Fitch rates DTE convertible at BBB+

Fitch Ratings assigned a rating of BBB+ to DTE Energy's proposed $150 million issuance of mandatory convertibles. The outlook is stable.

DTE's credit profile is primarily derived from its regulated utility subsidiaries, Detroit Edison (senior secured A-) and Michigan Consolidated Gas (senior secured A).

Detroit Edison's integrated electric utility business is stable, and the utility benefits from favorable restructuring legislation. Operating performance at the electric utility has been strong, with generating units posting decreasing production costs and high capacity factors.

DTE relies on the receipt of upstream dividends from Detroit Ed to service parent-company debt and pay common dividends, and the dividend payout ratio is relatively high.

MichCon, a gas distribution utility, is characterized by its low business risk, competitive gas rates, stable credit protection and leverage measures and good supply, transportation and storage arrangements.

Upstream dividends from MichCon will be used first to service securities of DTE Enterprises (formerly MCN Energy Group) and to support fixed obligations of MCN Energy Enterprises, the holding company for non-regulated business ventures, if necessary.

Credit concerns include the high level of consolidated leverage at DTE for the BBB+ category, 55.5% as of March 31, excluding $1.75 billion of Detroit Edison transition bonds, primarily attributable to debt related to the 2001 merger with MCN Energy.

Also, DTE has some exposure to weak steel industry through ownership interests in two facilities that provide coke to two bankrupt steel companies.

Detroit Edison has moderate commodity risk due to fixed electric tariffs in Michigan through 2004 and is forecasted to continue to have higher capital spending over the next several years for environmental compliance.

In 2002, volatile weather in Michigan will be a risk as DTE's annual storm reserve was depleted in first quarter. Going forward, the impact of Electric Choice in Michigan will be small in the near term, but may result in loss of retail electric load in the later years.

Consolidated financial performance in 2001 was negatively impacted by various factors, including the effects of a weak economy and warm weather.

During first quarter, Detroit Edison's service territory experienced two severe storms and the utility spent some $25 million to restore power to customers who lost service.

However, DTE has been successful at achieving targeted merger synergies, primarily through head count reduction and completed asset sales.

DTE is projecting about $100 million of additional asset sales in 2002, including additional MCN out of region assets.

S&P cuts WorldCom senior debt to B+

Standard & Poor's lowered the senior debt ratings on WorldCom Inc. to B+ from BB, among others, and kept the ratings on negative watch due to the company's anticipated delay in obtaining a $5 billion bank facility, increased refinancing risk associated with large debt maturities in 2003 and continued weak environment for long-distance services.

Also, S&P noted, WorldCom's confirmation that it will further cut capital spending by $1 billion in 2003 and reduce its workforce by 20% could negatively impact future growth prospects.

WorldCom had about $30 billion total debt outstanding as of March 31.

In May, WorldCom fully drew down its $2.65 billion bank credit facility that terms out in June 2003 and said it intended to obtain a larger term secured facility.

S&P is concerned about the potential delay in obtaining the new bank facility because of its impact on the company's liquidity position over the next year.

Composition of the financial covenants in this facility will be essential to improving WorldCom's liquidity position as debt totaling more than $9 billion over the next three years comes due. The bank facility is also a major factor to reestablishing investor confidence and access to the capital markets.

Even if the bank loan is successfully negotiated, S&P is concerned about WorldCom's asset valuation in relation to its total debt outstanding, as demand for long-distance voice and data services continues to be impacted by a slow economic recovery, technology substitution and competition.

In addition, because of its debt load and excess long-haul capacity in the market, the potential of being acquired by a financially stronger entity is limited in the near term.

In resolving the watch, S&P will review terms of the new bank agreement.

Unless the company presents a credible plan to meet upcoming maturities, ratings could be lowered further.

Depending on terms of the credit facility security, unsecured issues could be notched below the corporate credit rating.

S&P comments on Aquila plan

Standard & Poor's noted that the announcement of strategic changes at Aquila Inc. (BBB/negative watch) represents a positive step toward ratings stability, but the plan contains elements that are likely to offset some of the anticipated improvement in credit quality.

Most significantly, Aquila intends to adjust its energy marketing and trading operations in a manner that will greatly reduce its risk profile and, therefore, the capital requirements associated with that business.

However, the reduced marketing activities and other planned asset divestitures will also affect the company's future ability to produce earnings and cash flow to support debt service.

The ultimate impact on credit quality will depend, therefore, on the level of asset sales and whether the net effect of the sales on Aquila's business and financial risk is credit-accretive.

The accomplishment of planned issuances of new debt and equity to fund recent acquisitions and improve the balance sheet, along with other steps to strengthen liquidity, will be essential to achieving stable investment-grade ratings.

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