May 1, 2002 — Dynegy Holdings Inc.’s (DYNH) senior unsecured debt and Dynegy Inc.’s (DYN) implied senior unsecured debt have been downgraded one notch to ‘BBB’ and ‘BBB-‘, respectively by Fitch Ratings.
The short-term ratings for DYNH and DYN have been lowered to ‘F3’ from ‘F2’. The ratings for DYN and DYNH remain on Rating Watch Negative where they were originally placed on Nov. 9, 2001. In addition, the long-term ratings for affiliated companies, Illinois Power Co. (IP) and Illinova Corp. have been lowered one notch and placed on Rating Watch Negative.
A full description of the rating changes is shown below. Fitch expects to meet with DYN management over the next several weeks to review the company’s updated plans.
The downgrades primarily reflect Fitch’s concerns with the company’s financial flexibility and its ability to operate its business recognizing a difficult business and capital market environment. Fitch’s analysis also considers the renewal by DYNH of its 364-day bank facility.
The size of the facility was reduced to $900 million from $1.2 billion with higher pricing and additional restrictions and financial covenants, all of which are reflective of market conditions and the external uncertainty surrounding the company. With the renewal of the 364-day facility, DYN has $1.4 billion of cash and credit available to manage its cash requirements, including maximum cash collaterial requirements under a potential below investment grade scenario.
On balance, Fitch views the renewal of the facility as favorable news and would have considered lowering DYN and affiliated company ratings by more than one notch if DYNH secured the loan or utilized the one year term-out provision.
DYN plans to raise additional cash mid-year with the sale of approximately $250 million of gas midstream assets to Dynegy Energy Partners L.P., a master limited partnership being formed by the company. Prospective cash uses include the funding of $200 million of DNYH debt maturing in July 2002. Also, DYN’s $300 million multi-year facility renews in November 2002.
The downgrades of IP, and its parent company Illinova Corp., reflect the structural and functional ties between the DYN companies. IP secures the majority of its energy requirements under a power purchase agreement with a subsidiary of DYNH.
The following ratings have been downgraded:
DYN –Implied senior unsecured debt to ‘BBB-‘ from ‘BBB’; –Short-term debt to ‘F3’ from ‘F2’.
DYNH –Senior unsecured debt to ‘BBB’ from ‘BBB+’; –Short-term debt to ‘F3’ from ‘F2’.
Illinois Power Co. –Senior secured debt and pollution control bonds to ‘BBB+’ from ‘A-‘; –Senior unsecured debt to ‘BBB’ from ‘BBB+’; –Preferred stock and trust preferred to ‘BBB-‘ from ‘BBB’; –Short-term debt affirmed at ‘F2’.
Illinova Corp. –Senior unsecured debt to ‘BBB-‘ from ‘BBB’.