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15 Jun 1999
MOODY'S CONFIRMS RATINGS OF NEW YORK STATE ELECTRIC & GAS (A3 SR. SEC.), CENTRAL MAINE POWER COMPANY (Baa1 SR. UNSEC.) AND SOUTHERN CONNECTICUT GAS COMPANY (A2 SR. SEC.)
Moody's Investors Service confirmed the ratings of New York State Electric & Gas Corporation (NYSEG), Central Maine Power Company (CMP), and Southern Connecticut Gas Company (Southern Connecticut) in response to today's announcement that Energy East Corporation (not rated, and the parent of NYSEG) signed a definitive agreement to merge with CMP Group, Inc. (not rated, and parent of CMP). The agreement calls for Energy East to acquire all of the common stock of CMP Group for $29.50 per share in cash, placing the market value of the transaction at $957 million. Energy East intends to use both debt and cash on hand to finance the acquisition. In addition, Energy East will assume $271 million of CMP preferred stock and long-term debt. The merger of the companies is subject to many approvals, which might take up to a year to obtain. Such approvals include those from: CMP Group shareholders, the Maine Public Utility Commission, the Securities and Exchange Commission (SEC), the Federal Energy Regulatory Commission, and the Nuclear Regulatory Commission. Also, Energy East plans to register as a holding company with the SEC under the Public Utility Holding Company Act of 1935. Post merger, CMP Group will become a subsidiary of Energy East, with CMP Group still serving as the parent company for CMP and other nonregulated subsidiaries.
The ratings confirmed are:
New York State Electric & Gas Corporation - A3 senior secured debt; (P)A3/(P) "baa1" shelf registration for senior secured debt and preferred stock; Baa1 senior unsecured debt, revolving credit facility, and issuer rating; "baa1" preferred stock; Prime-2 commercial paper.
Central Maine Power Company - (P)A3 shelf registration for senior secured debt; Baa1 unsecured debt, bank credit facility, and issuer rating; "baa2" preferred stock; Prime-2 commercial paper .
Southern Connecticut Gas Company - A2 senior secured debt.
The outlook for all the ratings is stable.
In addition to today's announcement, Energy East announced in April 1999, its plans to acquire Connecticut Energy Corporation (not rated, and parent of Southern Connecticut). Under that agreement, Energy East expects to finance the $430 million consideration with a 50/50 split between debt and equity, and will assume about $190 million of Connecticut Energy's long- and short-term debt.
The confirmations of NYSEG's, CMP's, and Southern Connecticut's ratings reflect Moody's view that sufficient financial flexibility exists at these regulated entities to support the incremental debt that Energy East may take on to finance its two pending acquisitions.
Business risk for both NYSEG and CMP has declined, following divestiture of their generation assets and ongoing plans to expand electric and gas distribution operations. The ratings for these companies continue to reflect favorable resolution of potential stranded cost issues and Moody's expectations for solid earnings and cash flow measures, while they manage their respective transitions to retail competition. Under the holding company structure all three of the companies will be better insulated from potentially more risky nonregulated investments by Energy East and/or CMP Group. Significant cash balances from asset sale proceeds still exist at both NYSEG and CMP, which are expected to be used in part to help fund the two acquisitions, while allowing Energy East to keep its common equity ratio within its target 40% range.
Moody's notes that CMP's ratings reflect management's decision not to add a negative pledge covenant for the benefit of its unsecured debtholders, at this time. Although CMP recently retired the last of its previously outstanding secured debt, the absence of a negative pledge precludes adjustment of the unsecured debt rating up to the A3 rating that had been assigned to those securities. The potential for improvement in CMP's unsecured debt rating level will be dependent on improvement in business fundamentals and/or reconsideration by management with respect to the negative pledge covenant.
Although the rating outlook for all the companies is stable, Moody's will continue to evaluate the financial policies that Energy East might pursue for each of the operating utility subsidiaries in the future. A marked change toward more aggressive financial policies than those currently contemplated could add pressure on the ratings of any one or more of the companies.
New York State Electric & Gas Corporation serves electric and gas customers in upstate New York. Its headquarters is in Binghampton, New York. Its parent, Energy East Corporation is headquartered in Albany, New York.
Central Maine Power Company, an electric utility subsidary of CMP Group, Inc., is headquartered in Augusta, Maine.
Southern Connecticut Gas Company, a gas distribution subsidiary of Connecticut Energy Corporation, is headquartered in Bridgeport, Connecticut.
No Related Data.
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