Dynegy's purchase of coal-fired assets was "fraudulent," report says

A federal court-appointed investigator found that Dynegy’s (NYSE: DYN) purchase of coal-fired power plants from a unit that later filed for bankruptcy was fraudulent and harmed creditors.

According to Bloomberg, the lawyer over the investigation concluded that the conveyance of CoalCo to Dynegy Inc. was a fraudulent transfer. The U.S. Trustee, an arm of the Department of Justice that oversees bankruptcies, was appointed in January to investigate the pre-bankruptcy reorganization.

The lawyer also said that the bankruptcy should be taken over by a trustee who can better protect creditors, according to the article.

Five subsidiaries of Dynegy, including Dynegy Holdings, filed for bankruptcy in November 2011 after coal and natural gas assets were transferred to entities outside of Dynegy Holdings in August 2011. Bondholders who have debts associated with leases for two Dynegy-owned power plants claimed the bankruptcy only benefited shareholders and left them without any protection. Bondholders sued Dynegy over the reorganization and the bankruptcy followed shortly after.

The company has reportedly proposed swapping debt for preferred shares that would convert to common stock at the end of 2015, giving the board four years to turn the company around, the article said.

A U.S. Bankruptcy judge agreed to the request for an examiner and ordered an “unfettered investigation” into the restructuring.

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