Updated from 1:03 p.m. EDT
promise to pull off an aggressive restructuring plan triggered a mood swing among investors Monday.
Early in the afternoon -- just after Dynegy's stock dipped to a one-year low of $6.37 -- interim Chief Executive Dan Dienstbier told analysts that he feels "a great deal of comfort" with a $2 billion debt-reduction plan that, some say, is riddled with execution risks. His confidence won over investors, who pushed the stock back up to $7.40, just 12 cents shy of where it opened.
The rebound came during an early afternoon conference call loaded with promises but somewhat light on details. Louis Dorey, who stepped in as Dynegy's chief financial officer last week, joined in the chorus of reassurance from the company's top leaders.
He said Dynegy's restructuring plan is "in full flight" and "well down the road" toward execution. However, the company also admitted that it cannot seek a partner for one of its major assets -- Northern Natural Gas Co. -- until Enron's option to acquire it officially expires next month. In the meantime, company officials said, buyers have already expressed an interest in Dynegy's natural gas assets in the United Kingdom.
Then There's This
Left unanswered were questions about Dynegy's 2002 earnings projections and possible revisions to its 2001 financial statements. Worries about Dynegy's credit rating also remained.
Dynegy has already lost the first round in its fierce battle to fight off "junk" credit ratings that could cripple the company's lucrative energy trading business.
The company weathered a swift downgrade from Fitch early Monday after submitting an ambitious de-leveraging plan that's very similar to the ambitious yet unrealized de-leveraging plans of several other energy trading companies. Fitch lowered Dynegy's credit rating two notches, pushing it to junk territory, just an hour after reviewing the company's strategy to raise $2 billion.
Dynegy admitted that the downgrade may not be its last. Still, the company said it will maintain adequate liquidity "even with the loss of investment-grade ratings from one or more agencies." For now, the company said it is entirely focused on carrying out a broad debt-reduction plan that includes a mix of asset sales, cost reductions, possible joint ventures and a 50% cut to its annual dividend.
Fitch analyst Ralph Pellecchia said Dynegy's announcements Monday only fueled existing concerns about the company's condition.
"We felt the downgrades were appropriate given the company's financial condition and the execution risk of completing the plan," Pelecchia said. "So it isn't just the plan. It's all elements of the company."
Pelecchia said Dynegy continues to suffer from the "negative overhang" of investigations by the
Securities and Exchange Commission
Federal Energy Regulatory Commission
. He also cited litigation against the company as a concern.
More to Come?
Dynegy critics predicted that Moody's and Standard & Poor's may soon follow with similar downgrades to junk. They called Dynegy's plan "very weak," saying that the company is simply joining its peers in flooding the market with assets that might attract cheap offers, at best.
Highlights of Dynegy's strategy include:
The partial sale of a pipeline and some natural gas storage and processing facilities, as well as the sale of "additional assets" that total $200 million
A $100 million reduction in capital expenditures
A possible "equity-like" offering
A 50% reduction in the common stock dividend, beginning in the third quarter
Anne Falgoust, an analyst at Johnson Rice in New Orleans, said Dynegy's plan is "what you would expect." She said the dividend cut, in particular, makes sense.
"You never like to see companies do that," Falgoust said. "But when you're in a situation like this, it's one of the easiest things to do."
Mark Easterbrook, an analyst at RBC Capital Markets in Dallas, said only the possibility of issuing new equity came as a surprise. He did express a desire for further earnings guidance, however.
Dynegy canceled its previous 2002 earnings guidance and announced that PricewaterhouseCoopers will re-audit the 2001 earnings previously blessed by Arthur Andersen.
Peter Cohan, a Massuchussettes author and investment strategist, predicted that investors will steer clear of Dynegy for now.
"Dynegy has thrown its earnings guidance out the window," Cohan said. "And the new audit throws doubt on the 2001 results as well. Investors are probably going to be less interested in owning this stock until these things get cleared up."