Fitch: US Steel/National Steel Merger Could Affect EES Coke Rtg.

Business Editors

NEW YORK--(BUSINESS WIRE)--Jan. 22, 2002

Fitch believes that the ratings of EES Coke Battery Company, Inc.'s (EES Coke or the project) senior secured note issues might be impacted should United States Steel Corp. (USSC) consummate a merger with National Steel Corp (NSC). Fitch will closely monitor ongoing developments as merger talks between USSC and NSC progress and assess the potential rating implications for EES Coke. It is uncertain at this time whether the final outcome of the merger discussions will have a material effect on EES Coke's credit quality. The rating on EES Coke's $168 million senior secured note issue due 2002 (series A) is 'BBB' and the rating on EES Coke's $75 million senior secured notes due 2007 (series B) is 'B-'. The 'BBB' rating on the series A notes reflects the stability in cash flow provided by tax credit payments as well as the relatively short remaining term of the notes (maturity is April 15, 2002). The series B notes rating reflects the relatively weak financial condition and credit quality of NSC, the sole contracted offtaker for the coke produced by EES Coke.

USSC agreed to begin merger negotiations with NSC as part of an Option Agreement with NKK Corp. (NKK), a leading Japanese steelmaker. Under the Option Agreement, which expires in June 2002, USSC has the option to purchase all of NKK's stock in NSC. The stock owned by NKK represents 53 percent of NSC's outstanding shares. USSC has stated that it does not intend to merge with NSC unless certain debt obligations of NSC are restructured; other conditions include the passage of legislation concerning the consolidation of the US steel industry.

EES Coke is a wholly owned subsidiary of DTE Energy Services, which is a wholly owned indirect subsidiary of DTE Energy Company (DTE). Fitch has assigned a senior unsecured rating of 'BBB+' to DTE. The EES Coke notes were issued in 1997 to finance the acquisition of NSC's Coke Battery No. 5. Payments on the notes are made from revenues received by EES Coke from sales of coke and coke byproducts and from payments made by DTE pursuant to a tax-sharing agreement. NSC is the contractual operator of the coke battery.

The series A notes are substantially supported by contractual tax-sharing payments from DTE equal to the tax credits earned by the project pursuant to Section 29 of the Internal Revenue Code (Section 29 tax credits) and the tax benefits of certain net operating losses generated by EES Coke. To earn the Section 29 tax credits, EES Coke must produce the coke and sell it to an independent third party. It is estimated the tax-sharing payments for Section 29 tax credits will terminate in Dec. 31, 2002, which is after the maturity of the series A notes (April 15, 2002) but well before the maturity of the series B notes (April 15, 2007). Hence, series B debt service payments after 2002 are tied to NSC's ability to meet its obligations under the 12-year Coke Sales Agreement. Fitch considers NSC's credit profile to be consistent with a weak 'B'-category issuer.