Fitch Upgr UI To `A-'; Establishes UIL Holding Corp. Rating `BBB+'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Aug. 9, 2000

Fitch has upgraded The United Illuminating Co.'s (UI) $395.5 million of senior unsecured debt and $210.0 million in secured lease obligations (Seabrook Unit 1) ratings to `A-' from `BBB+'. Given the redemption of all preferred stock in 1999, UI's preferred stock rating is effectively withdrawn. In addition, Fitch has initiated ratings on UI's parent holding company, UIL Holdings Corporation (UIL Holdings) as follows: implied senior unsecured rating at `BBB+'; and commercial paper rating of `F2'. There is currently no public debt outstanding at UIL Holdings. The Rating Outlook for UI and UIL Holding Corp. is Stable.

UI's upgrade reflects the distribution company's lower business risk profile (exiting generation, nonregulated businesses now under holding company), favorable stranded cost recovery and Standard Offer Service (SOS) regulatory orders, strong financial protection measures, and the mitigation of power supply and market price exposure associated with the provider-of-last-resort obligation (POLR). Additionally, the recent transition to a delivery company has led to improved credit fundamentals. With the above book value sale of fossil generating assets in 1999 and company-wide cost-cutting efforts, UI was able to significantly reduce debt capitalization, from 62% at year- end 1997 to 53% in 1999. Earnings and cashflow similarly improved, with EBITDA interest coverage at 5.3 times (x) in 1999, from 3.8x in 1997. Furthermore, UI's plan to sell its nuclear ownership interests (17.5% in Seabrook Unit 1 and 3.685% in Millstone Unit 3) and a moderately growing customer base lends support to the company's financial strength and risk profile going forward. Dominion Resources, Inc. recently agreed to acquire the three-unit Millstone nuclear station for $1.3 billion. The completion of this transaction would eliminate all stranded costs associated with UI's interest in Millstone Unit 3 and provide UI with net proceeds to potentially pay down additional debt.

A key development involves the power supply contract with Enron Power Marketing, Inc. (EPMI, a subsidiary of Enron Corp.) approved by the Connecticut Department of Public Utility Control (DPUC) in early 2000. UI entered into a full requirements contract with EPMI for the duration of the SOS rate period (through 12/31/03), essentially shifting market price and volume risk to EPMI. Pursuant to the contract, UI pays a fixed price to EPMI for its POLR power requirements. A credit concern regarding the agreement was in the unlikely event EPMI failed to deliver the power, UI's utilization of its purchased power adjustment clause (PPA) to recover replacement power costs would require DPUC approval. Fitch views this concern as modest given UI's historical use of the PPA to cover comparable costs, supportive language in the state's electric restructuring legislation, and the utility's solid financial performance.

The formation of UIL Holdings became effective as of July 20, 2000. UIL Holdings consists of two subsidiaries: UI and United Resources, Inc. (URI) - the parent corporation for several nonregulated businesses. UIL Holdings' credit ratings reflect the predominance of earnings and cashflow stemming from UI, management's moderate and calculated approach toward unregulated investments, and modest projected financing needs at the holding company level. UIL Holdings' consolidated capital structure is targeted at 55% debt/45% equity - a solid balance sheet for a holding company in this rating category. Additionally, roughly 95% of UIL's consolidated cashflow is currently derived from UI - a regulated, distribution company providing a relatively stable source of cash flow. Prospectively, inclusive of some growth in nonregulated activities through 2004, UI is still expected to contribute over 85% of the holding company's consolidated cashflow.

UI is a New Haven-based regional distribution utility that provides electricity and energy-related services to more than 314,000 customers. URI is the umbrella for UIL Holdings' nonregulated business units, including Xcelecom, Inc., American Payment Systems, Inc., United Capital Investments, Inc., and United Bridgeport Energy, Inc.

Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Insurance, Corporates, Structured Finance, Sovereigns and Public Finance Markets worldwide.