By Joseph Checkler
Of DOW JONES DAILY BANKRUPTCY REVIEW
Dynegy Holdings LLC said a hedge-fund manager's demand for public access to a scathing examiner's report into the company's prebankruptcy dealings should be denied, partly because there's no evidence Dynegy intentionally committed any kind of fraud.
In a Tuesday filing with the U.S. Bankruptcy Court in Poughkeepsie, N.Y., Dynegy Holdings said that it has already offered the hedge-fund manager, Claren Road Asset Management, the confidential portions of the report related to the transfer of coal assets to parent Dynegy Inc. (>> Dynegy Inc.).
All Claren Road has to do to get those, Dynegy said, is agree to keep them confidential. Claren Road has yet to respond to that request, Dynegy said.
Dynegy's filing gives little credence to Claren Road's most recent argument that the First Amendment of the U.S. Constitution justifies public access to court-appointed examiner Susheel Kirpalani's report.
"Claren Road fails to set forth the relevant standards established ... to evaluate whether public access should be granted to materials ... which were submitted under previously agreed-upon and court-approved confidentiality protections," Dynegy lawyers said in their filing.
A spokeswoman for Carlyle Group LP (CG), which owns Claren Road, didn't immediately return a call seeking comment.
Judge Cecilia G. Morris will hear arguments on the matter this Friday. The argument was originally set for last week, but Morris said she wanted the parties to make more filings after Claren Road raised the constitutional issue. Dynegy Inc. also made a Tuesday filing asking Morris to deny Claren Road's request.
Claren Road has argued that the report should be made available in its entirety instead of in its current form, in which 94 of the 149 pages are redacted. Claren Road lawyers had said in early April court papers that Dynegy's assertion that attorney-client and attorney-work privileges justified the redactions are superseded by the "crime-fraud" exception. They later made the First Amendment argument.
Kirpalani's report, released in March, denounced Dynegy's transfer of the coal assets before its bankruptcy proceedings to Dynegy Inc. His findings threw Dynegy Holdings' already contentious case into more disarray but, after mediation sessions with Kirpalani himself, the company last month disclosed a deal with most objecting groups to shift the coal assets back to creditors.
The settlement, which was disclosed in early April but detailed in court filings earlier this month, still needs to be voted on by creditors and approved by Morris. It includes a deal with a unit of U.S. Bancorp (USB), the representative of holders of bonds secured by leases of Dynegy's power plants. U.S. Bank had previously sued over the asset transfers but has agreed to drop that suit.
Under terms of the compromise with some groups of disgruntled creditors, the holding company's unsecured creditors would get a 99% stake in the parent company. Current shareholders initially would receive 1%, plus warrants to potentially boost their stake to 13.5% over five years.
Dynegy Holdings and four subsidiaries filed for Chapter 11 bankruptcy protection in November after senior bondholders, owed more than $1.4 billion, signed off on a since-scrapped restructuring deal that called for unsecured noteholders owed about $4 billion to share $400 million in cash, $2.1 billion in new convertible preferred stock and $1.015 billion in new senior notes.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com.)
-By Joseph Checkler, Dow Jones Daily Bankruptcy Review; 212-416-2152; [email protected]; Twitter: @JoeCheckler