MOODY'S CONFIRMS THE PUBLIC SERVICE COMPANY OF NEW HAMPSHIRE'S (Ba3, SR. SEC.) AND NORTH ATLANTIC ENERGY CORP.'S (B1, SR. SEC. ) RATINGS; ASSIGNS Ba3 RATING TO $75 MILLION SENIOR SECURED REVOLVING CREDIT FACILITY AND Ba3 RATING TO $120 MILLION OF POLLUTIO
New York, 04-21-98 -- Moody's Investors Service confirmed the ratings of the Public Service Company of New Hampshire (PSNH) (Sr. Secured, Ba3) and North Atlantic Energy Corp. (NAEC) (Sr. Secured, B1), taking the companies off review for a possible downgrade. In addition, Moody's assigned a Ba3 rating to PSNH's $75 million senior secured revolving credit facility, which will replace an existing $125 million revolving credit facility due to mature on May 1, 1999; and assigned Ba3 ratings to PSNH's $75 million and $44.8 million secured pollution control revenue bond issues, which are being re-offered to convert the two issues from variable rate to fixed rate securities.
These rating actions reflect the lower probability that the company will be forced into a near-term default following the New Hampshire Public Utilities Commission's (NHPUC) March decision to revise its original restructuring order, which, if adopted, could have made the company financially much weaker, and possibly insolvent. PSNH's outlook is uncertain. The direction of future rating actions hinge on pending court and regulatory decisions and/or the potential for a negotiated solution to outstanding restructuring issues.
Ratings confirmed are:
Public Service Company of New Hampshire: first mortgage and senior secured pollution control revenue bonds, Ba3; senior secured revolving credit facility, B1 (to be withdrawn upon effective date of new facility); counterparty rating, B1; and preferred stock, "b2".
North Atlantic Energy Corp.: senior secured bonds, B1.
The revised order will theoretically allow stranded cost recovery to be determined by a cost-based approach, thereby eliminating the accounting issues which would have resulted in an acceleration of debt payments. However, unless the company reaches a voluntary settlement with the state, restructuring is not likely to be determined until at least after the New Hampshire Supreme Court renders its decision on whether PSNH is entitled to full stranded cost recovery under its existing Rate Agreement. If the court finds that the PSNH is not entitled to full recovery, regulators could again try to force a sizeable write-off, with negative financial consequences. Alternately, a supportive decision could spur regulators to take a more balanced approach or the state to conclude negotiations--either of which would have a positive ratings effect. At this juncture, a temporary federal restraining order prohibits New Hampshire from implementing of the plan as it pertains to PSNH.
In the meantime, PSNH and the Governor of New Hampshire have resumed discussions aimed at settling retail wheeling issues. Under the restructuring settlement proposed by PSNH, the company would agree to sell its 1,240 MW of fossil and hydro assets, give customers a 20% rate reduction, and implement retail competition four months after receiving regulatory approval. In return, the state would allow the company to securitize $1.15 billion in stranded costs and would permit an NU subsidiary to sell power in the state, even if PSNH continues to own the transmission and distribution business. Moody's believes that such a plan could significantly improve the company's credit profile, depending on the use of proceeds from the auction sale or securitization. In addition, business risk would subside, since PSNH will likely withdraw from the competitive generation business and become a regulated transmission and distribution company, albeit one with significant ongoing nuclear asset concentration. NU's restructuring proposal is consistent with the approach to restructuring of the Governor, who has advocated 90% recovery of stranded costs for PSNH. Due to these negotiations and unsettled issues, competition will likely be delayed another several months past the New Hampshire legislature's original start date of July 1, 1998.
The Public Service Company of New Hampshire, the largest utility in New Hampshire, and North Atlantic Energy Corp. are headquartered in Manchester, New Hampshire.
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