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Announcement:

Moody's affirms AES' ratings; changes outlook to positive

20 Apr 2011

New York, April 20, 2011 -- Moody's Investors Service today affirmed the ratings for The AES Corporation (AES: B1 CFR) and changed its rating outlook to positive from stable. This rating action was driven by AES' announcement that it has executed a definitive agreement to acquire DPL Inc. for cash consideration of approximately $3.5 billion.

Separately, Moody's affirmed AES' speculative grade liquidity rating at SGL-2.

Outlook Actions:

..Issuer: The AES Corporation

....Outlook, Changed To Positive from Stable

Affirmations:

..Issuer: The AES Corporation

....Senior Secured Bank Credit Facilities, Affirmed at Ba1

....Senior Unsecured Regular Bond/Debenture, Affirmed at B1

....Trust Preferred Securities, Affirmed at B3

....Corporate Family Rating, Affirmed at B1

RATING RATIONALE

"The rating affirmation and change in outlook to positive is supported by the sound rationale for the proposed acquisition which, if consummated, would reduce AES' business risk profile and help to improve financial performance from current levels" said Moody's Vice President Scott Solomon. "The acquisition would also offset some of AES' business concentration in South America and materially increase the degree of cash flows generated by regulated utility subsidiaries" added Solomon.

AES has considerable financial flexibility to acquire a company the size of DPL. This flexibility has resulted in large part by an investment completed in March 2010 from a wholly-owned subsidiary of China Investment Corporation that resulted in approximately $1.6 billion in new equity proceeds to AES. These proceeds were used in part to temporarily reduce parent debt while AES considered incremental growth investment opportunities and now will be "re-borrowed". Modestly higher AES parent debt levels (relative to the $5.5 billion outstanding at 2009 year-end) resulting from the anticipated financing of the proposed acquisition are offset by the scale, quality, and predictability of the distributions expected from DPL.

Upward rating pressure could build if AES was able to demonstrate a sustained improvement in key parent level financial metrics whereby adjusted parent operating cash flow to parent level debt and parent level interest coverage achieved levels of approximately 10% and 2.3 times, respectively. We calculated these metrics at approximately 9% and 2 times, respectively, for the twelve months ended December 31, 2010; however, they were driven in part by AES' decision to temporarily reduce parent level debt in 2010 with the new equity proceeds. Excluding the debt reduction that occurred in 2010 (and therefore using 2009 year-end debt balances), AES' metric of parent operating cash flow to parent level debt in 2010 would have been approximately 7.5%.

Completion of the DPL acquisition, combined with near-term improvement in the financial performance of certain subsidiaries, including AES Gener and Masinloc, could trigger an upgrade for AES.

The affirmation of AES' speculative grade liquidity rating at SGL-2 reflects the company's considerable liquidity position, which at December 2010 included approximately $1.1 billion of cash at AES and qualified holding companies and $715 million of availability under a credit facility due 2015, and adequate headroom under its existing financial covenants.

In addition to DPL shareholder approval, the acquisition will require the approval of the Public Utility Commission of Ohio and the Federal Energy Regulatory Commission (FERC). Approvals are expected to be completed by the first quarter of 2012. Moody's intends to revisit AES' rating and positive outlook prior to the closing of the acquisition.

The principal methodology used in this rating was Global Unregulated Utilities and Power Companies published in August 2009.

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

The AES Corporation is a global power company with generation and distribution assets in Europe, Asia, Latin America, Africa and the United States.

New York
Scott Solomon
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
William L. Hess
MD - Utilities
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's affirms AES' ratings; changes outlook to positive
No Related Data.
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