MOODY'S UPGRADES RATINGS OF BOSTON EDISON CO. AND CAMBRIDGE ELECTRIC LIGHT CO. (SR. UNSEC. TO A1 AND A2, RESPECTIVELY); ALSO ASSIGNS A2 ISSUER RATING AND PRIME-1 SHORT-TERM DEBT RATING TO NSTAR
Moody's Investors Service upgraded the credit ratings of Boston Edison Company (senior unsecured debt to A1 from A3) and also upgraded the ratings for unsecured debt of Cambridge Electric Light Company (senior unsecured debt to A2 from Baa2). The upgrading of these ratings reflects the high likelihood that the companies will be able to sustain the significant amount of financial flexibility that is currently evident in their strong balance sheets and that they will continue generating healthy cash flows to protect fixed income investors over the next several years. The upgrading of Boston Edison's credit ratings concludes a series of rating actions, dating to November 19, 1998. The upgrade for Cambridge Electric's ratings concludes a review initiated December 8, 1998.
Concurrent with the rating upgrades, Moody's also assigned its A2 issuer rating to NSTAR, the holding company for and parent of Boston Edison and Cambridge Electric, as well as several other regulated and non-regulated subsidiaries. In addition, Moody's assigned its Prime-1 short-term debt rating for NSTAR's $450 million commercial paper program. The alternate liquidity for this program includes a $450 revolving credit agreement, which terminates on November 15, 2002. The outlook for all the ratings is stable.
Boston Edison Company ratings upgraded include:
Debenture, pollution control revenue bond, and issuer ratings to A1 from A3
Shelf registration rating for unsecured debt to (P)A1 from (P)A3
Preferred stock rating to "a2" from "baa1"
Shelf registration rating for preferred stock to (P) "a2" from (P) "baa1".
Short-term debt rating for commercial paper to Prime-1 from Prime-2
Cambridge Electric Light Company's ratings upgraded include:
Unsecured notes to A2 from Baa2
NSTAR ratings assigned include:
Issuer rating at A2
Short-term debt rating for commercial paper at Prime-1
Moody's notes that the Baa1 rating of Canal Electric Company's first mortgage bonds, which was originally placed on review for possible upgrade on December 8, 1998, has since been withdrawn because those securities were paid in full with proceeds from the sale of generating assets.
Boston Edison now operates primarily as a transmission and distribution company, after selling its fossil-fueled generation assets in May 1998 and its Pilgrim nuclear plant in July 1999. The company's higher ratings acknowledge elimination of the financial and operating risks associated with owning generation assets, especially nuclear assets, as well as the strong balance sheet that has resulted from prudent use of proceeds from the asset sales and securitization financing to date, which included sizable debt reduction. In addition, Boston Edison's four-year rate plan -- which was approved by state regulators in July 1999 as a precursor to their August 1999 approval of the merger between BEC Energy, Inc. and Commonwealth Energy System, to form NSTAR -- provides a good opportunity for the company to produce solid financial results. Indeed, Moody's believes that Boston Edison has the talent and commitment to achieve synergy savings from the merger that could even exceed the $500 million level originally targeted, which would strengthen the regulatory support already in place relating to future recovery of merger-related costs. Moreover, Moody's expects that Boston Edison's balance sheet will be able to withstand unexpected surprises given that common equity as a percentage of total capitalization is likely to be maintained at a minimum of 50% over the next several years.
At the same time, Moody's notes that Cambridge Electric is now a low-risk electric distribution company, benefiting from supportive Massachusetts regulation and its affiliation with a larger consolidated organization. Cambridge Electric's A2 rating reflects Moody's expectation that the company will maintain modestly weaker debt protection measurements compared to those of Boston Edison. Nevertheless, we still anticipate that NSTAR will manage all of its utility subsidiaries as one business, while maintaining similar financial profiles.
The assignment of NSTAR's ratings reflects the generally low-risk consolidated business and financial risk profiles, whereby a large majority of cash flows will come from the regulated energy distribution companies. The utilities' cash flows are considered to be more stable and predictable than the cash flow emanating from more risky non-regulated businesses. Nonetheless, the NSTAR ratings assume that the company will rely on cash flows from modestly sized non-regulated businesses to supplement utility cash flows and help service parent company obligations. Fixed income investors at the utility level can take some comfort in the holding company structure, which helps insulate the utilities from the higher risks associated with non-regulated investments.
Boston Edison Company is a utility company, now operating as a wholly owned subsidiary of NSTAR. Its headquarters are in Boston, Massachusetts. Cambridge Electric Light Company is also a utility company, now operating as a wholly owned subsidiary of NSTAR. Its headquarters are in Boston, Massachusetts. NSTAR is a holding company formed when BEC Energy, Inc. and Commonwealth Energy System merged in August 1999. NSTAR also serves as the parent for other regulated utilities, including Canal Electric Company, Commonwealth Electric Company, Commonwealth Gas Company, as well as for other non-regulated businesses. NSTAR is headquartered in Boston, Massachusetts.
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