Rising CDS levels are negatively correlated with the falling stock
price
price
– Moody’s downgraded Dynegy to Caa1 from B3 on October 1, 2010,
and stated its financial profile looks extremely fragile, especially in
2011 and 2012
and stated its financial profile looks extremely fragile, especially in
2011 and 2012
– S&P’s issuer rating on Dynegy is B-
• Negative free cash flows forecasted through 2014 are likely to
make it increasingly difficult and more expensive to refinance
Dynegy’s credit facilities
make it increasingly difficult and more expensive to refinance
Dynegy’s credit facilities
– Not expected to fully replace current levels under credit facilities
– Increased all-in cost
• Likely to amend, extend or refinance the credit facilities in the
next 6 months
next 6 months
– Forecast suggests an inability to comply with certain financial ratios
in 2011
in 2011
– Absent a waiver, the credit facilities would need to be amended,
likely with less availability and at a higher cost
likely with less availability and at a higher cost
Absent the Blackstone transaction, Dynegy will be forced to
seek financing alternative that may include:
seek financing alternative that may include:
– Equity or equity-linked securities such as preferred or
convertible securities
convertible securities
– Asset sales which will limit recovery optionality and increase
leverage
leverage
– Other restructuring alternatives which could dilute current
holders
holders
– Combinations of these options
Limited Access to Capital Markets
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1. Represents rate for any drawn amount
Relationship between DYN Share Price and CDS (YTD 2010)
Source: Bloomberg market data as of October 20, 2010
Regulatory & Environmental Risks and
Uncertainties
Uncertainties
A number of air, water, solid waste and financial reform regulations are
pending and the outcome is unknown. In many cases, the expected
outcome would likely result in a significant and adverse impact to Dynegy
in terms of capital expenditures and operating costs
pending and the outcome is unknown. In many cases, the expected
outcome would likely result in a significant and adverse impact to Dynegy
in terms of capital expenditures and operating costs
• Federal Regulation of Greenhouse Gases - Pending EPA regulation of CO2 emissions; future
legislation also possible
legislation also possible
• Coal Combustion Residuals Regulation by EPA - Decision by EPA on hazardous or non-
hazardous determination forthcoming; could impose new restrictions on coal ash disposal
hazardous determination forthcoming; could impose new restrictions on coal ash disposal
• Clean Air Transport Rules - Intended to mandate new controls for the reduction of SO2,
Nox, mercury and other emissions
Nox, mercury and other emissions
• Financial Reform Legislation - New requirements for over-the-counter derivatives
transactions potentially including those used by Dynegy to support risk management
practices
transactions potentially including those used by Dynegy to support risk management
practices
• California and New York Water Intake Policies - New regulations specific to power plant
once-through-cooling practices
once-through-cooling practices
Significant regulatory and environmental uncertainties have impacted Dynegy’s
perceived value and will likely result in higher capital and operating costs
perceived value and will likely result in higher capital and operating costs
Negative Cash Flow as a Stand-Alone Company
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• Dynegy forecasts $1.1 billion of cumulative cash outflows in future years due to:
• Low commodity prices
• Assumed environmental investments, excluding any contingencies for future legislation/regulation, that may occur
• Assumed impact of replacing below market coal transportation contracts that expire at the end of 2013
• Assumed negative impact to Adjusted EBITDA from 2013 to 2014 is ~$140 mm, which also reflects the assumed retirement of
Hennepin and Vermillion
Hennepin and Vermillion
• High fixed costs, including items such as maintenance capital expenditures and interest expense, which will likely increase
Note: The above is a summary of the financial forecasts prepared by management of Dynegy in connection with Board’s consideration of the Blackstone transaction and is not intended as a GAAP
reconciliation; reconciliation located in the Appendix. For additional information about these summary financial forecasts, including the assumptions Dynegy management made in preparing them, see the
“Summary Financial Forecasts” section of the definitive proxy statement. (1) Forecasted values. (2) Commodity pricing assumptions through 2012 were based upon June 7, 2010 price curves and
commodity pricing assumptions after 2012 were based upon June 7, 2010 price curves and adjusted based upon management’s fundamental outlook, which included the assumption of asset retirements
by which Dynegy would benefit. (3) Adjusted EBITDA means EBITDA plus other adjustments related to mark-to-market changes.
reconciliation; reconciliation located in the Appendix. For additional information about these summary financial forecasts, including the assumptions Dynegy management made in preparing them, see the
“Summary Financial Forecasts” section of the definitive proxy statement. (1) Forecasted values. (2) Commodity pricing assumptions through 2012 were based upon June 7, 2010 price curves and
commodity pricing assumptions after 2012 were based upon June 7, 2010 price curves and adjusted based upon management’s fundamental outlook, which included the assumption of asset retirements
by which Dynegy would benefit. (3) Adjusted EBITDA means EBITDA plus other adjustments related to mark-to-market changes.
