Fitch Rates AE Supply Secured Bank Facilities; Affirms Senior At 'B'.

Business Editors

NEW YORK--(BUSINESS WIRE)--June 17, 2003

Fitch Ratings has assigned new ratings to Allegheny Energy Supply Company LLC's (AE Supply) multi-tranched bank facilities as follows: 'BB-' to the $470 million 'new money facility', which has a first priority lien on substantially all assets of AE Supply (AE Supply Assets); 'B+' to the secured portions of the $988 million refinancing facility and the $269 million springdale facility, which are secured by a second priority lien on AE Supply Assets. The remainder of the refinancing facility and springdale facility is rated the same as AE Supply's senior unsecured rating, affirmed at 'B'. Fitch has also upgraded the ratings of Allegheny Energy Supply Statutory Trust 2001 A-Notes (A-Notes) to 'B+' from 'B' to reflect the pledge of a second priority lien security on AE Supply Assets. The ratings also have been placed on Rating Watch Evolving.

The newly assigned ratings of AE Supply's secured bank facilities reflect the strong asset coverage afforded by the security package and the stringent terms and conditions that govern the bank credit agreement and the A-Notes indenture. AE Supply's asset coverage is supported by the company's fleet of generation fleet located primarily in the Eastern parts of the United States and its long term contractual supply agreement with the California Department of Water Resources (CDWR Contract), recently affirmed and restated by the CDWR. The bank facilities benefit from a fixed amortization schedule that requires AE Supply to prepay $250 million and $400 million to the bank group by year end 2003 and 2004, respectively. They are also advantaged by a cash sweep mechanism that requires AE Supply to use a significant portion of proceeds from asset sales or debt and equity issuance to pay down the bank facilities.

AE Supply's affirmed senior unsecured ratings of 'B' already reflect the effective subordination of AE Supply's senior unsecured debt as a result of the first and second priority liens. The ratings also consider the adequate residual asset coverage afforded to the existing unsecured debt classes after the expected repayment of the senior secured debt. The ratings are also influenced by the company's inadequate liquidity position and high debt leverage and low interest coverage ratios. In 2003, the company's internally generated cash flow will not be sufficient to meet its $250 million amortization schedule; it needs to raise additional funds from external sources or from assets sales. Adjusting AE Supply's debt to include approximately $400 million of tolling agreement obligations, AE Supply's ratio of Adjusted Debt to EBITDA is expected to climb to above 7.5 times (x) and EBITDA to interest coverage ratio to stay around 1.5x in 2003. Credit protection measures are projected to improve only gradually in the next few years, depending on the company's ability to execute asset sales and raise external funds to further pay down debts and meet its upcoming maturity schedules.

The Rating Watch Evolving status incorporates Fitch's expectation that events in the next few months could have either positive or negative implications on the company's ratings. AE Supply's parent holding company Allegheny Energy Inc. has yet to complete the restatements of its 2002 quarterly financial statements and issue its 2002 financial statements, without which the AYE or AE Supply cannot access the public capital markets, sell certain assets, or secure approval from the SEC to issue additional secured debts. Secondly, AE Supply has made some progress on its plan to monetize its CDWR Contract with the recent settlement with CDWR. While execution risk exists, the timely monetization of the CDWR Contract at a reasonable price will provide not only the proceeds to meet the 2003 amortization schedule but also free up cash used to post collaterals for hedges. Lastly, external funding before year end 2003, either in the public or private placement markets, may be needed to maintain liquidity.

Allegheny Energy Supply Company LLC is a non-regulated energy company that generates electricity and markets competitive wholesale energy commodities in the United States. The company has 8,925MW of generation assets located primarily in the eastern United States. AE Supply is a whole owned subsidiary of Allegheny Energy Inc.