Fitch Upgrades DPL's and DP&L's Ratings; Outlook Stable.

NEW YORK -- Fitch Ratings has upgraded DPL Inc. (DPL) and The Dayton Power & Light Company's (DP&L) Issuer Default Ratings (IDR) and debt ratings as follows:

DPL --Long-term IDR to 'A-' from 'BBB+'; --Senior unsecured debt to 'A-' from 'BBB+'; --Junior subordinated debt to 'BBB+' from 'BBB'; --Short-term IDR to 'F1' from 'F2'.

DP&L

--Long-term IDR to 'A' from 'A-'; --Senior secured debt to 'AA-' from 'A+'; --Preferred stock to 'A' from 'A-'.

In addition, Fitch affirms DP&L's short-term IDR and commercial paper at 'F1'.

The Rating Outlook for both entities is Stable.

The ratings reflect the companies' strong financial metrics, further debt reductions at the parent company, a relatively low risk business profile, and approval by the Public Utilities Commission of Ohio (PUCO) of DP&L's electric security plan.

Financial metrics at both entities are robust and benefit from DP&L's low-cost operations, modest debt load, and minimal capital expenditure requirements. DPL's funds from operations (FFO) to debt ratio has improved to more than 30% following continued strong performance at the utility and further debt reductions at the parent. DPL has paid down $500 million of debt since the beginning of 2007, reducing the parent's debt balance to just over $492 million. In addition, DP&L's low capital expenditures - even when accounting for the upcoming customer conservation and energy management costs for advanced metering infrastructure and smart grid technology - should allow the utility to be self-funding over the near-term.

Fitch expects the continuation of solid credit metrics at DPL, with EBITDA interest coverage of more than 6 times (x) and FFO to debt of more than 30%. At DP&L, Fitch expects EBITDA interest coverage to remain well over 10x and FFO to debt to be greater than 40% over the near-term.

DPL benefits from a relatively low risk business profile, with a focus on the regulated utility operations at DP&L. The utility has a low cost generation fleet that is nearly 100% coal-fired, and the utility's coal needs are fully hedged for 2010. Exposure to coal is somewhat of a concern given pending federal environmental legislation, but it is likely that any costs the utility would endure as a result would be recovered in rates. DP&L completed in 2008 the installation of flue gas desulfurization equipment (scrubbers) at its Killen and Stuart generating facilities, and installation of scrubbers at the Conesville facility is scheduled to be completed before the end of this year. The scrubbers allow DP&L to burn coal with a wide range of sulfur content, which enables the utility to realize gains from its optimization of coal procurement and sales.

In addition, operating risk is further mitigated by the company's tenant in common ownership of seven generating facilities and numerous transmission facilities along with fellow Ohio utilities Duke Energy Corp. and American Electric Power Co., Inc. (Fitch IDR 'BBB'). These shared generating facilities, which account for about two-thirds of DP&L's generation output, reduce DP&L's exposure to both planned and unplanned outages.

Fitch considers DP&L's regulatory environment to be constructive, as evidenced by the PUCO's approval of the utility's electric security plan. Under this stipulation, DP&L's rate plan is extended through 2012, while providing for recovery of fuel and purchased power costs as well as alternative energy and energy efficiency compliance costs. Separately, the PUCO has also allowed DP&L to implement a transmission cost recovery rider and to keep 75% of any gains related to its coal optimization business. These regulatory mechanisms provide stability to DP&L's financial performance, while maintaining a reasonable rate structure for customers.

Liquidity is adequate and is supported by the utility's strong cash flows and near full availability on its $220 million revolving credit facility, which matures in November 2011. DP&L also has full availability on its $100 million revolving credit facility maturing in April 2010. Near-term debt maturities are manageable, with DPL's $297.4 million senior notes maturing in September 2011 and DP&L's $470 million first mortgage bonds maturing in October 2013.

Additional information is available at 'www.fitchratings.com'.

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