Fitch Dwngrs DPL, Inc. to 'BBB'/Dayton P&L to 'A'; CP Affd

Business Wire, August 16, 2002

Business Editors

NEW YORK--(BUSINESS WIRE)--Aug. 16, 2002

Fitch Ratings downgraded the ratings of DPL, Inc. (DPL) and its utility subsidiary Dayton Power & Light Co. (DP&L). DPL's senior unsecured debt rating to 'BBB' from 'A-'. Due to Fitch's policy regarding the linkage of subsidiary ratings with those of a lower rated parent, Fitch has also lowered DP&L's senior secured debt rating to 'A' from 'AA.' A complete list of the rating changes is shown below. The Rating Outlook for both companies is Negative.

The rating actions follow a recent review of DPL's updated business plan and operating results and reflects the aggregate changes in the company's credit profile that have occurred since 2000 when the company embarked on a higher risk merchant generation strategy. Currently, consolidated financial measures are consistent with the new lower ratings. The negative outlook reflects the on-going financial pressure from soft market prices and slower than expected demand growth in midwest power markets. The revised ratings also deeply discount any liquidity benefits from DPL's $1 billion investment portfolio. About 80% of the portfolio is invested in privately held companies, including a substantial amount in global markets. In addition, the portfolio is potentially subject to capital calls of up to $480 million over the next six years. In the past, capital calls have been funded from the return of previously invested capital and gains.

Since 2000, DPL has added 1,260 mw of merchant, gas-fired peaking capacity at its unregulated subsidiary, DPL Energy. To finance the construction program the company increased consolidated leverage, which was 68% of capitalization as of June 30, 2002. Interest and cash flow measures reflect the debt leverage. Earnings Before Interest and Taxes (EBIT) and Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) interest coverages for the 12-months ended June 30, 2002 were 2.89 times (x) and 3.77x, respectively. Given that current and forecasted energy prices in the midwest are below the break-even cost of DPL's portfolio of peaking units, financial measures will remain under pressure, which accounts for the negative outlook. DPL recently revised its earnings expectations downward by $50 million for 2002. With the revision, consolidated EBITDA/interest coverage for 2002 is expected to be about 3.5x. Favorably, DPL derives about 90% of consolidated EBITDA from its utility subsidiary DP&L.

DP&L's stand-alone credit quality is strong, comparable to those of utilities in the 'AA' category, but ratings are constrained by the 'BBB' parent company rating. The company has a strong balance sheet with 63% equity as of March 31, 2002, and minimal capital expenditures going forward. In addition, the regulated operations provide a predictable revenue stream. DPL's fixed rate standard offer obligation through 2003 and fixed distribution tariff through 2006 are the primary credit concerns. The standard offer obligation is mitigated by DP&L's ownership of 2,843 mw of coal-fired generation and 528 mw of gas/oil-fired generation that should be sufficient to meet its native system load of about 2,600-3,000 mw.

Ratings affected by the rating action are:

DPL, Inc.

--Senior Unsecured Debt lowered to 'BBB' from 'A-';

--Trust Preferred Stock lowered to 'BBB-' from 'A-';

--Commercial Paper remains rated 'F2'

Dayton Power & Light

--First Mortgage Bonds lowered to 'A' from 'AA';

--Collateralized PCRB's lowered to 'A' from 'AA';

--Preferred Stock lowered to 'A-' from 'AA-';

--Commercial Paper is lowered to 'F1' from 'F1 '.

Rating Outlook Negative for both companies.