Based on updated commodity curves as of September 7, 2010, forecasted
cumulative cash outflows would be $1.6 billion, reflecting further deterioration
cumulative cash outflows would be $1.6 billion, reflecting further deterioration
Risks to Dynegy Have Increased Since the
Announcement of the Blackstone Transaction
Announcement of the Blackstone Transaction
• Natural gas prices have fallen ~7%(1)
• Prices hit a 52 week low of $3.36/MMBtu
Since Announcing the Transaction, the Risks
to Dynegy have only Increased
to Dynegy have only Increased
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Unrealistic and unsubstantiated market speculation could significantly harm
long-term stockholder value if the Blackstone transaction is not completed
long-term stockholder value if the Blackstone transaction is not completed
Natural Gas
Prices
Prices
Capital
Markets
Markets
Environmental
Regulation
Regulation
Stock Price
• Financial markets remain very difficult and volatile for a highly leveraged company
– Dynegy CDS trading in a range from 1150 to 1200
• Moody’s has dropped Dynegy’s credit rating to Caa1
• No additional clarity provided on future environmental legislation
• Inaccurate rumors have circulated regarding Dynegy’s stand-alone alternatives,
including speculation that Dynegy could sell assets and pay a dividend
including speculation that Dynegy could sell assets and pay a dividend
• Two stockholders have filed a Schedule 13D and one of those stockholders has
filed a preliminary proxy statement to solicit votes against the transaction
filed a preliminary proxy statement to solicit votes against the transaction
• Stock price has traded, on average, $0.35 per share, or $42 million above the offer
price, representing less than 1% of enterprise value
price, representing less than 1% of enterprise value
(1) Based on the five year forward average from August 12 to October 20, 2010.
Future Financial Position Could be even Worse
than Forecasted as Markets Continue to Deteriorate
than Forecasted as Markets Continue to Deteriorate
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Pricing:
Commodity prices continue to decline with absence of any recovery in sight
– Summary Financial Forecasts based on June 7, 2010 pricing
– Dynegy’s forecasted negative cash flow of $1.1 billion from 2011-2015 should therefore worsen
– Average 2010E - 2015E natural gas prices are down 15% since June 7th natural gas price levels, which was the basis of Dynegy’s
forecast
forecast
– Based on updated commodity curves as of September 7, 2010, forecasted negative cash flow would be $1.6 billion, reflecting a
deterioration due to pricing declines (1)
deterioration due to pricing declines (1)
Coal & Rail Transportation Contracts:
If coal & rail transportation contracts are priced more in-line with today’s market pricing, there will be a negative impact on EBITDA
– Summary Financial Forecasts assumed rail transportation contracts are negotiated at rates more favorable than today’s market
pricing, when the current below-market contracts expire at the end of 2013
pricing, when the current below-market contracts expire at the end of 2013
– If coal & rail transportation contracts are priced more in-line with today’s market pricing, EBITDA would be reduced an average of
$135 million in both 2014 and 2015 (2)
$135 million in both 2014 and 2015 (2)
Asset Retirements:
Asset retirements in the market may not materialize as assumed; therefore, supply may continue to outstrip demand
– Summary Financial Forecasts assumed industry asset retirements beginning in 2013, which resulted in reduced reserve margins.
Lower reserve margins improve the economics of Dynegy’s portfolio, particularly in the Midwest
Lower reserve margins improve the economics of Dynegy’s portfolio, particularly in the Midwest
– If assumed industry asset retirements are delayed, current excess capacity will persist
– If asset retirements do not materialize, EBITDA would be reduced by an average of $85 million each year from 2013-2015
Based on current gas prices, coal & rail transportation pricing and supply &
demand factors, Dynegy’s forecasted negative cash flow could be materially worse
demand factors, Dynegy’s forecasted negative cash flow could be materially worse
(1) In updating the cash flow estimates related to the June 7, 2010 pricing, the only assumption changed pertained to pricing impacts on gross margin. All other assumptions are the same.
