Fitch Ratings downgraded DPL Inc.'s long-term issuer default rating to BB from BB+.
Fitch also affirmed DPL utility Dayton Power and Light Co.'s long-term issuer default rating at BBB-. The outlook for both DPL and Dayton Power and Light is negative.
The rating agency expects DPL's funds from operations-adjusted leverage to exceed 7.5x for three years, longer than expected. "Additionally, DPL's covenants under the revolver are likely to be breached in 2020," Fitch said.
The negative outlooks can be stabilized if DPL renegotiates the covenants and receives "reasonable" orders in several regulatory proceedings.
Although Ohio has historically been a constructive regulatory environment, Fitch noted the November 2019 order by the Public Utilities Commission terminating a $105 million distribution modernization rider. Although Dayton Power and Light has had a rate stabilization charge reinstated, providing $79 million in rate relief, it lost certain other riders.
Fitch expects Dayton Power and Light to file a rate case in late 2020 or early 2021 and receive recovery in 2022 if approved.
DPL is a subsidiary of AES Corp.