Moody's Upgrades Debt Rating on DPL & Subsidiary

Dayton, Ohio-based diversified energy utility DPL Inc. (DPL - Analyst Report) and its subsidiary Dayton Power and Light Company were upgraded by Moody's Investors Service. On last Friday, June 26, Moody's upgraded the parent’s senior unsecured debt rating to Baa1 from Baa2 and the subsidiary’s senior secured debt rating to A1 from A2.

The upside came from an approval for ESP settlement establishing rates till 2012 from the Public Utilities Commission of Ohio (PUCO). The ESP was originally filed in October 2008 as required by Ohio Amended Substitute Senate Bill No.221 (SB 221).

Under the terms of the settlement, DP&L will freeze base distribution and generation rates through 2012, with limited exceptions including changes in regulatory and tax laws, storm damage costs, costs associated with any new climate change laws or regulations, and certain regional transmission organization related costs.

The settlement lent stability to the fortunes of DPL, which was rocked on the troubled shores of the Midwest economy. DPL’s issuer rating rose to A2 from A3 while the rating of its preferred stock improved to Baa1 from Baa2. Moody's also upgraded the trust preferred securities of DPL Capital Trust II to Baa2 from Baa3. The rating outlooks of DPL and DP&L are still positive, subsequent to the July 2008 upgrade from stable.

Michael G. Haggarty, a Moody's senior credit officer observed, "The upgrade reflects the credit supportive cost recovery provisions included in the company's rate plan, which will provide rate stability and potentially improve the utility's already strong cash flow coverage ratios at least through 2012."

With a high dividend yield of 4.9 and ROE of 23.5%, DPL was nominated as one of Forbes' "100 Most Trustworthy Companies" in 2009. The defensive stock (Beta: 0.58) rose more than 8% over the past month. All this gives us enough confidence to continue our Buy rating of the stock.