(2) Combination of increase in absolute rail transportation pricing and less dispatch due to assets being less economic.
As a Public Company, issuing a Dividend is Not Permitted nor
Prudent and Executing a Sale of Assets would Not Create Value.
Instead, it would Add Significant Financial and Operational Risk to
Dynegy and Its Stockholders
Prudent and Executing a Sale of Assets would Not Create Value.
Instead, it would Add Significant Financial and Operational Risk to
Dynegy and Its Stockholders
• As a public company, Dynegy’s current financial condition simply would not support paying
a dividend
a dividend
– No meaningful dividend would be permitted by Dynegy’s credit agreement
– Current high fixed-cost structure, projected negative cash flow and substantial debt obligations
make issuing a dividend imprudent at best
make issuing a dividend imprudent at best
– Dividends would not be permitted as a public company under Delaware law given Dynegy’s
current financial forecasts
current financial forecasts
– Given Dynegy’s currently projected negative cash flow forecasts through 2015, Dynegy will be
required to raise new capital to satisfy its obligations and operate its business as a going concern
required to raise new capital to satisfy its obligations and operate its business as a going concern
– Dynegy’s leverage is ~10 x, compared to peer group leverage of ~3.5 x-6.5 x
– Dynegy is rated Caa1 by Moody’s
Dynegy is Not in a Position to Pay a Dividend
to Stockholders…
to Stockholders…
21
No public company in Dynegy’s condition should issue a dividend
Note: Based on Dynegy’s current financial condition and forecasts, Dynegy does not believe it presently has sufficient statutory surplus to support a dividend.
22
Asset Sales Would Not Create Stockholder Value
& Would Result in a Loss of $1.9 B in Credit Facilities
& Would Result in a Loss of $1.9 B in Credit Facilities
• Dynegy’s Board previously considered various asset sale
packages and concluded that the Blackstone transaction is
the best alternative for stockholders
packages and concluded that the Blackstone transaction is
the best alternative for stockholders
– An asset sale similar to Blackstone’s agreed sale of assets to NRG
Energy is not permitted, and would result in a loss of Dynegy’s
existing $1.9 billion credit facility
Energy is not permitted, and would result in a loss of Dynegy’s
existing $1.9 billion credit facility
– Proceeds of the asset sale would be needed to support existing
collateral needs AND help fund ~$1.5 billion of currently
projected negative cash flows over the next five years
collateral needs AND help fund ~$1.5 billion of currently
projected negative cash flows over the next five years
§ Lost cash flow from assets sold, net of interest expense savings, would
result in additional negative cash flow of ~$365 million above the $1.1
billion, for a total negative cash flow of $1.5 billion over the next five
years
result in additional negative cash flow of ~$365 million above the $1.1
billion, for a total negative cash flow of $1.5 billion over the next five
years
§ Assuming September pricing (instead of June pricing), the $1.5 billion of
negative cash flow would be $1.8 billion over the next five years
negative cash flow would be $1.8 billion over the next five years
– Any asset sales would increase Dynegy’s leverage and further
limit future access to capital markets
limit future access to capital markets
– Sale of assets would also increase Dynegy’s exposure to Midwest
coal market, especially in terms of regulatory and environmental
uncertainties and sensitivity to delivered coal costs
coal market, especially in terms of regulatory and environmental
uncertainties and sensitivity to delivered coal costs
Under current market conditions, any assets sold today would add
significant risk and worsen Dynegy’s financial condition
significant risk and worsen Dynegy’s financial condition
Note: Calculation of liquidity sources assumes asset sale proceeds from the sale of the same asset package, including sales price, that is being sold by Blackstone to NRG Energy. Liquidity cushion needed
for working capital, collateral spikes, etc. “Lost cash flow on assets sold (2011-2015), net of interest expense savings” includes ~$830 million of cash flow associated with the four assets that are being sold
by Blackstone to NRG Energy and ~$465 million consisting primarily of interest expense savings due to no credit facility in place and less debt. Cash outflow of $1.1 billion is based on the financial forecasts
prepared by management of Dynegy in connection with the Board’s consideration of the Blackstone transaction and is based on June 7, 2010, pricing. See appendix for additional information.
