MOODY'S REVIEWS DEBT RATINGS OF NEW ENGLAND ELECTRIC SYSTEM SUBSIDIARIES FOR UPGRADE (SR.SEC. AT A2); CONFIRMS DEBT RATINGS OF OTHER MASSACHUSETTS-BASED INVESTOR-OWNED UTILITIES
New York, 11-21-97 -- In response to the recent passage of restructuring legislation in Massachusetts, Moody's is commencing a review for possible upgrade of the outstanding long-term debt ratings of Massachusetts Electric Company (Sr. Sec. currently at A2), Narragansett Electric Company (Sr. Sec. at A2), and New England Power Company (Sr. Sec. at A2). All of these companies are subsidiaries of New England Electric System (NEES).
At the same time, Moody's is confirming the credit ratings of Boston Edison Company (Sr. Unsec. at Baa2), Eastern Edison Company (Sr. Sec. at Baa1), Canal Electric Company (Sr. Sec. at Baa1), and Cambridge Electric Company (Sr. Unsec. at Baa2).
Moody's also continues its review for possible downgrade of the credit ratings of Western Massachusetts Electric Company (Sr. Sec. at Ba1), which commenced November 6,1997.
Moody's views the legislative bill passed November 19, 1997 by both houses of the Massachusetts State Legislature to be generally favorable for the state's investor-owned utilities (IOUs). The legislation, which is expected to be signed by acting Governor Paul Cellucci, removes the uncertainty of the timing for implementing retail choice in Massachusetts, and clarifies the terms under which the IOUs will be able to recover past investments and ongoing costs that might be rendered uneconomic in an open market.
The legislation appears to provide a manageable framework from which the utilities can gain regulatory approval for implementation of proposed restructuring plans. However, the 15% rate reduction ultimately required by September 1, 1999 may represent a challenge for the IOUs, who will be looking at all possible alternatives to compensate for the lower revenues. Of the required rate reduction, 10% would actually take effect March 1, 1998, coincidental with the start of retail competition in Massachusetts.
NEES and its subsidiaries are well positioned to benefit because they have already reached an agreement to sell their non-nuclear generating assets and non-utility power-purchase contracts to U.S. Generating Company. Furthermore, the legislation allows them to collect the full price of $1.59 billion, which was contingent upon broad retail choice being established in Massachusetts by January 1, 1999. Moody's expects that the sale of these assets will significantly reduce stranded costs within the NEES system. Moody's review of the credit ratings of NEES' subsidiaries will focus on the use of proceeds from the sale of assets and anticipated cash flows from operations, as well as the prospective capital structures and business risks retained by each subsidiary.
In confirming the credit ratings of Boston Edison, Eastern Edison, Canal Electric, and Cambridge Electric, Moody's notes that those companies have yet to complete their respective plans to divest generating assets and/or power purchase contracts; and some or all may still be required to demonstrate to state regulators how their respective restructuring plans can comply with the legislation. Although passage of this legislation creates more certainty for recovery of the companies' past investments, there are still questions surrounding the price that might be garnered for generating assets designated for sale, and the extent to which sale proceeds can help offset the revenue reductions associated with the mandated 15% rate reductions.
With respect to its ongoing review for possible downgrade of the credit ratings of Western Massachusetts Electric Company (WMECO), a subsidiary of Northeast Utilities, Moody's notes that while the company has yet to reach a formal agreement with the Massachusetts Attorney General, the recently passed legislation may spur such a settlement that would likely receive prompt regulatory review. Even if successful on this front, however, the company still faces financial difficulties associated with its nuclear outages. Indeed, the 10% rate decrease, as mandated by the legislation on March 1, 1998, may prove difficult for WMECO to implement given its current cash constraints.
The following represents a complete listing of the ratings covered by the actions outlined above:
Credit ratings under review for possible upgrade are:
The Massachusetts Electric Company-its senior secured rating of A2, its counterparty rating of A3 and its preferred stock rating of "a3".
The Narragansett Electric Company-its senior secured rating of A2, its counterparty rating of A3, its preferred stock rating of "a3", and its shelf registration for preferred stock rating of (P)"a3".
The New England Power Company--its senior secured rating of A2, its counterparty rating of A3 and its preferred stock rating of "a3".
Credit ratings confirmed are:
The Prime-1 ratings for commercial paper of Massachusetts Electric Company, Narragansett Electric Company, and New England Power Company.
Boston Edison Company--its senior unsecured debt and counterparty ratings of Baa2, its preferred stock rating of "baa2", its shelf registration rating for debentures of (P)Baa2, its shelf registration rating for preferred stock of (P)"baa2", and its short-term rating for commercial paper of Prime-2.
Canal Electric Company--its senior secured debt rating of Baa1.
Cambridge Electric Light Company--its senior unsecured debt rating of Baa2.
Eastern Edison Company--its senior secured debt rating of Baa1, its senior unsecured debt and counterparty ratings of Baa2, its preferred stock rating of "baa2" , and its global shelf registration ratings of (P)Baa1/(P)Baa2/(P)"baa2".
Credit ratings remaining on review as of November 6, 1997 are:
Western Massachusetts Electric Company--its senior secured debt rating of Ba1, its senior secured bank credit facility rating of Ba1, its counterparty rating of Ba2, its preferred stock rating of "ba2", its senior secured debt shelf registration rating of (P)Ba1, and its preferred stock shelf registration rating of (P)"ba2".
New England Electric System is headquartered in Westborough, Massachusetts. Boston Edison Company and Eastern Edison Company are both headquartered in Boston, Massachusetts. Canal Electric Company and Cambridge Electric Light Company are both headquartered in Cambridge, Massachusetts. Western Massachusetts Electric Company is headquartered in West Springfield, Massachusetts.
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