July 22, 2002 — Dynegy Holdings Inc’s (DYNH) senior unsecured debt and Dynegy Inc.’s (DYN) indicative senior unsecured debt have been lowered to ‘BB-‘ from ‘BB+’ by Fitch Ratings.
The short-term ratings for DYN and DYNH remain at ‘B’. In addition, the ratings of affiliated companies, Illinois Power Co. (IP) and Illinova Corp. have been lowered to below investment grade as shown below. All ratings for DYN and its affiliates remain on Rating Watch Negative.
The downgrades are based on Fitch’s ongoing analysis of DYN and reflect a continued weakening in the company’s credit profile. DYN is in the process of executing a restructuring plan designed to reduce consolidated debt and improve liquidity.
However, capital market conditions continue to worsen and the negative over-hang from the SEC’s investigation of accounting and trading issues, ongoing FERC inquiries, and potential litigation exposure have not abated.
Furthermore, given general business conditions, particularly as it relates to confidence-sensitive energy marketing and trading, and DYN’s weak credit profile, the group’s ability to generate sustainable cash flow from core operations is less assured. In recent weeks DYN has removed ratings triggers and secured a $250 million advance on assets sales.
Consolidated liquidity, including liquid gas inventory, is approximately $900 million. There are no material debt maturities or anticipated extraordinary cash drains until November 2002 when a $300 million revolver at DYN and a $450 million secured loan at Northern Natural Gas Co. come due.
By that time DYN plans to have sold assets and issued units at its MLP. Fitch stress case analysis continues to recognize both the execution risk of completing the restructuring strategy as planned and weakening near-term operating results.