MOODY'S RAISES RATINGS OF NEW ENGLAND ELECTRIC SYSTEM'S SUBSIDIARIES (SR.SEC.TO A1) AND ASSIGNS PRIME-1 RATING TO PARENT
New York, 12-05-97 -- Moody's Investors Service has raised the senior secured ratings of New England Electric System's main operating subsidiaries -- Massachusetts Electric Company (MECO), Narragansett Electric Company (NE), and New England Power Company (NEP) -- to A1 from A2. The upgrades, which end a review initiated on November 21, reflect the likelihood that the companies will be afforded full recovery of potential "stranded" costs and that the pending divestiture of their generating assets will reduce financial and business risks.
Moody's has also assigned a Prime-1 commercial paper rating to New England Electric System (NEES) based on the company's access to its utility subsidiaries' strong cash flows in the form of upstreamed dividends. The program is backed by a $500 million revolving bank facility and will be used as short-term funding to bridge the gap between receipt of funds from the sale of assets and near-term funding requirements.
With the divestiture of generating assets and purchase power obligations, NEES will be entitled to full recovery of its "stranded" assets, investments that will become uneconomic in retail competition. While several other state and federal regulatory approvals are still required before such divestiture can take place, Moody's believes that the uncertainty regarding the recoverability of stranded costs has been largely eliminated. Empowering legislation was passed in Massachusetts on November 19, and the Federal Energy Regulatory Commission (FERC) approved NEES's state settlement agreements on November 25.
Business risk will also be much lower on a prospective basis since the distribution companies, MECO and NE, will be continue to be regulated by the states, and the transmission company, NEP, will continue to be FERC regulated. The companies will no longer be exposed to the volatile commodity price fluctuations of generation and supply.
Over one-third of the $1.59 billion proceeds from the sale of generation assets to USGEN will be used to reduce and strengthen the company's capital structure. Additional debt reduction is, however, unlikely since NEES has signaled its intention to expand its transmission and distribution business or to buy back common stock.
The following represents a complete listing of the ratings covered by the actions outlined above:
Credit ratings upgraded are:
The Massachusetts Electric Company-its senior secured rating of A1, its counterparty rating of A2 and its preferred stock rating of "a2".
The Narragansett Electric Company-its senior secured rating of A1, its counterparty rating of A2, its preferred stock rating of "a2", and its shelf registration for preferred stock rating of (P)"a2".
The New England Power Company-its senior secured rating of A1, its counterparty rating of A2 and its preferred stock rating of "a2".
Credit ratings confirmed are:
The Prime-1 short term rating for Massachusetts Electric Company, Narragansett Electric Company, and New England Power Company.
Credit ratings assigned are:
The New England Electric System-its commercial paper program rating of Prime-1.
New England Electric System is headquartered in Westborough, Massachusetts.
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