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04 Nov 2003
MOODY'S MAINTAINS A DEVELOPING RATING OUTLOOK ON ILLINOIS POWER AND DYNEGY FOLLOWING ANNOUNCEMENT TO SELL REGULATED ASSETS TO EXELON FOR $2.225 BILLION. STABLE RATING OUTLOOK ALSO MAINTAINED AT EXELON.
New York, November 04, 2003 -- Moody's Investors Service is maintaining a developing rating outlook on
the ratings of the debt of Illinois Power Company (IPC: Sr.
Sec. -- B3), and Dynegy Holdings (DHI: Caa2 -
Sr. Uns.), and maintaining a stable outlook on the
ratings of Exelon Corporation (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.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
John C. Cassidy
VP - Senior Credit Officer
Mo Ying Seto
Moody's Investors Service
No Related Data.
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