Fitch Rates Dynegy Holdings, Inc. Senior Notes 'B-'.

NEW YORK -- Fitch has assigned a 'B-' rating to Dynegy Holdings Inc.'s (Holdings) $297 million 8.375% senior unsecured notes due 2016. The notes are offered in exchange for privately placed subordinate non-recourse project finance debt of Sithe Independence, which is a 1,092 megawatt gas-fired generation facility in upstate New York owned by the parent company of Holdings, Dynegy Inc. (DYN). The exchange results in Holdings assuming the subordinated non-recourse project debt currently held by a third party. Completion of the exchange provides DYN with greater financial and operational control of Sithe Independence, which should allow it more flexibility in managing the asset. The ratings for other Holdings securities as well as those of DYN and Sithe Independence are unaffected. The Rating Outlook of Holdings is Stable.

DYN's 'B-' IDR recognizes a high level of business risk associated with its mostly unhedged merchant generation operations and the correlation of future financial performance to the level of natural gas prices, which are expected to remain volatile. While credit measures should improve with less debt and lower interest costs as a result of the recent liability management activities, DYN's overall credit profile should remain consistent with the current Issuer Default Rating (IDR 'B-') over the near term. Long-term improvement in operating performances and future upgrades to the IDR will be primarily dependent on a sustained power market recovery.

In March 2006, Fitch upgraded the senior unsecured debt of Holdings to 'B-/Recovery Rating (RR) 4' from 'CCC+' in anticipation of the use of the proceeds from asset sales to paydown debt and the restructuring of the debt structure. More important, the company improved its financial flexibility as it reduced secured obligations to 12% of debt from 52%.

Dynegy Inc and its primary subsidiary, Dynegy Holdings, Inc., own and operate approximately 11,920 megawatts of power generating assets.

Fitch's Recovery Ratings (RR), introduced in 2005, are a relative indicator of creditor recovery on a given obligation in the event of a default. A broad overview of Fitch's RR methodology as it relates to specific sectors, including a Case Study webcast, can be found at www.fitchratings.com/recovery.

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