Fitch Revises Outlook for DPL Inc. & Dayton Power & Light Co. to Positive

Business Wire, April 18, 2008

CHICAGO -- Fitch Ratings has affirmed the ratings for DPL Inc. (DPL) and Dayton Power & Light Co. (DP&L) as follows:

DPL

--Issuer Default Rating (IDR) 'BBB ';

--Short-term IDR 'F2';

--Senior unsecured 'BBB '.

DP&L

--Issuer Default Rating (IDR) 'A-';

--Short-term IDR 'F1';

--Secured PCRBs 'A '

--First mortgage bonds 'A ';

--Preferred stock 'A-'.

Approximately $1.6 billion of debt is affected by the rating action. The Rating Outlook is revised to Positive from Stable for both DPL and DP&L.

The ratings reflect DP&L's relatively low risk profile and continued improvement in DPL's financial metrics. The ratings consider debt reduction at the parent company, strong utility cash flows, declining capital expenditures, a conservative utility capital structure, and adequate liquidity at both the parent company and utility level under Fitch's moderate stress scenarios. The low risk business profile is supported by the conservative strategy focused on improving utility operations, the protections afforded by DP&L's rate stabilization plan which extends until 2010, a physical hedge against commodity prices, and minimal threat of retail competition.

The Positive Outlook reflects Fitch's expectation that the utility will become free cash flow positive in 2008 following the implementation of the bulk of DP&L's environmental programs. These programs allow the company to burn cheaper, higher sulfur coal to generate its power needs while reducing emissions. With declining capital needs and an expectation that DPL will apply excess cash to further reduce leverage, the credit profiles of DP&L and its parent have substantially improved.

Fitch expects to resolve the ratings outlook following the passage of new legislation to address power supply issues in Ohio and an examination of the methods employed by the utilities to comply with the new law. The process began in September 2007 in an effort to avoid rate shock that could ensue, following expiration of the Ohio-based utilities' current rate stabilization plans on Dec. 31, 2008. While final legislation is expected within the next few weeks, interested parties are still attempting to reach agreement regarding the rate impact of a full transition to market pricing, the application of earnings tests to protect from over-earnings at the utility, as well as the method of securing the lower of market prices and the regulated security plans for Ohio consumers. Again, it is important to note that DP&L is not expected to be subject to the new legislation/regulatory rules until the expiration of its rate stabilization plan at the end of 2010.

DPL is expected to continue to generate approximately $400 million of sustainable cash flow each year. DP&L's fiscal 2007 funds-from-operations (FFO) to interest coverage was 9.4 times (x) and total debt-to-FFO was 2.4x. At DPL those ratios were 4.4x and 4.8x, respectively. Fitch expects DP&L's 2008 ratios to further improve to FFO-to-interest coverage of 9.9x and total debt-to-FFO of 2.2x. At DPL, Fitch expects the respective ratios to improve to 5.5x and 3.9x in 2008.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.