New York, Nov. 4, 2003 — Moody’s Investors Service is maintaining a developing rating outlook on the ratings of the debt of Illinois Power Co. (IPC: Sr. Sec. — B3), and Dynegy Holdings (DHI: Caa2 – Sr. Uns.), and maintaining a stable outlook on the ratings of Exelon Corp. (Exelon: Baa2 – Sr. Uns.) following the announcement that a subsidiary of Exelon had agreed to acquire substantially all of the assets of IPC from Dynegy, Inc. for total consideration of $2.225 billion.
Moody’s believes that the transaction, if consummated as proposed, could have positive rating implications for the debt of IPC and, to a lesser extent, DHI. However, the transaction has substantial execution risk including the receipt of special legislative action by the Illinois General Assembly and approvals by both state and federal regulatory authorities.
Specifically, legislation will be introduced in the current session that, if approved, will compress the Illinois Corporation Commission (ICC) merger review period to nine months from eleven months and will grant the ICC authority to set future rates for both IPC and Commonwealth Edison Company (ComEd: Sr. Sec. — A3; Stable Outlook), an Exelon subsidiary, at the time of the transaction approval. Assuming legislation is approved, Exelon intends to file an application and a proposed rate plan for IPC and ComEd in December 2003.
Approval of this legislation is a key condition to whether the merger as proposed is consummated, and parties have the right to terminate the transaction should legislative action not occur by the end of the second quarter 2004.
Under the terms of the proposed transaction, the operating assets and liabilities of IPC are expected to be sold to a legal operating subsidiary of Exelon Energy Delivery Company, LLC that would own electric distribution, electric transmission, and natural gas assets. Approximately $1.8 billion of IPC debt (composed of secured first mortgage bonds and transitional funding notes) will be assumed by this newly formed subsidiary.
The remaining $425 million would include the issuance of a $150 million promissory note from Exelon that matures in 2010 and the payment of $275 million in cash at closing, subject to working capital adjustments.
Exelon intends to commit to the ICC that it will defease or call $260 million of IPC debt at closing, and expects to call an additional $360 million of IPC debt at the end of 2006 when the debt is first callable. Exelon intends to fund the cash portion of the transaction, including the retirement of IPC debt, with common equity to be issued over time when needed.
As part of the transaction, Dynegy will enter into a power purchase agreement with Exelon Generation (ExGen: Sr. Uns. — Baa1; Stable Outlook) for approximately 6,000 megawatts of coal and natural gas capacity through 2010. ExGen will enter into a separate power purchase agreement with Exelon’s acquiring subsidiary that will expire in 2010. The $2.3 Billion inter-company note between Dynegy and IPC will be extinguished as part of the transaction.
Moody’s anticipates monitoring the legislative and regulatory developments in Illinois, including the passage of the bill being proposed by Exelon. Moody’s will likely take further rating action concerning this acquisition once greater clarity concerning both the passage of legislation and Exelon’s regulatory filings are known.
Headquartered in Houston, Texas, Dynegy Inc. is the parent of Dynegy Holdings and Illinova Corp. Dynegy’s primary businesses are power generation and natural gas liquids. Illinova Corp.’s principal subsidiary is Illinois Power Company, an electric and gas transmission and distribution company.
Headquartered in Chicago, Illinois, Exelon is the holding company for Exelon Generation Company, LLC, and PECO Energy Company (A2 – Sr. Sec. Debt) and Commonwealth Edison Company, both regulated transmission and distribution companies.