Fitch upgrades Dynegy

Fitch Ratings said it upgraded Dynegy, Inc.'s issuer default rating to B from B-; Dynegy Holding, Inc.'s issuer default rating to B from B-, secured bank facilities to BB/RR1 from BB-/RR1, second-priority notes to BB/RR1 from B+/RR1 and senior unsecured debt to B+/RR3 from B-/RR4; Dynegy Capital Trust I's trust preferreds to CCC+/RR6 from CCC/RR6; and Sithe Independence Funding Corp.'s secured bonds to BB from BB-.

The ratings were removed from Rating Watch evolving, and the outlook is stable.

The agency said the upgrade is based upon the expectation of an improved risk profile of the companies upon the acquisition of 8,184 megawatts of generation assets from the LS Power Group; expectations that Dynegy, as an owner of wholesale power assets, will benefit from higher pricing in wholesale power markets as reserve margins continue to tighten and existing hedges are replaced at current market prices; and Fitch's expectation that the company's liquidity will be sufficient to meet needs for the next several years.

Ratings concerns include the projected high leverage for the combined merger company, with an estimated debt-to-EBITDA ratio for the year ending December 2007 of 5.75x to 6x, and unknown ability to effectively manage commodity risk exposure, especially in light of the company's increased price risk exposure for its Illinois assets as well as the need to manage LS Power's hedged positions, the agency said.

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