S&P upgrades Dynegy debt, rates notes B-

Standard & Poor's said it raised Dynegy Holdings Inc.'s senior unsecured debt rating to B- from CCC+ and assigned a B- rating to the company's $750 million senior unsecured notes due 2016. The outlook is stable.

S&P said the rating action reflects the reduction in the amount of secured financing that had placed the unsecured debtholders at a disadvantage and caused a greater separation between ratings. Dynegy intends to use a combination of the net proceeds from the sale of senior unsecured notes and cash on hand to tender three series of its second priority senior notes, totaling $1.75 billion.

The ratings on Dynegy and its subsidiaries, Dynegy Holdings and Illinova Corp., reflect the company's vulnerable business profile and highly leveraged financial condition, the uncertain financial performance of its nonregulated merchant energy unit and the consolidated creditworthiness of operations belonging to Dynegy and its subsidiaries, the agency said.

Dynegy recently completed a number of transactions enabling it to refocus its business strategy by exiting its midstream operations and tolling agreements and repositioning the composition of its generating fleet. In addition, Dynegy intends to use some of the proceeds of the midstream sale to reduce debt and improve its financial profile. S&P said these efforts begin the long-road to restoring credit quality to the company's former footings.

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