Moody's may upgrade Dynegy on merger news

Moody's Investors Service said it placed Dynegy Inc.'s ratings on review for upgrade, including its B3 unsecured rating and Ba3 secured bank loan rating.

The review follows news that Dynegy will merge with Vistra Energy Corp. in an all-stock transaction, Moody's explained.

The agency also said it affirmed all of Vistra Energy's ratings, including its Ba2 rating on the senior secured bank facility of Vistra Operations Co. LLC.

Vistra Energy's outlook is stable.

With this transaction, Vistra Energy will gain significant size and scale to operate in a volatile, commodity-driven business despite merging with a lower rated entity, Moody's said.

According to the proposed structure at closing, Vistra Energy will be the surviving ultimate parent company of the combined entity, the agency said.

All of Dynegy's existing debt will be transferred to Vistra Energy, the agency added.

But Vistra Energy's existing debts, which are held at its principal subsidiary, Vistra Operations, will not be similarly transferred to Vistra Energy, Moody's said.

The review for upgrade at Dynegy is based on the merger structure, the agency explained, and the expectation that Dynegy's debt, bank loans and bonds will move to the Vistra Energy holding company.

The proposed merger is an overall credit negative for Vistra's bank loan, but it is not enough to affect its rating, Moody's said.

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