Dynegy Inc. is refinancing debt and altering its corporatestructure to avoid a default, putting bondholders at a disadvantageby reducing their claims on the assets of the third-largestindependent U.S. power producer.

Dynegy is seeking $1.7 billion in new loans to replace anexisting facility on which it expects to default later thisyear.

The utility has posted four straight quarterly losses as lowpower prices and tougher capital requirements led it to considerbankruptcy earlier this year. Robert C. Flexon, named chiefexecutive officer on June 22, needs a new credit agreement becauseDynegy expects to be out of compliance with an earnings-to-interestratio requirement in its current loan package by the end of theyear, according to a May 9 regulatory filing.

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