for working capital, collateral spikes, etc. “Lost cash flow on assets sold (2011-2015), net of interest expense savings” includes ~$830 million of cash flow associated with the four assets that are being sold
by Blackstone to NRG Energy and ~$465 million consisting primarily of interest expense savings due to no credit facility in place and less debt. Cash outflow of $1.1 billion is based on the financial forecasts
prepared by management of Dynegy in connection with the Board’s consideration of the Blackstone transaction and is based on June 7, 2010, pricing. See appendix for additional information.
Recovery in commodity prices needs to be higher and sooner than
forecasted if a meaningful amount of assets are to be sold in today’s market
Significant Risk of Negative Impact on Dynegy’s
Stock Price if Transaction is not Completed
Stock Price if Transaction is not Completed
– Average peer stock prices have fallen ~2% since August
12, implying a potential 65% loss in value compared to
Blackstone’s offer
12, implying a potential 65% loss in value compared to
Blackstone’s offer
– Dynegy’s higher leverage tends to amplify changes in its
equity value
equity value
– Natural gas prices have continued to fall and shale gas
appears to be a long term driver of prices
appears to be a long term driver of prices
– Given these trends, and assuming the correlation
between natural gas prices and Dynegy’s stock price
returns, Dynegy’s stock price could trade at or below
the pre-announcement price if the Blackstone
transaction is not completed
between natural gas prices and Dynegy’s stock price
returns, Dynegy’s stock price could trade at or below
the pre-announcement price if the Blackstone
transaction is not completed
• Cumulative cash outflows included in the Summary
Financial Forecasts will decrease the company’s financial
flexibility and reduce its access to traditional capital
markets
Financial Forecasts will decrease the company’s financial
flexibility and reduce its access to traditional capital
markets
• The company expects to restructure the balance sheet to
reduce debt and thereby reduce fixed costs, which actions
would be dilutive to stockholders
reduce debt and thereby reduce fixed costs, which actions
would be dilutive to stockholders
– Issuance of equity, equity linked securities, debt for
equity swaps or combination of these
equity swaps or combination of these
If the Blackstone transaction does not close, the stock price could trade
down to or below the pre-announcement price of $2.78 per share and
stockholders could lose significant value
down to or below the pre-announcement price of $2.78 per share and
stockholders could lose significant value
Indexed Stock Performance Since Transaction Announcement
(1) Merchant Power Peers reflect market-capitalization-weighted index which includes Calpine, Mirant, NRG
Energy and RRI Energy performance as of October 20, 2010.
Energy and RRI Energy performance as of October 20, 2010.
Go-Shop ends
Two 13D filers were buying Dynegy Stock
Dynegy Clarifies Misconceptions being Propagated
by Seneca Capital
by Seneca Capital
• Seneca contends that the $4.50 merger consideration does not
adequately reflect the long-term value of the Company
adequately reflect the long-term value of the Company
– Seneca’s ownership position was less than 1% before the transaction
was announced
was announced
– Seneca sold 700,000 shares at $2.93/share the day before the
transaction was announced at $4.50/share, which is a 54% premium
transaction was announced at $4.50/share, which is a 54% premium
– Clearly Seneca believed - within the last two and a half months - that
$4.50 per share is adequate, as it sold shares of Dynegy below that
price
$4.50 per share is adequate, as it sold shares of Dynegy below that
price
– Seneca continues to be an active trader in the stock, as it sold 500,000
shares just weeks before it came out against the transaction
shares just weeks before it came out against the transaction
• Seneca, “an experienced power-industry investor,” does not believe
Blackstone’s offer “captures the long-term intrinsic value of Dynegy’s
business,” which Seneca believes is positioned to capture benefits of a
recovery in electricity prices
Blackstone’s offer “captures the long-term intrinsic value of Dynegy’s
business,” which Seneca believes is positioned to capture benefits of a
recovery in electricity prices
– The natural gas forward curve represents the best estimate of future
gas prices
gas prices
– Pricing has deteriorated further since the Board approved the
transaction, increasing forecasted negative cash flows through 2015
by nearly 50%
transaction, increasing forecasted negative cash flows through 2015
by nearly 50%
– Seneca had the ability to make an offer during the 40 day “Go-shop”
period and did not submit an offer, let alone sign a confidentiality
agreement
period and did not submit an offer, let alone sign a confidentiality
agreement
– Seneca could still submit an offer, subject to only a 1.1% break-up fee
(based on total enterprise value)
(based on total enterprise value)
• Seneca contends prices are at an unsustainable low point in the cycle
– As stated above, the natural gas forward curve represents the best
estimate of future gas prices and prices continue to deteriorate
estimate of future gas prices and prices continue to deteriorate
– Timing of any recovery is uncertain
– Can Seneca answer, “When exactly will the recovery be?”
