Fitch IBCA Rates Detroit Edison First Mortgage Debt `A-`

Business Wire, Jan 28, 2000

Business Editors

NEW YORK--(BUSINESS WIRE)--Jan. 28, 2000

Fitch IBCA assigns its `A-` rating to Detroit Edison Co.'s (DE) $220 million issue of 7.5% first mortgage bonds due 2005.

Proceeds of the securities will be used to pay down commercial paper. Fitch IBCA also affirms the outstanding ratings of DE: general and refunding mortgage bonds `A-`, secured medium-term notes `A-`, remarketed secured notes at `A-/F1', junior subordinated deferrable interest debentures at `BBB', preferred stock at `BBB', and commercial paper at `F1'.

The company has undertaken initiatives to reduce operating costs and capital expenditures and also benefits from operating in a relatively supportive political and regulatory environment. Key to the maintenance of DE's `A-` senior debt rating is the adequate recovery of stranded costs, associated principally with the Fermi facility, and a reasonable transition plan for restructuring the Michigan electric market. DE's financial condition remains healthy, with strong cash flow measures. Credit concerns relate to DE's high cost of power generation, which could result in cash flow and income pressure as DE moves to an open access environment, but these concerns were mitigated by the Michigan Public Service Commission's restructuring order of January 1998.

Fitch IBCA has been closely following negotiations over electric restructuring legislation in Michigan, and is encouraged by a recent development. Under an early proposal, DE would have been required to reduce the generation assets it controls to 25% of the state total, requiring divestiture of approximately 5,000MW of its 11,500MW of installed capacity. That proposal also would have substantially reduced DE's stranded cost recovery entitlement, resulting in a $532 million customer credit.

However, in the electric restructuring bill introduced in the Michigan Senate on Jan. 25, the customer credit has been removed, the generation ownership threshold has been increased to 30%, and securitization has been added as a stranded cost recovery option. Since any restructuring legislation would go through substantial review and modification before passage, it is too early to predict the outcome. The bill is currently under committee consideration, and it is doubtful that restructuring legislation could be enacted without the support of DE.

DE is a regulated electric utility serving the Detroit area and is a wholly owned subsidiary of DTE Energy Co. (DTE). DTE plans to acquire the common stock of MCN for approximately $2.6 billion consisting of $1.1 billion in cash and the assumption of $2 billion of MCN related debt. MCN plans on asset sales of approximately $320 million prior to the close of the transaction. DTE indicated it would finance the cash portion of the transaction initially with a bridge loan, which would later be replaced with long-term debt. The businesses are highly compatible, and the merger is not expected to have an adverse impact on DE's credit profile.