TEXT-S&P cuts Dynegy rating to 'D'
Overview -- U.S. independent power producer Dynegy Inc. filed for Chapter 11 bankruptcy protection. -- We expected this filing after the bankruptcy proceedings on Dynegy Inc.'s subsidiary, Dynegy Holdings LLC (not rated). -- We lowered Dynegy Inc.'s rating to 'D'. -- We affirmed subsidiary Dynegy Power LLC's rating at CCC+/Negative/--. Rating Action On July 6, 2012, Standard & Poor's Ratings Services lowered Dynegy Inc.'s corporate credit rating to 'D' following its bankruptcy filing. We affirmed our 'CCC+' corporate rating on Dynegy Power LLC, which is ring-fenced from Dynegy Holdings LLC. Rationale We expected Dynegy Inc. to file for bankruptcy protection based on the bankruptcy process of Dynegy Holdings. Dynegy Inc. and Dynegy Holdings will emerge from bankruptcy into a single unit under the proposed plan. The companies plan to emerge in the late third quarter of 2012. Dynegy Power LLC is a subsidiary of Dynegy Holdings. We rate it at 'CCC+', above the Dynegy Holdings and Dynegy ratings based on ring-fencing provisions that make Dynegy Power bankruptcy-remote from its parents, but not bankruptcy-proof. Despite Dynegy Holdings' bankruptcy filing in November 2011, creditors have not tried to pull Dynegy Power into the bankruptcy proceedings. Dynegy Power has issued $1.1 billion in credit facilities due 2017, and credit facility lenders are secured by all the assets of Dynegy Power, which provides a disincentive for Dynegy Holdings' creditors to force a filing. Dynegy Holdings' creditors will gain Dynegy Power anyway under the proposed plan. Recovery analysis Our recovery score on Dynegy Power's $1.1 billion credit facility is '1'. See our recovery report published June 29, 2012 for more information. Outlook The negative outlook on Dynegy Power reflects exposure to the Dynegy Holdings and Dynegy Inc. bankruptcy process. It does not appear that Dynegy Holdings' creditors seek to bring Dynegy Power into the bankruptcy proceeding. We would lower the rating if we think there is a greater chance that Dynegy Power could be pulled into the bankruptcy proceedings. Related Criteria And Research 2008 Corporate Credit Criteria, April 15, 2008 Ratings List Rating Lowered To From Dynegy Inc. Corporate credit rating D/--/-- CC/Negative/-- Ratings Affirmed Dynegy Power LLC Corporate credit rating CCC+/Negative/-- Senior secured B Recovery rating 1 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
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