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Rating Action:

Correction to text and headline, April 8, 2009 release: Moody's downgrades Energy East's bank credit facility rating and ratings of subs

09 Apr 2009

Approximately US$4.0 billion of debt affected

New York, April 09, 2009 -- Moody's inadvertently referred to a downgrade to Baa3 from Baa2 for an Energy East Corp. Issuer Rating that does not exist.

The revised release follows.

Moody's Investors Service downgraded the Bank Credit Facility Rating and short-term rating of Energy East Corporation (EEC; Bank Credit Facility Rating to Baa3 from Baa2 and short-term rating for commercial paper to Prime-3 from Prime-2). Moody's also downgraded the long-term ratings of each of EEC's rated utility subsidiaries, which include New York State Electric & Gas Corporation (NYSEG; senior unsecured to Baa2 from Baa1); Rochester Gas & Electric Corporation (RG&E; senior unsecured to Baa2 from Baa1); Central Maine Power Company (CMP; senior unsecured to Baa1 from A3); Connecticut Natural Gas Company (CNG; senior unsecured to Baa1 from A3); Southern Connecticut Gas Company (SCG; senior secured to Baa1 from A3); and Berkshire Gas Company (BGC; Issuer Rating to Baa2 from Baa1). This concludes the review for possible downgrade that was initiated on September 16, 2008.

At the same time, Moody's upgraded the ratings of four series of EEC notes (specific series noted below) to A3 from Baa2 given the added support of an Iberdrola S.A. guarantee. Concurrent with these rating actions, the short-term rating for NYSEG's commercial paper program is affirmed at Prime-2. The rating outlooks for all the companies are stable.

The rating downgrades primarily reflect EEC's currently tight liquidity on a consolidated basis and continued weakness in the levels of key financial metrics for EEC and its subsidiaries based on recently completed audits of FYE 2008 financial statements for all the companies. "The tight liquidity stems from increased reliance on bank credit to fund short-term working capital needs and to serve as a bridge to addressing other long-term financing needs" said Moody's Vice President and Senior Analyst, Kevin Rose. Moody's currently expects the weakness in key metrics to persist over the medium term as the utility companies face ongoing cost pressures due to the currently difficult economic climate and financing required to fund significant capital expenditures over the next several years. "The degree to which weakness in financial performance persists will also be influenced by how supportive state regulators are of these investments, especially in the New York, Connecticut, and Maine jurisdictions", Rose added.

The upgrade of ratings for EEC's four series of notes, aggregating US$1.3 billion, places the ratings on par with the current senior unsecured credit rating of Iberdrola S.A (A3 senior unsecured; stable outlook). Although the ratings for these four series of notes were previously under review for possible downgrade as announced September 16, 2008, the upgrade action follows public disclosure of a series of steps taken, as permitted under the terms of the notes, to substitute an Iberdrola affiliate as obligor in place of EEC and to have Iberdrola S.A. provide an unconditional guarantee of the obligations under the notes. The net effect of these steps replaces EEC's third party obligation with a US$1.05 billion inter-company note. Despite the rating downgrades, Moody's views the Iberdrola common equity infusion, the guarantee it is now providing for the notes, along with management's willingness to replace third party debt with inter-company debt and to delay receipt of dividends from EEC, if necessary, as signs of financial support by Iberdrola S.A., EEC's parent since September 2008. Such support is generally viewed as a strong credit positive and tempers some of Moody's lingering concerns that formed the primary basis for the rating downgrades.

The New York Public Service Commission's (NYPSC) refusal to hear the January 2009 rate case filings made by NYSEG and RG&E will make it difficult for the two utilities to proceed with minimum required capital expenditures as mandated in the September 2008 order approving Iberdrola's acquisition of EEC, and will also necessitate other cost reductions pending decisions in subsequent cases likely to be filed in October. The outcome of those filings, which would likely be decided in September 2010, would then also clarify the disposition of some $275 million of pre-tax positive benefit adjustments to retail customers of NYSEG and RG&E. The future financial performance of CNG and SCG will be significantly influenced by the expected July 2009 outcomes of rate increases requested through filings with the Connecticut Department of Public Utility Control made in January 2009. The extent to which regulators are supportive of various utility capital spending projects, which could reach US$4.0 billion over the next five years will have a significant bearing on the ultimate level and timing of spending. This would be especially so as it relates to CMP's potential investments in new transmission infrastructure, which could comprise up to half of EEC's consolidated utility capital budget over the next several years.

