Koppers Faces Downgrade, Dynegy Faces Redux Risk

Koppers Industries could be downgraded by Moody's Investors Service because of earnings and cash flow pressures confronting the Pittsburgh-based company. These pressures have been caused by the extended downturn in North American aluminum and steel markets, the imminent expiration of tax credits and uncertainty surrounding the recently announced investigation led by the European Union and the U.S. Department of Justice related to competitive practices. The credit facility, which includes a $100 million revolver, a $9.7 million "A" loan and $43 million "B" loan is rated Ba2. Moody's has changed the outlook to negative from stable.

Over the last two years, income at Koppers' carbon materials and chemicals division has been pressured by lower shipments prices for many of the products sold to North American aluminum and steel industry customers. Sales of railroad and utility products did increase this year, but without improvements in aluminum and steel industry conditions it will be difficult to offset the approximately $9 million of annual cash flow which will be lost from the expiration of tax credits. Cash flow could also be pressured by $5.9 million in payments Koppers may have to make to settle environmental matters with the government. Furthermore, the company may have to make additional contributions to its underfunded defined benefit pension plan in 2003.

* Moody's has downgraded the ratings of Dynegy and its subsidiaries due to ongoing concerns about the level of cashflow the company will be able to generate relative to its high financial leverage and uncertainties over debt obligations over the next few years. The debt maturing includes $1.6 billion of bank credit facilities in the second quarter of 2003, according to Moody's. Dynegy's senior implied rating was lowered to B3 from B2 and the senior unsecured rating of Dynegy Holdings, the primary operating subsidiary, was lowered to Caa2 from B3. The senior secured rating of Illinois Power was lowered to B3 from B1.

Dynegy Holdings has a $200 million secured credit facility that matures next month. Additionally, none of the credit lines can be extended via a term-out option. Dynegy currently has approximately $940 million of cash and $120 million of additional borrowing capacity for total liquidity of $1.06 billion, which is insufficient to retire the bank facilities absent additional cashflow from operation.