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Fitch puts Dynegy on positive watch
Fitch Ratings put Dynegy Inc. and Dynegy Holdings Inc. on Rating Watch Positive including Dynegy's senior unsecured debt at CCC+ and convertible debentures at CCC+, Dynegy Holdings' secured revolving credit facility and term loan at B+, second priority secured notes at B, senior unsecured debt at CCC+ and Dynegy Capital Trust I's trust preferred stock at CC.
Fitch said the action follows Dynegy's announcement that it is exploring a sale or strategic monetization of its natural gas mid-stream operations.
In addition, the company released operating results for the first quarter of 2005 which generally reflect modestly improving market conditions in midstream and power generation.
The positive watch reflects the likelihood that a monetization of Dynegy's midstream assets would be favorable for its creditors and could, if completed, result in a rating upgrade later in 2005.
Given strong commodity market conditions and high valuations for comparable transactions, Dynegy's midstream assets have a significant current value. In addition, Dynegy would be able to utilize approximately $1.8 billion in tax benefits which would minimize cash tax payments and maximize proceeds available for debt reduction. The company has stated that all proceeds from a transaction would be applied toward debt reduction and has estimated a pro forma net debt-to-capitalization approaching 50%.
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