Seneca’s Interests are NOT aligned with
All Dynegy Stockholders
All Dynegy Stockholders
Natural Gas Price (Henry Hub $/mmbtu)
24-months Ago (Sep-2008)
12-months Ago (Sep-2009)
Summary Financial Forecast
(07-Jun-2010)
1-Day Prior to Transaction
Announcement (12-Aug-2010)
Current (20-Oct-2010)
Source: Seneca 13D. Summary Financial Forecast, Bloomberg
/ CSI market data as of October 20, 2010, NYMEX.
/ CSI market data as of October 20, 2010, NYMEX.
Dynegy does not know all of Seneca’s
interests, including whether it owns
interests, including whether it owns
any Dynegy debt securities or credit
default swaps
Seneca may be willing to wager on a quick
recovery of natural gas prices; however,
Dynegy believes this strategy is reckless
recovery of natural gas prices; however,
Dynegy believes this strategy is reckless
• Seneca contends the merger consideration values Dynegy’s assets at 1/3 of replacement cost
– As an “experienced power-industry investor,” Seneca should be aware that investors in this industry do NOT usually employ percent-
of-replacement value as a means of valuing a company
of-replacement value as a means of valuing a company
– The Blackstone offer of $4.50/share compares favorably when measured under traditional financial analysis techniques, such as
comparable market transaction and discounted cash flow
comparable market transaction and discounted cash flow
Seneca’s Interests are NOT aligned with
All Dynegy Stockholders (cont’d)
All Dynegy Stockholders (cont’d)
26
Relative Enterprise Value - YTD 2010
Blackstone
Transaction
Announcement
Transaction
Announcement
• Seneca contends Dynegy has had an unjustified underperformance in stock price compared to its peer group
– Dynegy has conducted a thorough process over the past
TWO years
TWO years
– Dynegy stock price is highly correlated with natural gas
– Dynegy has substantially higher leverage than peers,
magnifying the sensitivity of stock price to declining
natural gas prices
magnifying the sensitivity of stock price to declining
natural gas prices
– Dynegy’s enterprise value has fallen less than Mirant and
RRI Energy since the beginning of the year
RRI Energy since the beginning of the year
– Prior to the transaction announcement, Dynegy’s
enterprise value had fallen ~18% during 2010, as
compared to declines of ~27% and 25% at Mirant and
RRI Energy, respectively, over the same time period
enterprise value had fallen ~18% during 2010, as
compared to declines of ~27% and 25% at Mirant and
RRI Energy, respectively, over the same time period
– Seneca also fails to recognize that over the timeframe it
referenced in its filings, Dynegy’s total enterprise value
fell only 1.7% versus the average of Dynegy’s peer group,
which fell 2.6%; Dynegy did not “underperform” its
peers during this timeframe
referenced in its filings, Dynegy’s total enterprise value
fell only 1.7% versus the average of Dynegy’s peer group,
which fell 2.6%; Dynegy did not “underperform” its
peers during this timeframe
Source: Public filings and Bloomberg market data as of October 20, 2010. Unadjusted enterprise values reflected (does not include Central Hudson lease at Dynegy, nor leases at Mirant and
RRI Energy)
• Seneca contends Dynegy could pursue a sale of the four natural gas-fired assets proposed to
be sold to NRG Energy
be sold to NRG Energy
– Significant asset sales (using September pricing) would result in a loss of Dynegy’s existing $1.9 billion credit facility
– If Dynegy executed the NRG Energy asset sale itself, Dynegy’s projected negative cash flow of $1.1 billion (using June
pricing) would increase by ~$400 million to $1.5 billion over the next five years
pricing) would increase by ~$400 million to $1.5 billion over the next five years
– Assuming September pricing (instead of June pricing), the $1.5 billion of negative cash flow would be $1.8 billion over
the next five years
the next five years
– Seneca has NOT offered Dynegy stockholders any go-forward plan that recognizes real and pressing liquidity issues
– “To the extent that the transactions with Blackstone and NRG are not completed, downward rating pressure at DHI