Moody's notes that the stable rating outlooks established for all the companies as part of today's rating actions assume that management will fund about half of the capital expenditure projects with internally generated funds, while meeting the remainder with a combination of debt and further equity infusions from Iberdrola. Moreover, the stable outlooks assume that management will remain flexible with regard to dividend policies to help maintain equity levels consistent with amounts the state regulators provide an opportunity for the company to earn a return on. We also note in the case of the New York utilities, fixed income investors are afforded additional protections, including ring-fencing mechanisms that limit dividends paid by the NY utilities under certain circumstances.

Ratings downgraded include the following:

Energy East Corp.

Sr. Unsecured Bank Facility Rating to Baa3 from Baa2

Short-term rating for Commercial Paper to Prime-3 from Prime-2

New York State Electric & Gas Corp.

Sr. Unsecured Debt and Issuer Ratings to Baa2 from Baa1

Preferred Stock to Ba1 from Baa3

Rochester Gas & Electric Corp.

Sr. Secured Debt to Baa1 from A3

Issuer Rating to Baa2 from Baa1

Central Maine Power Company

Sr. Unsecured Debt & Issuer Ratings to Baa1 from A3

Preferred Stock to Baa3 from Baa2

Connecticut Natural Gas Corp.

Sr. Unsecured Debt to Baa1 from A3

Southern Connecticut Gas Company

Sr. Secured Debt to Baa1 from A3

Berkshire Gas Company

Issuer Rating to Baa2 from Baa1

Ratings upgraded include:

Energy East Corporation

8.05% Notes due 11/15/2010 to A3 from Baa2

6.75% Notes due 6/15/2012 to A3 from Baa2

6.75% Notes due 9/15/2033 to A3 from Baa2

6.75% Notes due 7/15/2036 to A3 from Baa2

Ratings affirmed include the following:

New York State Electric & Gas Corp.

Short-term rating for Commercial Paper: Prime-2

The principal methodology used in rating Energy East Corporation, New York State Electric and Gas Corporation, Rochester Gas & Electric Corporation and Central Maine Power Company was Rating Methodology: Global Regulated Electric Utilities, which can be found at www.moodys.com in the Credit Policies & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating these issuers can also be found in the Credit Policy and Methodologies directory.

The principal methodology used in rating Connecticut Natural Gas Company, Southern Connecticut Gas Company, and Berkshire Gas Company was North American Regulated Gas Distribution Industry (Local Distribution Companies), which can be found at www.moodys.com in the Credit Policies & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating these issuers can also be found in the Credit Policy and Methodologies directory.

Moody's last action was September 16, 2008 when we placed under review for possible downgrade the long-term and short-term ratings of Energy East Corporation and the long-term ratings of each of its rated utility subsidiaries, which include New York State Electric & Gas Corporation; Rochester Gas & Electric Corporation; Central Maine Power Company; Connecticut Natural Gas Company; Southern Connecticut Gas Company; and Berkshire Gas Company. At the same time, the short-term rating for New York State Electric and Gas Corporation's commercial paper program was affirmed at Prime-2.

Energy East Corporation, a wholly owned subsidiary of Iberdrola, is an intermediate holding company and serves as the intermediate level parent for six regulated utility energy distribution subsidiaries in the New York/New England region of the United States. It also has modest investments in energy-related, non-regulated businesses. Its headquarters are in Portland, Maine.

New York
Kevin G. Rose
Vice President - Senior Analyst
Global Infrastructure Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
William L. Hess
Managing Director
Global Infrastructure Finance
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Correction to text and headline, April 8, 2009 release: Moody's downgrades Energy East's bank credit facility rating and ratings of subs
No Related Data.
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