By OGJ editors
HOUSTON, June 25 -- Dynegy Inc. reported June 19 that Rob Doty has resigned from his position as executive vice-president and chief financial officer, and the company has appointed Louis Dorey to replace him. That same day, the energy marketer reported that it would cut 340 workers, or 6%, of its worldwide workforce. Dynegy's staff in its headquarter city of Houston saw the heaviest cuts, with 300 employees let go, 50 of whom came from the firm's trading business. In addition, Dynegy revealed on Monday a $2 billion capital scheme to shore up its liquidity and reduce its debt.
"Dynegy has always been an efficient organization, especially from a work force standpoint," said Dan Dienstbier, Dynegy CEO. "Nevertheless, the new business environment in the merchant energy sector requires that we pare down certain businesses, such as power trading, and adjust accordingly in order to position the company for long-term, sustainable profitability," he said. Along with attrition and retirements, the staff reductions would result in savings of $35 million/year, the company said.
Doty, who worked for Dynegy for 10 years, served in various senior positions in accounting and finance before being named to chief financial officer in 2000. Dorey's appointment, the company said, "is consistent with Dynegy's continued focus on enhancing its financial position, strengthening its balance sheet, and improving its credit profile."
Dienstbier added, "Our business environment calls for a different set of skills as we address the changes in our industry."
Most recently, Dorey served as the company's president, energy marketing and origination, where he oversaw management of the company's wholesale power and gas marketing and origination business. Before that, he served as executive vice-president, strategy and planning for the company's marketing and trade unit. Dorey joined Dynegy in 1997 as vice-president, finance and planning.
Capital plan, financial reporting
Dynegy's plan includes the partial sale of its ownership interest in the 16,600 mile Northern Natural Gas Co. (NNG) pipeline system and of its ownership interest in Dynegy Storage in the UK—both acquired late in 2001—and the reduction by 50% of its common stock dividend starting in the third quarter. The company also plans to make an initial public offering of the recently formed unit Dynegy Energy Partners LP.
The company said that currently its liquidity was "adequate" enough "to meet its obligations and commitments, even in the event of a loss of its investment grade rating by one or more credit rating agencies."
Dienstbier said, "Our liquidity is solid, and our leadership team has developed a sound set of business, financial, and operational strategies to address current market conditions and preserve our franchise."
The company also stated that it would be taking steps to improve the transparency and clarity of its financial reporting. This process will include the segregation of "financial contribution among earnings generated by regulated operations, term contracts, fee-based operations, and marketing and trading operations."
Credit ratings
Following Dynegy's release of its new capital plan, Standard & Poor's said Tuesday that it had lowered Dynegy's long-term corporate credit rating to BBB- from BBB. "The plan could bolster Dynegy's liquidity position," said S&P's analyst John Kennedy, "but implementation will likely weaken Dynegy's capital structure and business profile."
Kennedy added that while the sale of Dynegy's stake in NNG, would raise capital, it would also "reduce the firm's mix of regulated businesses. This is the segment that helps to strengthen Dynegy's business profile."
Fitch Ratings, meanwhile, downgraded Dynegy's indicative senior unsecured debt to BB+ from BBB-. The agency also downgraded Dynegy Holdings Inc.'s senior unsecured debt rating to BB+ from BBB. "Additional concerns include the expected ongoing cash burn from (telecomunications) operations, uncertainties as to the future performance of energy marketing and trading, the need to resolve the $1.5 billion of (the company's) preferred stock held by ChevronTexaco Corp. that matures in November 2003, and the financial and operating pressures caused by a difficult business and capital market environment," Fitch said.