Fitch drops DPL to junk

Fitch Ratings said it downgraded DPL Inc.'s long-term issuer default and senior unsecured debt rating to BB+ from BBB+ following completion of DPL's acquisition by the AES Corp. (B+/stable).

The agency also downgraded Dayton Power & Light Co.'s long-term issuer default rating to BBB- from BBB+.

In addition, AES' Dolphin Subsidiary II, Inc. merged with and into DPL, with Dolphin's $1.25 billion of senior unsecured debt assumed by DPL. The rating on that debt was affirmed at BB+.

The outlook is stable. Ratings have been removed from Rating Watch negative, where they were placed on April 20 following the announcement of the proposed acquisition by AES.

The actions reflect the acquisition of DPL by AES, which closed Monday and resulted in an additional $1.25 billion of senior unsecured debt at DPL, according to the agency.

Concerns include the significant increase in leverage at DPL and ultimate ownership by lower-rated AES, an increasingly competitive operating environment in Ohio and a generating fleet that is nearly 100% coal-fired and exposed to potential additional environmental regulation, the agency said.

The company's strengths include constructive regulatory mechanisms that allow for timely recovery of costs, a low-cost generating fleet and a strong financial profile at the utility, the agency noted.

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