$60 MILLION DEBT AFFECTED - JOINT DEFAULT ANALYSIS RATING BASED ON COMPANY GUARANTY AND LETTER OF CREDIT FROM U.S. BANK NATIONAL ASSOCIATION
FirstEnergy Nuclear Generation Corp.
Other Sectors
PA
Opinion
NEW YORK, Mar 16, 2011 -- Moody's upgrades the ratings to Aa1 (on watch for possible downgrade) from Aa3
and affirms the VMIG 1 ratings of The Beaver County Industrial Development
Authority Pollution Control Revenue Refunding Bonds, Series 2006A (FirstEnergy
Nuclear Generation Company Project) (the Bonds). On March 16, 2011 the current
letter of credit from Barclays Bank plc will be substituted with a letter of
credit provided by U.S. Bank National Association (the Bank) for the Bonds.
Moody's currently rates U.S. Bank National Association Aa2/P-1.
RATINGS RATIONALE
The long term rating is based on a joint default analysis (JDA) which reflects
Moody's approach to rating jointly supported transactions. The JDA rating is
based upon the long-term rating of the Bank as provider of the letter of credit;
the rating of FirstEnergy Solutions Corporation (the Guarantor) as guarantor of
the debt issued by FirstEnergy Nuclear Generation Company; and the structure and
legal protections of the transaction which ensures timely debt service payments
to investors. The timely payment of purchase price is reflected in the
short-term rating of the Bonds. The short term rating is based on the short term
rating of the Bank. Moody's currently maintains a rating of Baa2 on watch for
downgrade on the Guarantor.
Since a loss to investors would occur only if both the Bank providing the letter
of credit and the Guarantor default in payment, Moody's has assigned ratings
based upon the joint probability of default by both parties. In determining the
joint probability of default, Moody's considers the level of default dependence
between the Bank and the Guarantor. Moody's has determined that there is a low
level of default dependence between the Bank and the Guarantor. As a result, the
joint probability of default for the Bank and the Guarantor results in a credit
risk consistent with a JDA rating of Aa1 on watch for downgrade.
DETAILED CREDIT DISCUSSION
Interest Rate Modes
The Bonds will continue to bear interest in the daily rate mode and pay interest
on the first business day of each month. The Bonds may be converted, in whole or
in part, to bear interest at a weekly, commercial paper, semi-annual, annual,
two year, three year, five year, long term or auction rate mode. The Bonds are
subject to mandatory tender at a price of par plus accrued interest upon
conversion. The joint support rating and short-term rating will cover the Bonds
in the weekly and daily rate modes only and will expire upon conversion to any
other rate mode. Bonds bearing interest in the weekly rate mode pay interest on
the first business day of each month.
Additional Bonds
The Trust Indenture does not permit the issuance of additional bonds.
Flow of Funds
The trustee is instructed to draw under the letter of credit for principal or
interest on each interest payment date, redemption date or acceleration date. In
the event that the Bank wrongfully fails to honor any draw under the LOC, the
trustee is instructed to utilize funds from the borrower (and funds from the
Guarantor in the event the borrower fails to pay) in order to make such payments
to bondholders in a full and timely manner.
The trustee is instructed to draw under the letter of credit, on each purchase
date, for purchase price, to the extent remarketing proceeds received are
insufficient. Bonds which are purchased by the Bank due to a failed remarketing
are held by the trustee and will not be released until the trustee has received
written confirmation from the Bank stating that the letter of credit has been
reinstated in the amount of the purchase price drawn for such Bonds.
Letter of Credit
The letter of credit is sized for full principal plus 36 days of interest at the
maximum rate applicable to the Bonds (10%) and will provide coverage for Bonds
while they bear interest in the weekly and daily rate modes.
Draws on the Letter of Credit
Conforming draws for principal or interest presented to the Bank at or before
12:00 noon, New York Time, on a business day, will be honored by the Bank on or
before 2:00 p.m. on the same business day. Conforming draws for purchase price
presented to the Bank at or before 1:30 p.m., New York Time, on a business day,
will be honored by the Bank on or before 4:30 p.m. on the same business day.
