Fitch Upgrades DPL's Sr Unsec to 'BBB-' & DP&L's FMBs to 'A-'

Business Wire, July 15, 2005

CHICAGO -- Fitch Ratings has upgraded the senior unsecured ratings of DPL Inc. (DPL) to 'BBB-' and removed it from Rating Watch Positive. The upgrade is based on the expectation that DPL will complete its $500 million debt reduction plan in the near term; the improvements in DPL's liquidity position, financial reporting, and internal controls; a material reduction in business risk resulting from the sale or transfer of all private equity fund investments; and the lower risk strategy focused on its regulated utility business. The upgrade of The Dayton Power and Light Company's (DP&L) ratings was permitted by the improvement in the parent company's credit profile. Approximately $2.2 billion of debt is affected, as listed below. The Rating Outlook for both DPL and DP&L is Stable.

Fitch expects DPL to reduce long-term debt by approximately $500 million using a portion of the $816 million net proceeds from the sale of its private equity fund investments. As a result consolidated debt is expected to decline to approximately $1.7 billion. DPL has already retired the 7.83% senior notes due 2007 for $41 million in cash. In addition, DPL yesterday announced a plan to redeem $200 million of 8.25% senior notes due 2007 for $213 million in cash, and made tender offers for an additional $246 million of debt comprising portions of the 8.125% capital securities due 2031, 6.875% senior Notes due 2011, and 8% senior notes due 2009. The $500 million debt reduction will improve DPL's interest coverage and cash flow leverage ratios to investment grade. DPL had cash and short-term investments of approximately $950 million as of March 31, 2005. DPL has no significant debt maturities until 2007, and the bulk of its long-term debt is due 2009 and beyond.

Looking ahead, a balanced deployment of free cash flow and a constructive decision on the pending rate request at the Public Utility Commission of Ohio (PUCO) would be positive for credit quality.

DPL's ratings are supported by the strong cash flow generation and conservative capital structure of DP&L. Credit concerns include cost pressures at DP&L, lingering investigations by several regulatory bodies, risks associated with ownership of gas-fired peaking generating capacity, and the possibility that shareholder friendly initiatives may increase in the future. There are ongoing investigations by the Securities and Exchange Commission, and Department of Justice relating to issues raised by the Taft investigation, and a FERC operational audit of DP&L's oversight of its generation and transmission areas. DPL's 1,114-megawatt wholesale gas fired peaking fleet continues to operate out-of-the-money, although any implementation of the reliability pricing model in PJM and the expectation of decreasing reserve margins in PJM would allow DPL to realize improving profits from these units over time.

DP&L's ratings reflect its strong credit ratios and internal cash flow offset by the rating constraint of the consolidated DPL credit profile. The ratio of funds from operations to interest expense was more than 8 times for the 12 months ended March 31, 2005, and internal cash flow is expected to adequately fund capital expenditures for the next several years. Recently the PUCO concluded its investigation into the financial condition of DP&L to ensure its regulated operations are not adversely affected by actions of its parent. DP&L recently improved its liquidity position by completing a $100 million 364-day unsecured facility that can be increased to $150 million and extended annually through 2010, and plans to refinance $214 million of tax-exempt pollution control debt to extend the maturity dates and lower the interest rates.

Credit concerns at DP&L include rising fuel costs and a fuel recovery mechanism that permits only partial recovery through the end of 2008, upward pressure on capital expenditures due to environmental compliance costs for the predominantly coal-fired fleet, and regulatory risks. PUCO is expected to issue a decision by year-end 2005 on DP&L's request to increase electricity rates by $76 million through a generation rate rider. While the rider may be adjusted annually, it cannot exceed more than 11% of the tariffed generation charge until the transition period ends Dec. 31, 2008. For 2006, Fitch projects that DP&L will be able to recover $76 million of projected fuel costs of $117 million. DP&L has hedged 97%, 74%, and 63% of anticipated coal needs through forward purchases for 2005, 2006, and 2007, respectively, which limits fuel price risks.

Fitch Upgrades the following:

DPL Inc.

-- Senior unsecured debt to 'BBB-' from 'BB';

-- Trust-preferred stock to 'BB' from 'B ';

-- Short-term debt to 'F3' from 'B';

-- Outlook Stable.

The Dayton Power & Light Company

-- First mortgage bonds to 'A-' from 'BBB';

-- Collateralized pollution control revenue bonds to 'A-' from 'BBB';

-- Preferred stock to 'BBB' from 'BB ';

-- Short-term rating to 'F2' from 'B';

-- Outlook Stable.

DPL is an exempt public utility holding company. DPL's main operating subsidiary is DP&L, an electric utility that serves customers in west central Ohio.