S&P: Illinois Power ratings off watch

Standard & Poor's said it affirmed its B corporate credit rating on Dynegy Inc. and its subsidiaries and removed its ratings on electric utility Illinois Power Co., a Dynegy subsidiary, from CreditWatch with positive implications.

All outlooks are negative.

The CreditWatch was removed following the announcement that Exelon Corp. has terminated an agreement to buy Illinois Power.

S&P said the sale of Dynegy's Illinois Power unit was a key part of the company's comprehensive self-restructuring program. Now that the agreement to sell Illinois Power to Exelon has been terminated, Dynegy will need to improve Illinois Power's financial structure through cost reductions to stem credit deterioration at the consolidated enterprise.

Importantly, S&P said several key credit issues still need to be resolved. Before the sale was canceled, Dynegy expected to eliminate $170 million in annual interest payments associated with the $2.3 billion inter-company note and $1.8 billion in Illinois Power debt, which was to be assumed by Exelon. In addition, the company's consolidated debt leverage will remain at a burdensome level because the anticipated proceeds could have been used to reduce debt retained from the prior failed business strategy.

S&P said Dynegy's liquidity position is buoyed by the successful restructuring of the company's bank loan in April 2003.

Dynegy's cash balance and available credit as of Sept 30 was about $1.4 billion. Capacity on the bank lines amounts to $1.1 billion, of which $353 million had been drawn in letters of credit as of Sept. 30.

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