Dynegy bonds trade down on Blackstone buy-out

Blackstone’s agreed buy-out of Dynegy, along with its plan to offload some plants to NRG, should be positive for Dynegy loan holders, according to research firm KDP Advisor. KDP says that the loans are likely to be taken out with cash or new loans in early 2011.

For bond holders, the impact of the transaction is more finely balanced. On the one hand, the deal removes refinancing risk up to the end of 2015. But the credit risk of the bonds could increase if Blackstone decides to increase the leverage of the company. Dynegy’s 7.75% 2019 bonds traded down from 70 to 66 cents in the dollar on Friday when the news was announced.

Dynegy’s loans, especially the $850 term letter of credit facility, are owned by 20.3% of US CLOs, according to CLO Master. The loans have recently been trading at between 96 and 99 cents in the dollar.