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Rating Action:

Moody's downgrades Dynegy Holdings to B2; outlook stable

08 Apr 2009

Approximately $6.7 Billion of Debt Securities and Bank Facilities Affected.

New York, April 08, 2009 -- Moody's Investors Service downgraded the long-term ratings of Dynegy Holdings Inc. (DHI), including its Corporate Family Rating (CFR) to B2 from B1 and its Probability of Default Rating to B2 from B1. Moody's also downgraded the company's senior secured bank facilities to Ba2 from Ba1, the Roseton-Danskammer senior secured pass-through certificates to B2 from Ba3, and its senior unsecured debt to B3 from B2. DHI's speculative grade liquidity rating of SGL-3 is affirmed. The rating action concludes the review for possible downgrade that was initiated on February 27, 2009. The rating outlook is stable.

"Today's rating action reflects our assessment of the impact of lower power prices on the credit metrics for DHI's 2009 financial results and our belief that these lower credit metrics are likely to continue into 2010," said A.J. Sabatelle VP and Senior Credit Officer at Moody's.

During the past two years DHI produced financial credit metrics that were in-line with other B1-rated issuers including cash flow (CFO pre-WC )/ adjusted debt that averaged nearly 10% and cash interest coverage that was greater than 2.0x. Moody's expects DHI's performance to decline during 2009 and into 2010 as cash flow to adjusted debt is expected to be in the mid-single digits, cash interest coverage is expected to be less than 2.0x and the company is expected to be negative free cash flow, particularly during 2009 given the size of the company's capital investment program. Moody's observes that the company has recently implemented a change in its hedging strategy which is intended to produce more predictable near-term cash flows. While greater predictability in financial results is a credit supportive trend, the revised commercial strategy and the current lower power prices are incorporated in the company's expected 2009 results.

The SGL-3 rating affirmation reflects our belief that DHI will maintain adequate liquidity, reflecting a substantial degree of cash on hand and liquidity access as well as the lack of any material debt maturities until April 2011. The SGL-3 rating also incorporates the company's continuing plans to raise cash from asset sales. To that end, DHI announced in February the sale of its Heard generating station for slightly more than $105 million and has engaged financial advisors to monetize their interest in two partially owned power plants, Plum Point and Sandy Creek, which could enhance liquidity by at least $275 million. DHI's 2009 projected negative free cash flow is expected to be satisfied by utilizing cash on hand and the available liquidity under its credit facilities. At February 20th, DHI's had $675 million of cash on hand and had access to a total of $1.905 billion of multi-year credit facilities that do not expire until 2012 and 2013. Moody's observes the disclosure in DHI's 2008 10-K filing which states that based on management's current forecast of financial performance during 2009, DHI's available liquidity under these facilities may be reduced temporarily in order to remain in compliance with the secured debt to adjusted EBITDA ratio. Notwithstanding this possibility and considering the recent implementation of a revised hedging strategy which could increase future collateral requirements, Moody's believes that DHI will maintain adequate liquidity for the next four quarters.

Moody's observes that the company faces refinancing risk beginning in 2011 as $500 million of senior unsecured notes mature in April 2011 and in February 2012. While the company currently has availability under its credit facilities to handle a substantial portion of these debt maturities, in the absence of a dramatic improvement in operating margin and cash flow, we believe the company may be challenged in the future to refinance these obligations at reasonable terms and conditions.

DHI's stable rating outlook incorporates the expected impact on the company's near-term cash flow predictability due to the company's recent change in their commercial strategy which contemplates making greater use of a 12 to 24 month forward hedging strategy, which if implemented successfully, should reduce the ongoing volatility in sustainable cash flow.

In light of the challenging prospects for near-term profitability and for positive free cash flow generation caused by lower power prices and the potential for reduced electric demand, limited prospects exist for the company's rating to be upgraded in the near-term.

The rating could be downgraded if DYN is not able to meet its revised business plan resulting in a material increase in negative free cash flow or having the ratio of cash flow to adjusted debt metrics be less than 5%. The rating could also be lowered if DYN's cash flow generation, as measured by EBITDA, ends up significantly below the lower end of the company's 2009 EBITDA range as such a decline would signal weaker cash flow generation and also reduce availability under the company's credit facilities.

The last rating action on DHI occurred on February 27, 2009, when the long-term ratings were placed under review for possible downgrade and the speculative grade rating of SGL-3 was affirmed.

DHI's ratings were assigned by evaluating factors believed to be relevant to its credit profile, such as i) the business risk and competitive position of DHI versus others within its industry or sector, ii) the capital structure and financial risk of DHI, iii) the projected performance of DHI over the near to intermediate term, and iv) DHI's history of achieving consistent operating performance and meeting financial plan goals. These attributes were compared against other issuers both within and outside of DHI's core peer group and DHI's ratings are believed to be comparable to ratings assigned to other issuers of similar credit risk.

Downgrades:

..Issuer: Dynegy Capital Trust II

....Preferred Stock Shelf, Downgraded to (P)Caa1 from (P)B3

..Issuer: Dynegy Capital Trust III

....Preferred Stock Shelf, Downgraded to (P)Caa1 from (P)B3

..Issuer: Dynegy Holdings Inc.

....Probability of Default Rating, Downgraded to B2 from B1

....Corporate Family Rating, Downgraded to B2 from B1

....Multiple Seniority Shelf, Downgraded to a range of (P)Caa1 to (P)B3 from a range of (P)B3 to (P)B2

....Senior Secured Bank Credit Facility, Downgraded to Ba2 from Ba1

....Senior Unsecured Regular Bond/Debenture, Downgraded to B3 from B2

..Issuer: Dynegy Inc.

....Multiple Seniority Shelf, Downgraded to (P)Caa1 from (P)B3

..Issuer: NGC Corporation Capital Trust I

....Preferred Stock Preferred Stock, Downgraded to Caa1 from B3

..Issuer: Roseton-Danskammer 2001

....Senior Secured Pass-Through, Downgraded to a range of B2, LGD3, 46% from a range of Ba3, LGD3, 34%

Upgrades:

..Issuer: Dynegy Holdings Inc.

....Multiple Seniority Shelf, Upgraded to LGD4, 59% from LGD4, 61%

....Senior Secured Bank Credit Facility, Upgraded to LGD1, 06% from LGD1, 07%

....Senior Unsecured Regular Bond/Debenture, Upgraded to LGD4, 59% from LGD4, 61%

Outlook Actions:

..Issuer: Dynegy Capital Trust II

....Outlook, Changed To Stable From Rating Under Review

..Issuer: Dynegy Capital Trust III

....Outlook, Changed To Stable From Rating Under Review

..Issuer: Dynegy Holdings Inc.

....Outlook, Changed To Stable From Rating Under Review

..Issuer: Dynegy Inc.

....Outlook, Changed To Stable From Rating Under Review

..Issuer: NGC Corporation Capital Trust I

....Outlook, Changed To Stable From Rating Under Review

..Issuer: Roseton-Danskammer 2001

....Outlook, Changed To Stable From Rating Under Review

Headquartered in Houston, Texas, DHI is an independent power producer that owns a portfolio of more than 18,000MW electric generating assets. DHI is wholly-owned by Dynegy Inc.

New York
A.J. Sabatelle
VP - Senior Credit Officer
Global Infrastructure Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
William L. Hess
Managing Director
Global Infrastructure Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades Dynegy Holdings to B2; outlook stable
No Related Data.
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