and Dynegy will continue to exist given the weak financial prospects for the company over the next few years.” -
Moody’s
and Dynegy will continue to exist given the weak financial prospects for the company over the next few years.” -
Moody’s
• Seneca believes Dynegy would not require incremental issuances of equity or equity-linked
securities
securities
– Using June commodity curves, projected negative cash flow over the next five years is $1.1 billion, which assumes
§ Below market rail transportation pricing
§ Industry asset retirements take place
§ Does not include future environmental investments; current environmental forecast primarily relates to required Illinois Consent
Decree work
Decree work
– Using September commodity curves, projected negative cash flow increases by ~$500 million or nearly 50% to $1.6
billion over the next five years, exacerbating liquidity needs and requiring additional funding
billion over the next five years, exacerbating liquidity needs and requiring additional funding
27
Seneca’s Interests are NOT aligned with
All Dynegy Stockholders (cont’d)
All Dynegy Stockholders (cont’d)
• Seneca contends management has a conflict of interest in advocating for the transaction
– There is NO conflict of interest between management and its stockholders
– The Board - NOT management - approved the Blackstone transaction
– Management has no arrangement in place to continue with Dynegy if it is acquired by Blackstone post-closing
– Dynegy’s management has standard change in control plans that were approved by the Board and have been in place
and publicly disclosed for several years; plans are “double trigger” for severance purposes and are consistent with
similarly situated public companies’ plans
and publicly disclosed for several years; plans are “double trigger” for severance purposes and are consistent with
similarly situated public companies’ plans
– As described in the definitive proxy statement, Dynegy's Board reviewed the potential payments under these plans
and concluded they were reasonable and would not affect the advice from, or work performed by, management
and concluded they were reasonable and would not affect the advice from, or work performed by, management
• Seneca contends that a termination fee of $50 million is excessive, implying it hinders another
bidder from making an offer for Dynegy
bidder from making an offer for Dynegy
– Based on total enterprise value that takes into account Dynegy’s outstanding debt, which is how a potential acquirer
would value Dynegy given its substantial leverage, the $50 million post-“go shop” termination fee translates to 1.1% of
total enterprise value, which would not be a hindrance for a potential party interested in acquiring Dynegy
would value Dynegy given its substantial leverage, the $50 million post-“go shop” termination fee translates to 1.1% of
total enterprise value, which would not be a hindrance for a potential party interested in acquiring Dynegy
– Dynegy has conducted a thorough solicitation of interest over the past TWO years, including a 40 day “go-shop” period
– During the “Go-shop” period, the termination fee represented only 0.5% of total enterprise value
– Despite the broad solicitation of potentially interested parties, no party made a proposal, let alone an offer that was
superior to Blackstone’s offer
superior to Blackstone’s offer
28
Seneca’s Interests are NOT aligned with
All Dynegy Stockholders (cont’d)
All Dynegy Stockholders (cont’d)
Appendix
30
31
• Total balance sheet debt as of 6/30/10 is ~$4.8B
• Undrawn $1.08 billion revolving credit facility due 2012
• $850 million due in 2013 is a synthetic letter of credit facility supported by $850 million of
restricted cash
restricted cash
• Excludes $633 million related to Central Hudson lease
Debt Maturity Profile (as of 6/30/10, $MM)
$998
32
Capital Structure
Debt & Other Obligations as of 6/30/2010
Dynegy Power Corp.
Central Hudson(2) $633
Dynegy Holdings Inc.
$1,080 Million Revolver(1) $0
Term L/C Facility $850
Tranche B Term $68
Sr. Unsec. Notes/Debentures $3,450
Sub.Cap.Inc.Sec (“SKIS”) $200
Dynegy Inc.
