Dayton Power & Light Co. Ratings Affirmed On Stronger-Than-Expected 2018 Financial Results; Outlook Remains Stable

  • Dayton Power & Light Co. (DP&L) recently reported 2018 financial results that were marginally better than we had expected, leading us to revise our assessment of its financial risk profile to intermediate.
  • We are affirming our ratings on DP&L, including our 'BBB-' issuer credit rating and our 'BBB+' issue-level rating on its first mortgage bonds.
  • The stable outlook on DP&L reflects our stable outlook on its parent DPL Inc. The stable outlook on DPL Inc. reflects our expectation that the company will mostly focus on its regulated low-risk transmission and distribution (T&D) utility operations while employing consistent regulatory risk management and consolidated financial measures that will reflect funds from operations to debt at about 9%.
NEW YORK (S&P Global Ratings) March 13, 2019—S&P Global Ratings today took the 
above listed rating actions. The affirmation follows DP&L's release of its 
2018 financial results, which were marginally better than we previously 
expected. This was due, in part, to management's implementation of a close to 
$30 million increase in its distribution rate and a modest reduction in the 
company's leverage. As such, DP&L's slightly improved credit metrics, 
including a funds from operations (FFO)-to-debt ratio of about 26%, led us to 
revise upward our assessment of its financial risk profile to intermediate. 
Despite the modest improvement in the company's metrics, our view of DP&L's 
stand-alone credit profile remains unchanged because we expect that its 
financial measures will remain at the lower end of the range for its new 
financial risk profile category. In addition, we view the company's relatively 
small size, the regulatory lag, and its material reliance on the Distribution 
Modernization Rider (DMR) to sustain its financial measures as offsetting 
factors. 


The stable outlook on DP&L reflects our stable outlook on its parent DPL Inc. 
The stable outlook on DPL Inc. reflects our expectation that the company's 
strategy will mostly focus on its regulated low-risk T&D utility operations 
while employing consistent regulatory risk management and consolidated 
financial measures that will reflect funds from operations to debt at about 
9%.


We could lower our rating on DP&L over the next 12-24 months if we lower our 
ratings on intermediate parent DPL. This could occur if structural shifts in 
the company's regulatory constructs indicate a weakening of its ability to 
manage its regulatory risk. We could also lower the rating if adverse 
regulatory outcomes materially weaken the company's operating performance, 
including reducing its FFO to debt consistently below 9%. In addition, we 
could lower our ratings on DP&L if we lower our rating on its ultimate parent 
The AES Corp.


Although unlikely, we could raise our rating on DP&L over the next 12-24 
months if we take a similar rating action on intermediate parent DPL. This 
could occur if DPL permanently improves its financial measures, including 
raising its FFO to debt consistently above 14% and further strengthening its 
insulation measures. We could also raise the rating if we upgrade AES.