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26 May 2004
MOODY'S AFFIRMS RATINGS FOR DYNEGY INC. AND ITS SUBSIDIARIES, ASSIGNS B2 RATING TO DYNEGY HOLDINGS INC.'S SECURED BANK CREDIT FACILITIES, CHANGES THE RATINGS OUTLOOK TO POSITIVE.
Approximately $8.6 billion of debt securities affected.
New York, May 26, 2004 -- Moody's Investors Service assigned a B2 rating to Dynegy Holdings Inc.'s
(DHI) new $1.3 billion secured credit facilities.
These facilities, which are guaranteed by Dynegy Inc.,
consist of a 3-year revolving credit tranche of $700 million
and a 6-year term loan tranche of $600 million (the total
of the two will equal $1.3 billion). The B2 ratings
assigned to the new credit facilities, which are one notch above
DHI's B3 senior implied rating and the B3 ratings assigned to the
$1.750 billion second priority senior secured notes issued
during 2003, primarily reflect the stronger asset coverage provided
by the first priority lien position and the $1.490 billion
cap (excluding the Project Alpha debt) on first priority debt contained
in the underlying credit agreement. Furthermore, the credit
agreement places restrictions on total junior debt (both secured and unsecured)
permitted that limit the company's ability to incur additional junior
debt to $700 million. However, Moody's notes the indenture
for the existing $1.750 billion second priority senior secured
notes is currently more restrictive than the credit agreement in terms
of the amount of permitted junior debt (both secured and unsecured).
The 3-year revolving credit facility can be used by the company
for letters of credit or general corporate purposes. The term loan
will be used in part to fully retire the company's Project Alpha
obligations and to provide collateral to counterparties and will amortize
by $1.5 million per quarter for 23 quarters (totaling $34.5
million) with the remaining balance due in full upon maturity on May 27,
2010. Moody's notes that the credit agreement requires that
all of the outstanding obligations under the Project Alpha Facility (totaling
approximately $170 million) be repaid within 90 days of closing.
The cap on first priority liens essentially limits this class of secured
debt to outstandings under these credit facilities and borrowings under
the Riverside Facility (once Project Alpha is paid off).
Moody's also notes that the credit agreement has mandatory prepayment
provisions and restrictions on payments to Dynegy Inc. The bank
credit agreement also includes a minimum liquidity requirement,
a maximum allowed secured debt-to-EBITDA ratio (which decreases
from 8.1:1 at closing to 7.0:1 over the life
of the facility), and a maximum amount of allowed capital expenditures.
The maximum capital expenditure covenant varies throughout the life of
the agreement consistent with the company's projected capital expenditure
profile and allows Dynegy to carry forward any excess room under the covenant
from previous quarters as well as spend against future limits.
While these covenants may limit Dynegy's flexibility to a certain extent
in the near term, Moody's believes the company will remain comfortably
within these financial covenants.
Moody's changed the ratings outlook to positive from developing due to
progress made to date in reducing debt while improving the company's liquidity
position. However, Moody's notes that several credit challenges
remain, including: debt levels that remain too high relative
to operating cash flow, the expectation of limited free cash flow
generation over the near to medium term, and uncertainty related
to ongoing litigation and investigations. In the first quarter,
Dynegy generated $114 million of free cash flow after capital expenditures.
Dynegy's ability to consistently generate free cash flow will continue
to be a key ratings driver over the near and medium term. Moody's
will continue to assess Dynegy's success in meeting this objective and
will consider a review for a one-notch upgrade once there is a
greater degree of certainty surrounding the company's ability to generate
meaningful amounts of free cash flow. The impact of the sale of
IP to Ameren will also be considered. Moody's views this potential
sale as marginally credit positive over the near term due to the elimination
of the I/C note and IP debt as well as removing uncertainty associated
with future capital needs at IP. Finally, Moody's notes the
prospects for an upgrade of DHI's Caa2 senior unsecured debt ratings remains
uncertain given the amount of secured debt in Dynegy's capital structure.
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.
Corporate Finance Group
Moody's Investors Service
John C. Cassidy
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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