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I AGREE
02 Oct 2001
MOODY'S RATES INITIAL OFFERING OF SENIOR NOTES SECURED BY A GENERAL AND REFUNDING MORTGAGE OF DETROIT EDISON A3
Approximately US$700 Million of Debt Securities Affected.
New York, October 02, 2001 -- Moody's Investors Service has assigned an A3 rating to the proposed initial
offering of so-called "fading lien" bonds by The Detroit Edison
Company. The company plans to issue senior notes secured by the
company's general and refunding mortgage. While outstanding and
secured by the mortgage, these notes are expected to rank pari passu
with all other mortgage debt issued by the company. Upon termination
of the existing mortgage indenture, the notes will either become
unsecured and rank equally with all other unsecured senior indebtedness
or be secured by substitute mortgage bonds which will be issued under
a new mortgage indenture. Should the notes no longer be secured,
the possibility does exist that the ratings then assigned to the notes
will lower than the existing ratings.
The notes are subject to release of the mortgage when the company has
retired sufficient mortgage bonds, other than any fading lien debt,
that the remaining principal amount of outstanding mortgage bonds does
not exceed the greater of 5% of net tangible assets or 5%
of total capital, as defined. Should the company choose to
secure the notes by substitute mortgage bonds issued under a mortgage
indenture other than the existing mortgage indenture, that lien
would be subject to the prior lien of the existing mortgage until all
mortgage bonds issued under that mortgage are no longer outstanding and
the mortgage is terminated. As of June 30, 2001, outstanding
mortgage bonds totaled approximately $2.3 billion which
equals about 24% of net tangible assets and 33% of capitalization.
Detroit Edison (DE) is a wholly-owned subsidiary of DTE Energy
Company and is a Michigan public utility engaged in the generation,
purchase, distribution and sale of electric energy in a 7,600
square mile area in southeastern Michigan. Its senior secured debt
ratings, at A3, reflect the company's strong cash flow,
which provides for considerable financial flexibility. However,
the rating also recognizes the operating risks associated with the Fermi
nuclear power plant. Additionally, the growth of non-regulated
businesses at DTE Energy creates a greater level of business risk which
could impact Detroit Edison's credit profile.
In June 2000, the Michigan legislature passed legislation that not
only provided for a partial restructuring of the electric power industry
in Michigan but also increased the certainty of that the company could
recover the stranded costs associated with the operation of its generation
assets, including Fermi, in a competitive environment.
The new legislation provides that all customers will have choice of generation
supplier by January 1, 2002, but that the generation function
remains a part of the utility. The company received approximately
$1.7 billion of securitization bond proceeds in March 2001.
These proceeds will allow the company not only to recover its stranded
costs but also to fund a required 5% ($65 million) rate
reduction. The effect of the securitization process has been to
improve the company's capital structure and to strengthen the support
of existing debt from cash flows. As a result, the rating
outlook is stable. By law, rates levels are frozen through
December 31, 2003, and capped for additional periods.
The company is headquartered in Detroit, Michigan.
New York
Stephen J. Gutkowski, CFA
Senior Vice President
Corporate Finance
Moody's Investors Service
JOURNALISTS: (215) 967-6233
SUBSCRIBERS: (215) 967-6233
New York
John Diaz
Managing Director
Corporate Finance
Moody's Investors Service
JOURNALISTS: (215) 967-6233
SUBSCRIBERS: (215) 967-6233
No Related Data.
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