NEW YORK (

TheStreet

) --

Carl Icahn

said in a regulatory filing on Friday that he is prepared to extend a $2 billion credit line to

Dynegy

(DYN)

to allay fears that it would suffer a liquidity problem, should its deal with

Blackstone

(BLK) - Get Report

not be approved.

Icahn also bought more options in the company, raising his stake to 12.9%.

In October, the activist investor bought a nearly 10% stake in the company, in a bid to

oppose Blackstone's $4.7 billion dollar buyout of the energy company, which he believed undervalued the company. He joined hedge fund

Seneca Capital

, which has a 9.3% stake, and which had also objected to the buyout deal announced in August.

Earlier this week, Dynegy issued a letter to shareholders ahead of its November 17 special shareholder meeting, urging them to consider Blackstone's bid, as

Seneca Capital was ignoring real and near-term risks such as its liquidity, high leverage and refinancing risks.

In the letter, CEO Bruce Williamson pointed out that an independent proxy firm, ISS, had disagreed with Seneca's evaluation of the company and had recommended shareholders vote in favor of Blackstone's bid.

He also disagreed with Seneca's solution to its liquidity issues, which was to issue more debt, as they were already highly leveraged and that debt would be difficult to obtain.

That appears to have prompted Icahn to extend a credit line to Dynegy. "To allay fears engendered by management, fears that the Reporting Persons believe are unfounded concerning a possible liquidity problem if the transaction is not approved, the Icahn companies, which have billions of dollars of liquidity, will today contact management to make available a $2 billion line of credit if Dynegy management cannot obtain other financing," the regulatory filing said.

Shares of Dynegy were up 1.3% at $4.69 at the open.

--Written by Shanthi Venkataraman in New York

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