Jun 25, 2002 By Kristen Hays Associated Press Writer 4 min read

HOUSTON (AP) – Dynegy Inc. plans to raise at least $2 billion and improve the quality of its financial reporting as part of a restructuring plan announced Monday that is intended to sturdy the company’s finances and improve its image on Wall Street. The plan includes a 50 percent reduction in its dividend, the spinoff of a unit and the partial sale of a 16,500-mile-long natural gas pipeline that Dynegy acquired from bankrupt Enron Corp. earlier this year.

The financially distressed company, which fired 340 employees last week, also announced Monday that it would take a $450 million pretax charge in the second quarter of 2002 because of severance expenses to the laid-off workers, consulting fees and trouble at its communications unit.

“The measures we plan to implement, combined with the steps we have successfully executed in recent weeks, will ensure sustainable financial stability for Dynegy and are intended to improve the company’s credit profile substantially into 2003 and beyond,” said Dynegy interim chief executive, Dan Diesntbier. Fitch Ratings downgraded Dynegy’s credit rating to a step above investment grade after the company’s announcement and said further downgrades were possible if the plan does not work.

Fitch analyst Ralph Pellecchia said the downgrade stemmed in part from the Securities and Exchange Commission’s ongoing investigation of Dynegy’s accounting and trading practices and inquiries from the Federal Energy Regulatory Commission. Pellechia said the rating was “likely” to remain until key elements of the plan are executed. The plan is Dynegy’s latest effort to improve its financial health and restore investor confidence, which has withered greatly since the collapse of Enron Corp. last year. Enron rivals, including Dynegy, El Paso Corp., CMS Energy and Williams Cos., have come under scrutiny because of their own questionable accounting and trading activities.

Last month former Dynegy chief executive and co-founder Chuck Watson resigned, and last week the Houston-based company’s chief financial officer, Rob Doty, stepped down as well.

Dynegy said Monday the company has enough cash to meet its current obligations even if one or more credit agencies downgrade it to below investment grade. The company’s cash levels have ranged from $900 million to more than $1 billion since late May. The company also plans to enhance disclosure of finances and accounting in an effort to provide more clarity for investors and complete the restatement of Dynegy’s 2001 earnings as announced last month.

“Because Arthur Andersen can no longer perform services for the company, Dynegy’s new independent auditor, PricewaterhouseCoopers, will conduct a re-audit of 2001 results as part of the restatement process,” the company said.

Dynegy was one of hundreds of public companies to fire Andersen earlier this year. Andersen was convicted June 15 of obstruction of justice for shredding and doctoring Enron-related documents last October as the SEC began investigating the energy company’s accounting.

Initiatives in Dynegy’s capital plan to raise at least $2 billion include:

– Reduction of common stock dividends by 50 percent starting in the third quarter of 2002.

– Removal of ratings triggers in certain investments or transactions by amortization of cash to pay debt or agreements from a partner to pay debt in a joint venture.

– Partial sale of Dynegy’s ownership interest in or a joint venture transaction for Northern Natural Gas Co.

, a 16,500-mile-long pipeline extending from West Texas to the Great Lakes. Dynegy acquired the pipeline in late January from Enron as payback for a $1.5 billion investment in Enron last November before Dynegy’s plan to buy its former larger rival collapsed.

-Partial sale of Dynegy’s ownership interest in or a joint venture transaction for Dynegy Storage in the United Kingdom.

-An initial public offering of Dynegy Energy Partners L.P., a new partnership that will own and run part of the company’s downstream liquids business.

-Incremental reductions of capital expenditures by $100 million through 2002 and limited such spending in 2003.

-Annual savings of $50 million based on last week’s layoffs.