Dynegy Inc. is refinancing debt and altering its corporate structure to avoid a default, putting bondholders at a disadvantage by reducing their claims on the assets of the third-largest independent U.S. power producer.

Dynegy is seeking $1.7 billion in new loans to replace an existing facility on which it expects to default later this year.

The utility has posted four straight quarterly losses as low power prices and tougher capital requirements led it to consider bankruptcy earlier this year. Robert C. Flexon, named chief executive officer on June 22, needs a new credit agreement because Dynegy expects to be out of compliance with an earnings-to-interest ratio requirement in its current loan package by the end of the year, according to a May 9 regulatory filing.