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Rating Action:

Moody's places Union Electric under review for possible downgrade

12 Feb 2008

Approximately $3.5 billion of debt securities affected

New York, February 12, 2008 -- Moody's Investors Service placed the long-term ratings of Union Electric Company (d/b/a AmerenUE, Baa1 Issuer Rating) under review for possible downgrade. Union Electric's Prime-2 rating for commercial paper is affirmed. Moody's affirmed the ratings of Ameren Corporation (Ameren, Baa2 Issuer Rating and Prime-2 rating for commercial paper) and AmerenEnergy Generating Company (AmerenGenco, Baa2 senior unsecured) but changed their rating outlooks to negative from stable. Moody's affirmed the ratings of Central Illinois Public Service Company (d/b/a AmerenCIPS, Ba1 Issuer Rating); CILCORP Inc. (Ba1 Corporate Family Rating); Central Illinois Light Company's (d/b/a AmerenCILCO, Ba1 Issuer Rating), and Illinois Power Company (d/b/a AmerenIP, Ba1 Issuer Rating) and maintained a positive rating outlook on these four subsidiaries.

The review of Union Electric's ratings is prompted by declining cash flow coverage metrics; increased operating costs; higher capital expenditures for environmental compliance and transmission and distribution system investment; and significant regulatory lag in the recovery of these costs. "The utility's ratio of cash flow pre-working capital to debt has fallen over the last several years from 31% in 2004 to 20% for the twelve months ended 9/30/07. Continued deterioration of cash flow coverage metrics would not be consistent with its current Baa1 rating", said Michael G. Haggarty, Vice President and Senior Credit Officer. The review will focus on the utility's plans to finance these capital expenditures; the impact on credit metrics going forward; the likelihood that regulatory lag will diminish over time; and the potential for increased regulatory supportiveness in Missouri, including the implementation of fuel, purchased power, and environmental cost adjustment clauses. Moody's does not expect the review to result in more than a one-notch downgrade of Union Electric's ratings.

The negative outlook on the rating of AmerenGenco reflects its position as a predominantly coal generating company that is likely to be seriously affected by more stringent environmental regulations, including a potential cap or tax on carbon emissions. Although AmerenGenco's financial metrics could improve over the near-term as a result of the recent expiration of some below market affiliate contracts, the company's business risk has also increased as it now operates solely as a merchant generator. AmerenGenco will be making substantial investments to meet environmental compliance mandates over the next few years, that Moody's expects will require higher debt financing, and which is likely to pressure cash flow coverage and balance sheet metrics. New controls on carbon emissions, the timing of which is uncertain, could further pressure the generating company's margins over a longer term. Depending on the magnitude of these environmental requirements, financial metrics may not remain strong enough to maintain credit ratings at its current Baa2 level.

The negative outlook on the ratings of Ameren, the parent company, reflects the declining metrics, significant capital expenditures, and regulatory lag facing its largest utility subsidiary, Union Electric; as well as the higher business risk and increasing capital expenditure requirements at its major unregulated generating subsidiary, AmerenGenco. "With two of Ameren's major subsidiaries facing cost pressures and rising capital expenditure requirements, dividends upstreamed to the parent company could be negatively affected going forward", said Haggarty. This is of particular concern given the high dividend payout ratio at the parent company, which was over 90% in 2006 and during the twelve months ended 9/30/07.

Although Moody's maintains a positive rating outlook on Ameren's Illinois utility subsidiaries, any upward ratings action with respect to these subsidiaries is likely to be modest and highly dependent on supportive outcomes of pending distribution rate cases and the successful implementation of new power procurement policies and procedures in Illinois.

Ratings placed under review for possible downgrade include:

Union Electric's A3 senior secured, Baa1 Issuer Rating, Baa2 subordinated, and Baa3 preferred stock.

Ratings affirmed with a negative outlook include:

Ameren's Baa2 Issuer Rating;

AmerenGenco's Baa2 senior unsecured.

Ratings affirmed with a positive outlook include:

Central Illinois Public Service Company's Baa3 senior secured debt, Ba1 Issuer Rating, and Ba3 preferred stock;

Illinois Power Company's Baa3 senior secured debt, Ba1 Issuer Rating, and Ba3 preferred stock.

CILCORP, Inc.'s Ba1 Corporate Family Rating and Ba2 senior unsecured debt (LGD5, 79%);

Central Illinois Light Company's Ba1 Issuer Rating;

Central Illinois Light Company's Ba1 preferred stock (LGD4, 51%).

CILCORP's Probability of Default Rating at Ba1.

Ratings affirmed with a positive outlook/LGD assessments revised:

Central Illinois Light Company's senior secured debt at Baa2 (LGD2, 15%) from Baa2 (LGD2, 14%).

Ratings and Loss Given Default assessments for CILCORP and its subsidiary Central Illinois Light Company have been determined in accordance with Moody's Loss-Given Default Methodology. More information on this methodology can be found at

Ameren Corporation is a public utility holding company headquartered in St. Louis, Missouri. It is the parent company of Union Electric Company (d/b/a AmerenUE), Central Illinois Public Service Company (d/b/a AmerenCIPS), CILCORP Inc., Central Illinois Light Company (d/b/a AmerenCILCO), Illinois Power Company (d/b/a AmerenIP), and AmerenEnergy Generating Company.

New York
Michael G. Haggarty
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

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