Fitch Downgrades Michigan Consolidated Gas; Revises DTE's Outlook to Negative

Business Wire, March 19, 2008

CHICAGO -- Fitch Ratings has downgraded the long-term debt Issuer Default Rating (IDR) and outstanding debt ratings for Michigan Consolidated Gas Co. (MichCon) as follows:

MichCon

--Long-term IDR to 'BBB-' from 'BBB';

--Senior secured debt to 'BBB ' from 'A-'.

Fitch has also affirmed the following ratings for DTE Energy Co. (DTE):

DTE

--Long-term IDR at 'BBB';

--Senior unsecured debt at 'BBB';

--Preferred stock at 'BBB-';

--Short-term IDR at 'F2';

--Commercial Paper at 'F2'.

DTE Energy Trust II

--Preferred stock at 'BBB-'.

MichCon

--Short-term IDR at 'F2';

--Commercial Paper at 'F2'.

Fitch has also revised DTE's Rating Outlook to Negative from Stable. The Rating Outlook for MichCon remains Stable. Approximately $2.3 billion of debt is affected.

The downgrade of MichCon reflects projected credit metrics that are more consistent with the 'BBB-' category. The company's ratios of EBITDA to Interest and funds from operations interest coverage are forecasted by Fitch to be approximately 4.0 times (x) and 3.4x, respectively in 2008. Leverage, as measured by the ratio of Average Debt to EBITDA, is expected to be 3.1x for the same time period. Credit fundamentals are anticipated to remain at or near these levels over the next several years.

MichCon's credit profile benefits from a solid competitive position, with access to several supply basins and ownership of more than 129 Bcf of storage capacity, as well as a constructive regulatory environment in Michigan. Rating concerns primarily relate to the higher capital spending required for pipeline expansions and gas storage improvements projects through 2010 and the increasingly sluggish local economy in Michigan. Capital investments are expected to average $166 million per year over the next two years, and will be financed through a combination of internally generated resources, including equity infusions from parent DTE, and external debt financings. The Stable Outlook for MichCon reflects Fitch's expectation that the company will post financial results and credit protection measures commensurate with its rating, as well as receive a reasonable outcome in its planned 2009 rate case.

The revision of DTE's Outlook to Negative reflects consolidated credit metrics that are below average for the 'BBB' rating category and less than expected debt reduction. Recent delays in the sale of DTE's Power and Industrial (P&I) business have left DTE with higher than anticipated leverage, and the timing of the P&I sale and associated debt pay-down using the proceeds is uncertain given the tight leverage finance markets. DTE's normalized ratio of EBITDA to interest and funds from operation interest coverage were 3.4x and 4.1x, respectively, for the twelve month period ended Dec. 31. 2007.

Consolidated leverage, as measured by the ratio of average debt to EBITDA was 3.8x for the same period. If the sale of P&I is completed or a similar amount of debt reduction is achieved through alternate means then EBITDA to interest would improve to more than 4.0x, and Debt to EBITDA would be reduced to less than 3.6x in 2008. While these ratios are still weaker than the targets for the 'BBB' rating category, absent debt reduction, DTE's credit metrics would be more consistent with a 'BBB-' rating.

DTE has already divested a large portion of its unregulated assets. In 2007, DTE completed $1.3 billion of asset sales. Sales proceeds and internally generated resources were used to buy back approximately $725 million of stock and pay down around $500 million of debt. Management announced that with the closing of the P&I sale, DTE will complete the repurchase of $1 billion of common stock (reached 72.5% of goal) and debt reduction of $800 million (reached 62.5% of goal). If leverage does not improve through debt reduction with the proceeds of asset sales or through other means, then further negative rating action is considered likely. The Negative Outlook will remain in place pending the company's ability to pay down parent company debt and improve credit ratios. Fitch notes that further improvement in DTE's credit fundamentals is expected longer term once the company is able to place assets into rate base at the utilities and begin recovering significant environmental compliance costs at its electric company.

The ratings affirmation for DTE is supported by its ownership of two regulated utilities, Detroit Edison Co. (DECo) and MichCon, which provide stable cash flows and benefit from favorable operating characteristics, as well as a more conservative business strategy that is focused on utility rate base growth. The regulated subsidiaries account for more than 90% of DTE's cash flow and upstream cash distributions to fund parent interest and common dividend obligations. Fitch's primary rating concerns for DTE are weaker than forecasted credit ratios, in part due to a delay in the sale of P&I, as well as the large capital spending programs at DECo and MichCon which will require a series of rate increases in a challenging economic environment and following turnover in the Michigan Public Service Commission (MPSC). DECo's Rating Outlook remains Stable as Fitch expects the utility to be able to withstand the higher levels of capital spending and still maintain a solid credit profile.