Reinstatement of Interest Draws
Draws made under the letter of credit for interest shall be automatically and
immediately reinstated on date of such drawing.
Reimbursement Agreement Defaults
The Bank may at any time, send written notice to the trustee stating that an
event of default under the reimbursement agreement has occurred directing a
mandatory tender of the Bonds. The letter of credit will expire on the fourth
business day following the trustee's receipt of such notice. The Bonds will be
subject to mandatory tender on the third business day following receipt of such
notice.
Expiration/ Termination of the Letter of Credit
The letters of credit shall terminate upon the earlier to occur of: (1) April
16, 2014; (2) the date of receipt by the bank of notice from the trustee
terminating the letter of credit as a result of the acceptance of an alternate
LOC or no bonds outstanding (3) the fifteenth day following conversion of all of
the bonds to a mode other than daily or weekly; (4) the fourth business day
following receipt by the trustee of notice from the bank that an event of
default under the reimbursement agreement has occurred directing mandatory
tender of the Bonds; and (5) the honoring of the final draw.
Substitution
The Bonds will be subject to mandatory tender on the second business day prior
to the cancellation of the letter of credit due to the effective date of an
alternate letter of credit. Draws for purchase price upon the substitution of
the letter of credit will be made under the existing letter of credit and the
existing letter of credit will not be surrendered to the Bank for cancellation
until such tender draw has been honored.
Optional Tenders
Bondholders may optionally tender their Bonds during the weekly mode on any
business day with seven days notice and during the daily mode on any business
day with notice by 10:30 a.m., New York time. Notice of tender is delivered to
the tender agent.
Mandatory Tenders
The Bonds are subject to mandatory tender on the following dates: (i) two
business days prior to the cancellation of the letter of credit due to the
effective date of a substitute letter of credit; (ii) upon conversion of the
interest rate mode; (iii) the third business day following the trustee's receipt
of notice from the bank that an event of default under the reimbursement
agreement has occurred and directing such mandatory tender; (iv) two business
days prior to the cancellation of the letter of credit by the Company; (v) the
fifteenth day prior to the letter of credit expiration date; and (vi) the end of
each commercial paper, annual, two year, three year, five year or long term rate
period.
Mandatory Redemptions
The Bonds are subject to mandatory redemption upon a determination
of taxability.
WHAT COULD CHANGE THE RATING-UP
Long-Term: the long-term rating on the Bonds could be upgraded if the long-term
rating of the Bank or the long-term rating of the Guarantor were upgraded.
Short-Term: N/A
WHAT COULD CHANGE THE RATING-DOWN
Long-Term: the long-term rating on the Bonds could be downgraded if the
long-term rating of the Bank or the long-term rating of the Guarantor was
downgraded, or if there was an increase in the level of default dependence
between the letter of credit Bank and the Guarantor.
Short-Term: the short-term rating on the Bonds could be lowered if the
short-term rating of the Bank was downgraded.
LAST RATING ACTION
The last rating action on the Bonds was on February 2, 2009 when the long-term
rating was downgraded to Aa3 from Aa1.
METHODOLOGY
The principal methodologies used in this rating were Moody's Rating Methodology
for Letter of Credit Supported Transactions published in August 2005, and
Applying Global Joint Default Analysis to Letter of Credit Backed Transactions
in the U.S. Public Finance Sector published in October 2010.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following: parties
involved in the ratings and public information.
Moody's Investors Service considers the quality of information available on the
issuer or obligation satisfactory for the purposes of maintaining a credit
rating.
Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.
Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.
Analysts
Joann Hempel
Analyst
Public Finance Group
Moody's Investors Service
Robert Azrin
Senior Credit Officer
Public Finance Group
Moody's Investors Service
Contacts
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA
MOODY'S UPGRADES TO Aa1 (ON WATCH FOR POSSIBLE DOWNGRADE) FROM Aa3 AND AFFIRMS VMIG 1 LETTER OF CREDIT-BACKED RATINGS OF THE BEAVER COUNTY IDA SERIES 2006A BONDS ISSUED FOR FIRSTENERGY NUCLEAR GENERATION CORP.