Senior Debentures $257
Sithe Energies
TOTALS ($ Million)
|
6/30/2010
|
Secured
|
$918
|
Secured Non-Recourse
|
$257
|
Unsecured
|
$3,650
|
Lease Obligation
|
$633
|
($ Million)
|
6/30/2010
|
Total Obligations
|
$5,458
|
Less: Cash & short-term investments
|
501
|
Less: Restricted cash(3)
|
850
|
Net Debt & Other Obligations
|
$4,107
|
Less: Central Hudson Lease Obligation
|
633
|
Net Debt
|
$3,474
|
(1) Represents drawn amounts under the revolver; actual amount of revolver was $1.08 Billion as of 6/30/2010;
(2) Represents PV (10%) of future lease payments. Central Hudson lease payments are unsecured obligations of
Dynegy Inc., but are a secured obligation of an unrelated third party (“lessor”) under the lease. DHI has
guaranteed the lease payments on a senior unsecured basis; (3) Restricted cash includes $850MM related to the
Synthetic Letter of Credit facility
(2) Represents PV (10%) of future lease payments. Central Hudson lease payments are unsecured obligations of
Dynegy Inc., but are a secured obligation of an unrelated third party (“lessor”) under the lease. DHI has
guaranteed the lease payments on a senior unsecured basis; (3) Restricted cash includes $850MM related to the
Synthetic Letter of Credit facility
33
Collateral Excluding Clearing Settlements
($MM)
|
3/31/2010
|
|
6/30/2010
|
|
8/2/2010
|
Generation
|
$ 421
|
|
$ 459
|
|
$ 481
|
Other
|
103
|
|
88
|
|
88
|
Total
|
$ 524
|
|
$ 547
|
|
$ 569
|
|
|
|
|
|
|
Cash and short-term investments
|
$ 155
|
|
$ 112
|
|
$ 108
|
LCs
|
369
|
|
435
|
|
461
|
Total
|
$ 524
|
|
$ 547
|
|
$ 569
|
• Changes in LC’s from 3/31/10 to 6/30/10 due to initial margin posting to futures clearing manager and higher commodity prices
• Changes in cash and short-term investments due to LC posting to futures clearing manager utilized in lieu of cash
• Other collateral primarily includes Sithe Debt Service Reserve of $83 million
– Change in other collateral from 3/31/10 to 6/30/10 due to the drawing of a $15 million letter of credit supporting
Dynegy’s contingent equity commitment associated with Plum Point Energy Associates, LLC (PPEA)
Dynegy’s contingent equity commitment associated with Plum Point Energy Associates, LLC (PPEA)
• In addition to cash and LC’s posted as collateral, we have granted additional permitted first priority liens on the assets currently
subject to first priority liens under our Credit Facility. The fair value collateralized by first priority liens, netted by counterparty,
includes liabilities of $35 million, $60 million and $60 million at 3/31/10, 6/30/10 and 8/2/10, respectively
subject to first priority liens under our Credit Facility. The fair value collateralized by first priority liens, netted by counterparty,
includes liabilities of $35 million, $60 million and $60 million at 3/31/10, 6/30/10 and 8/2/10, respectively
34
From 3/31/10 to 6/30/10:
• Decrease in cash and short-term
investments was primarily attributable
to working capital requirements
investments was primarily attributable
to working capital requirements
• Decreased availability is mostly
attributable to increased collateral
requirements due to higher
commodity prices
attributable to increased collateral
requirements due to higher
commodity prices
• Currently there is no availability under
the $150MM contingent letter of
credit facility
the $150MM contingent letter of
credit facility
– Under terms of this facility, up to
$150 million of capacity can become
available based on increases in spark
spreads and power prices for 2012
positions
$150 million of capacity can become
available based on increases in spark
spreads and power prices for 2012
positions
Liquidity
• EBITDA Measures. We believe that EBITDA and Adjusted EBITDA provide a meaningful representation of our operating performance. We
consider EBITDA as a way to measure financial performance on an ongoing basis. Adjusted EBITDA is meant to reflect the true operating
performance of our power generation fleet; consequently, it excludes the impact of mark-to-market accounting and other items that
could be considered “non-operating” or “non-core” in nature, and includes the contributions of those plants classified as discontinued
operations. Because EBITDA and Adjusted EBITDA are two of the financial measures that management uses to allocate resources,
determine Dynegy’s ability to fund capital expenditures, assess performance against its peers and evaluate overall financial performance,
we believe they provide useful information for our investors. In addition, many analysts, fund managers and other stakeholders that
communicate with us typically request our financial results in an EBITDA and Adjusted EBITDA format.
