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Related Issuers
Rating Action:

Moody's assigns a B2 Corporate Family Rating to Dynegy Inc.

Global Credit Research - 04 Jan 2013

New York, January 04, 2013 -- Moody's Investors Service today assigned a B2 Corporate Family Rating, B2 Probability of Default Rating and SGL-3 Speculative Grade Liquidity Rating to Dynegy Inc. (Dynegy). The rating outlook for Dynegy is stable.

Concurrently, Moody's affirmed Dynegy Power, LLC's (GasCo) senior secured term loan rating at B2 and revised its rating outlook to stable from positive.

RATINGS RATIONALE

"The ratings assigned today consider headwinds facing Dynegy, including the current low power price environment in which it operates, the near-term maturity of two in-the-money power contracts and an indication that consolidated cash flows will decline over the near-term" said Moody's Vice President Scott Solomon. "Voluntary debt reduction completed late last year and anticipated future revenue from the sale of generating capacity provides support for the B2 rating," added Solomon.

Dynegy indirectly owns approximately 10,000 megawatts of generating capacity through two wholly-owned operating subsidiaries. Specifically, GasCo owns approximately 7,000 megawatts of gas-fired generation in four distinct geographical power markets, while Dynegy Midwest Generation, LLC (CoalCo) owns 3,000 megawatts of coal-fired capacity in Illinois. The only debt outstanding are term loans at these legal entities totaling approximately $1.4 billion, down from $1.7 billion at September 30, 2012. This debt may be refinanced at the Dynegy level during 2013.

Dynegy primarily sells the electricity generated by its coal-fired generation into the Midwest Independent System Operator or MISO wholesale power market at market-determined price levels. The MISO power pool remains fairly oversupplied which, combined with weak electric demand and low fuel costs, has resulted in price levels at-or-near historical lows. This has resulted in poor historical financial performance; Dynegy's coal portfolio generated negative cash flow during the first nine months of 2012.

Moreover, two significant contractual sources of cash flow are scheduled to mature over the next 24 months. This includes California-based Moss Landing (Units 6&7), which has one -year remaining on its long-term tolling arrangement, while its New York-based Independence plant has a contractual arrangement expiring in late 2014.

In our opinion, Dynegy will be hard pressed to re-contract these assets which is the primary driver for an expected declining cash flow trend. Our current expectation is for Dynegy to generate consolidated cash flows before changes in working capital items (CFO pre-WC) in a range of $155-175 million in 2013, $60-80 million in 2014 and a potentially lower amount in 2015. These results are expected to yield key financial metrics of CFO pre-WC to debt and interest coverage in a range of 5-7% and 1.5-1.7 times, respectively, in 2014, levels which we view commensurate with a B2 Corporate Family Rating. We would need to see key consolidated financial metrics of CFO pre-WC to debt and interest coverage in excess of 8% and 1.8 times, respectively, on a sustainable basis to consider an upgrade of Dynegy's Corporate Family Rating.

The revision of GasCo's rating outlook to stable from positive reflects the expected decline in its cash flow and key financial metrics given the expiration of the above cited contracts.

Dynegy's speculative grade liquidity rating of SGL-3 reflects our expectation that the company will maintain an adequate liquidity profile over the next 4-quarter period as a result of the maintenance of acceptable cash balances given the current lack of an external committed source of liquidity. Unrestricted consolidated cash balances currently stand at approximately $400 million.

Issuer: Dynegy Inc.

..Ratings Assigned:

Probability of Default Rating, B2;

Corporate Family Rating, B2

Speculative Grade Liquidity Rating, SGL-3

Issuer: Dynegy Power, LLC

..Ratings Affirmed:

Senior Secured Term Loan rating, B2

..Ratings Withdrawn:

Probability of Default Rating, B2

Corporate Family Rating, B2

Speculative Grade Liquidity Rating, SGL-3

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following : parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Scott Solomon
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

William L. Hess
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns a B2 Corporate Family Rating to Dynegy Inc.
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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