Squeezing of a thermal bath introduces features absent in an open quantum system interacting with an uncorrelated (zero squeezing) thermal bath. The resulting dynamics, governed by a Lindblad-type evolution, extends the concept of a generalized amplitude damping channel, which corresponds to a dissipative interaction with a purely thermal bath. Here we present the Kraus representation of this map, which we call the squeezed generalized amplitude damping channel. As an application of this channel to quantum information, we study the classical capacity of this channel. © 2008 The American Physical Society.