Approximately $1.8 billion of credit facilities rated
New York, September 16, 2010 -- Moody's Investors Service today assigned a Baa2 to approximately
$1.1 billion of senior unsecured two and three year credit
facilities of DTE Energy Company (DTE); a Baa1 to approximately $275
million of senior unsecured two and three-year credit facilities
of The Detroit Edison Company (DECO); and a Baa1 to approximately
$425 million of two and three year senior unsecured credit facilities
of Michigan Consolidated Gas Company (MichCon).
Concurrent with these assignments, Moody's affirmed all of
the existing ratings of DTE including all senior unsecured debt and credit
facilities at Baa2, all subordinated debt/ trust preferred stock
at Baa3, and its short-term rating for commercial paper at
Prime-2; all of the existing ratings of DECO, including
all senior unsecured credit facilities, debt securities, unsecured
tax exempt revenue bonds and Issuer Rating at Baa1, all secured
debt and secured tax-exempt revenue bonds at A2, and its
short-term rating at Prime-2; and all of the existing
ratings of MichCon, including all senior unsecured credit facilities
at Baa1, all senior secured debt at A2, and its short-term
rating for commercial paper at Prime-2. Additionally,
Moody's affirmed ratings on the shelf registration for DTE's
issuance of senior unsecured and subordinate debt at (P)Baa2 and (P)Baa3,
respectively; and ratings on the shelf registration for DECO's
issuance of senior secured and unsecured debt at (P)A2 and (P)Baa1,
respectively. The rating outlook for DTE, DECO and MichCon
DECO and MichCon's Baa1 senior unsecured ratings are driven by their
relatively stable regulated cash flows which stem from regulatory relationships
that Moody's generally views as being above average among U.S.
state regulated utilities in terms of supportiveness to credit quality.
The ratings consider the weak economic conditions in the utilities service
territories and recognize that the companies have been successfully managing
within these parameters for some time. The utilities have been
able to contain and reduce costs by instituting efficiency programs,
and they have been able to offset the impact of load reductions via regulatory
tools that were provided by Michigan's 2008 energy legislation such
as forward test years, interim rates and decoupling. The
ratings consider financial metrics that are expected to generally remain
toward the mid-to-upper end of the ranges identified in
Moody's rating methodology for Global Regulated Electric Utilities for
companies rated Baa. The ratings also consider the utilities'
significant capital expenditure plans, and the overall moderate
consolidated business risk profile of DTE.
The A2 rating for DECO and MichCon's secured debt, reflects
the two notch differential between most senior secured debt ratings and
senior unsecured debt ratings of investment-grade regulated utilities.
The differential is based on Moody's analysis of the history of
regulated utility defaults, which indicates that regulated utilities
have experienced lower loss given default rates (higher recovery rates)
than non-financial, non-utility corporate issuers.
DTE's Baa2 senior unsecured rating is driven by the relatively stable
cash flows generated by its regulated utility subsidiaries which operate
in weak economic service territories but which have benefited from relatively
supportive regulatory relationships, credit metrics consistent with
a mid-Baa rated utility holding company, and relatively modest,
primarily energy related, non-utility operations.
The rating also considers the significant capital spending programs at
DTE's subsidiaries and assumes DTE will fund these investments in a manner
that will maintain or improve its current financial strength and flexibility.
The Prime-2 short-term ratings for DTE, DECO and MichCon
are supported by their stable cash flows which over the medium term are
generally expected to be sufficient to cover capital expenditures and
dividends, The companies also have ample bank credit facilities
(including the approximately $1.8 billion of recently closed
multi-year facilities noted above) to support working capital needs
and commercial paper programs, and manageable maturity schedules.
The stable rating outlook for DTE, DECO and MichCon reflects Moody's
expectation for continued steady financial performance and improving cash
flows at DECO and MichCon along with a consistent regulatory environment
offsetting a weak economic environment. The stable outlook incorporates
Moody's expectation that management will balance the financing of its
unregulated and regulated investments to maintain consolidated credit
metrics consistent with its Baa2 rating level.
Although unlikely in the near term, upward rating pressure could
develop if there were to be a significant improvement in the overall economic
conditions in Michigan along with continued regulatory support and a further
reduction in non-utility operations. A rating upgrade could
be considered if there were to be a reduction in leverage combined with
the management of operating costs such that DTE's consolidated cash flow
credit metrics continued to improve on a sustainable basis so that,
for example, CFO pre-WC interest coverage would be in the
range of approximately 4.5-5x and CFO pre-WC to Debt
would be in the range of approximately 20-25% on a sustainable
A downgrade in the rating could occur if there were to be greater emphasis
on shareholder rewards such that the company has to increase its consolidated
leverage to fund its sizable capital spending program. Downward
rating pressure would be likely if for example, there were to be
a deterioration of DTE's consolidated credit metrics such that the ratio
of CFO pre-WC to Debt ratio falls below approximately 15%
and CFO pre-WC interest coverage falls below 3.0x for an
For additional information, please refer to Moody's credit
opinions for DTE, DECO and MichCon which can be found at www.moodys.com.
The principal methodology used in rating DTE Energy Company was Regulated
Electric and Gas Utilities rating methodology published in August 2009.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
Headquartered in Detroit, Michigan, DTE is a holding company
whose two primary utility subsidiaries are DECO, an integrated electric
utility serving the greater Detroit area and MichCon, is a gas utility
serving customers throughout Michigan. DTE's other subsidiaries
include pipelines, regulated by the Federal Energy Regulatory Commission
(FERC), and non-regulated businesses including unconventional
gas production, power marketing and trading and power and industrial
projects for energy-intensive customers.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service's information, confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
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in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Investors Service
William L. Hess
MD - Utilities
Infrastructure Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's rates credit facilities of DTE and subs; existing ratings affirmed
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New York, NY 10007