consider EBITDA as a way to measure financial performance on an ongoing basis. Adjusted EBITDA is meant to reflect the true operating
performance of our power generation fleet; consequently, it excludes the impact of mark-to-market accounting and other items that
could be considered “non-operating” or “non-core” in nature, and includes the contributions of those plants classified as discontinued
operations. Because EBITDA and Adjusted EBITDA are two of the financial measures that management uses to allocate resources,
determine Dynegy’s ability to fund capital expenditures, assess performance against its peers and evaluate overall financial performance,
we believe they provide useful information for our investors. In addition, many analysts, fund managers and other stakeholders that
communicate with us typically request our financial results in an EBITDA and Adjusted EBITDA format.
– “EBITDA” - We define “EBITDA” as earnings (loss) before interest, taxes, depreciation and amortization.
– “Adjusted EBITDA” - We define “Adjusted EBITDA” as EBITDA adjusted to exclude (1) gains or losses on the sale of assets, (2) the impacts of mark-to-market
changes and (3) impairment charges.
changes and (3) impairment charges.
– “Adjusted EBITDAR” - We define “Adjusted EBITDAR” as Adjusted EBITDA adjusted to exclude operating lease commitments.
• Debt Measures. We believe that our debt measures are useful because we consider these measures as a way to re-evaluate our progress
toward our strategic corporate objective of reducing our overall indebtedness. In addition, many analysts and investors use these
measures for valuation analysis purposes. The most directly comparable GAAP financial measure to the below measures is GAAP debt.
toward our strategic corporate objective of reducing our overall indebtedness. In addition, many analysts and investors use these
measures for valuation analysis purposes. The most directly comparable GAAP financial measure to the below measures is GAAP debt.
– “Net Debt” - We define “Net Debt” as total GAAP debt less cash and cash equivalents and restricted cash. Restricted cash in this case consists only of collateral
posted for the credit facility at the end of each period, and the Sithe debt reserve, at the end of each period where applicable.
posted for the credit facility at the end of each period, and the Sithe debt reserve, at the end of each period where applicable.
– “Net Debt and Other Obligations” or “Adjusted Net Debt”- We define “Net Debt and Other Obligations” or “Adjusted Net Debt” as total GAAP debt plus
certain operating lease commitments less cash and cash equivalents and restricted cash. Restricted cash in this case consists only of collateral posted for the
credit facility at the end of each period.
certain operating lease commitments less cash and cash equivalents and restricted cash. Restricted cash in this case consists only of collateral posted for the
credit facility at the end of each period.
– “Adjusted Debt” - We define “Adjusted Debt” as total GAAP debt plus certain operating lease commitments.
• Enterprise Value - We believe enterprise value is a common value used when evaluating transactions and also in comparing current and
future value to peer companies.
future value to peer companies.
– “Enterprise Value” - We define “Enterprise Value” as Adjusted Net Debt plus an implied equity value, which is calculated based on the transaction offer price.
Definitions
35
Reg G Reconciliation
36
Note: The above is a summary of the financial forecasts prepared by management of Dynegy in connection with Board’s consideration of the Blackstone transaction. For additional information about
these summary financial forecasts, including the assumptions Dynegy management made in preparing them, see the “Summary Financial Forecasts” section of the definitive proxy statement. (1)
Forecasted values. (2) Commodity pricing assumptions through 2012 were based upon June 7, 2010 price curves and commodity pricing assumptions after 2012 were based upon June 7, 2010 price curves
and adjusted based upon management’s fundamental outlook, which included the assumption of asset retirements by which Dynegy would benefit. (3) Adjusted EBITDA means EBITDA plus other
adjustments related to mark-to-market changes.
these summary financial forecasts, including the assumptions Dynegy management made in preparing them, see the “Summary Financial Forecasts” section of the definitive proxy statement. (1)
Forecasted values. (2) Commodity pricing assumptions through 2012 were based upon June 7, 2010 price curves and commodity pricing assumptions after 2012 were based upon June 7, 2010 price curves
and adjusted based upon management’s fundamental outlook, which included the assumption of asset retirements by which Dynegy would benefit. (3) Adjusted EBITDA means EBITDA plus other
adjustments related to mark-to-market changes.