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Rating Action:

MOODY'S CONFIRMS DEBT RATINGS OF PECO ENERGY COMPANY (SR. SEC. AT Baa1) AND COMMONWEALTH EDISON COMPANY (SR. SEC. AT Baa1) FOLLOWING TODAY'S MERGER ANNOUNCEMENT

23 Sep 1999
MOODY'S CONFIRMS DEBT RATINGS OF PECO ENERGY COMPANY (SR. SEC. AT Baa1) AND COMMONWEALTH EDISON COMPANY (SR. SEC. AT Baa1) FOLLOWING TODAY'S MERGER ANNOUNCEMENT Moody's Investors Service has confirmed the ratings of PECO Energy Company (PECO) and the ratings of Unicom Corporation (Unicom) and its principal subsidiary, Commonwealth Edison Company (ComEd) following today's announcement that the boards of PECO and Unicom have entered into a definitive merger agreement which will create a company with a total value of $31.8 billion.


Ratings confirmed include PECO's first and refunding mortgage bonds and senior secured pollution control revenue bonds at Baa1; shelf registration of senior secured debt at (P)Baa1; the company's senior unsecured pollution control revenue bonds, revolving credit facility, and issuer rating at Baa2; junior subordinated debentures at Baa3; preferred securities at "baa2"; shelf registration of preferred securities at (P)"baa2"; and the company's Prime-2 rating for commercial paper.


Ratings confirmed for Unicom and ComEd include the issuer rating of Unicom at Baa3; the first mortgage bonds and the secured pollution control bonds of ComEd, both rated Baa1; the issuer rating, the senior unsecured notes, the unsecured debentures, and the unsecured pollution control bonds of ComEd, all rated Baa2; the junior subordinated debt of ComEd rated Baa3; the preferred stock and preference stock of ComEd, rated "baa2"; the preferred stock of ComEd Financing I and ComEd Financing II, both rated "baa2"; the commercial paper of ComEd at Prime-2 and a shelf registration for ComEd's issuance of senior secured debt, senior unsecured debt, and preference stock, rated (P)Baa1, (P)Baa2, and (P)"baa2".


The ratings confirmation reflects the neutral near-term credit implications that this merger provides to the securities of both companies. Prospectively, the merger will create a very large, multi-dimensional energy company that serves two large metropolitan regions. It will also own the largest nuclear fleet of generating plants in the United States giving it access to actively traded energy markets in the Midwest and in the PJM region. The nearly $1.5 billion in cash needed to complete the cash portion of the merger will be provided by the $3.1 billion in net proceeds expected from ComEd's fossil-fuel divestiture which should close during the fourth quarter 1999.


Moody's is revising PECO's positive outlook to stable, until the proposed merger is approved and the new holding company is established. Until there is legal separation of PECO's regulated transmission and distribution business from its non-regulated generation operation, the company's consolidated financial profile is reflective of a vertically integrated entity, even though there is functional separation of the different business lines. Prospectively, we expect that there will be credit implications upon the completion of the legal separation of PECO's T&D unit as well as its generation unit. Moreover, how PECO chooses to capitalize these different business units will determine the potential credit ratings for these entities.


For ComEd, the merger does little to address the company's current problems with its transmission and distribution system. A portion of the fossil-fuel divestiture proceeds has been earmarked to accelerate the needed capital improvements to its weakened transmission and distribution system. However, given PECO's strengths as a nuclear operator, the merger should help to strengthen ComEd's nuclear management team. ComEd's ability to sustain the current high capacity factors demonstrated at its nuclear fleet remains an important ingredient to ComEd's ability to recover stranded costs. Additionally, ComEd's nuclear assets should benefit from the skill sets provided by PECO's wholesale marketing and trading unit, Power Team. For these reasons, a stable outlook remains appropriate.


PECO is headquartered in Philadelphia, Pennsylvania. Unicom and ComEd are both headquartered in Chicago, Illinois.

No Related Data.
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