Fitch Ratings Affirms AES; Rating Outlook Revised to Stable.

Business Editors

NEW YORK--(BUSINESS WIRE)--July 16, 2003

Fitch Ratings has affirmed the existing ratings of The AES Corp. (AES) as follows:

AES

-- Senior secured bank debt 'BB';

-- Senior secured notes collateralized by first priority lien

'BB';

-- Senior unsecured debt 'B';

-- Senior and junior subordinated debt 'B-';

AES Trust III

-- Trust preferred convertibles 'CCC+'.

AES Trust VII

-- Trust preferred convertibles 'CCC+'.

Fitch has also assigned a 'B+' rating to AES' recently raised $1.8 billion junior secured notes collateralized by a second priority lien. The collateral package pledged to AES' secured debts consists of all of the capital stock of AES' material domestic subsidiaries and 65% of the capital stock of AES' foreign subsidiaries. In addition, Fitch revised AES' Rating Outlook to Stable from Negative.

The newly assigned 'B+' rating of AES' junior secured debt reflects the strong residual asset coverage available for the holders of these instruments, after considering the structurally senior claims of AES subsidiaries' individual debts and higher ranking claims of AES Corp's parent-level first priority senior secured bank debt and senior secured notes. However, Fitch notes that the benefit of the junior secured position is offset in part by the right AES has retained to prepay other more junior classes of debts before repaying the new junior secured debt. AES has the option to pay down other higher coupon senior unsecured, subordinated, or trust preferred convertible debts ahead of the junior secured notes.

The rating affirmation of other debt classes reflects the expectation that AES will complete the recently announced $1 billion senior secured bank credit facilities (New Secured Bank Facilities) by the end of this month and use the proceeds to redeem the outstandings under the existing senior secured bank facilities (Old Secured Bank Facilities) closed in December 2002. The proposed new secured bank facilities will contain similar terms and conditions compared to those governing the Old Secured Bank Facilities, including the cash sweep mechanism from asset sales. As a result, Fitch expects to rate the New Secured Bank Facilities 'BB'.

The revision of the Outlook to Stable from Negative reflects the improvement in AES' financial position since Fitch's last review of the company in February 2003. Over the past six months, AES has executed $990 million of planned assets sales, issued $340 million of equity and raised $1.8 billion of private placements, and it has used proceeds from these sources to repurchase debt at a discount and pay down bank and public market debt. As a result, AES has reduced gross debt by over $400 million during the financial year to June and expects this amount to grow to over $1 billion by the end of 2003. At the same time, AES has extended its maturity schedule with no major maturities until December 2005 and with the anticipated completion of the New Bank Credit Facility, would extend this further to 2007-2008. Interest expense is also expected to decrease meaningfully with lower interest rate debt refinancing and debt reduction, a key factor given thin interest coverage at the parent level.

Offsetting the improvements in liquidity and leverage above is potential volatility in AES parent operating cash flow (POCF). With gradual improvement of the economic situation in Latin America, the company expects slight and moderate improvement in South America and the Caribbean region, respectively, in the next two years. Fitch's ratings anticipate only modest recovery in these areas compared to current performance.

Overall, AES' credit metrics are expected to improve as the impact of lower interest costs and a degree of deleveraging feed through, although they are anticipated to remain consistent with the 'B' category. Parent Debt to POCF ratio is projected to decline to the 6.0-7.0 times (x) range with POCF to Interest ratio approaching 2.0x in the next year. AES is also projected to have sufficient liquidity that is consistent with its rating category.

The AES Corp., founded in 1981, is among the world's largest power developers. It generates and distributes electricity and is also a retail marketer of heat and electricity. AES owns or has an interest in 182 plants, with more than 63,000 megawatts, in 31 countries and also distributes electricity in 11 countries through 21 distribution companies.