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Rating Action:

Moody's Affirms Exelon Generation's Baa2 Senior Unsecured Rating; Outlook Stable

21 Mar 2016

Approximately $12 billion of debt affected

New York, March 21, 2016 -- Moody's Investors Service, ("Moody's") today affirmed the Baa2 senior unsecured rating at Exelon Generation Company LLC (ExGen). The outlook remains stable. The rating affirmation follows our assessment of the US merchant power sector in the wake of a sustained period of low commodity prices, including natural gas and electricity.

Outlook Actions:

..Issuer: Exelon Generation Company, LLC

....Outlook, Remains Stable

Affirmations:

..Issuer: Exelon Generation Company, LLC

.... Issuer Rating, Affirmed Baa2

....Preferred Shelf, Affirmed (P)Ba1

....Senior Unsecured Shelf, Affirmed (P)Baa2

....Senior Unsecured Bank Credit Facility, Affirmed Baa2

....Senior Unsecured Commercial Paper, Affirmed P-2

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Issuer: Maryland Economic Development Corporation

....Revenue Bonds, Affirmed Baa2

..Issuer: Montgomery County Industrial Dev Auth, PA

....Revenue Bonds, Affirmed Baa2

..Issuer: Pennsylvania Economic Dev. Fin. Auth.

....Senior Unsecured Revenue Bonds, Affirmed Baa2

..Issuer: Salem (County of) NJ, Pollution Ctrl Fin Auth

....Revenue Bonds, Affirmed Baa2

..Issuer: York County Industrial Development Auth., PA

....Revenue Bonds, Affirmed Baa2

RATINGS RATIONALE

"ExGen's financial profile will remain strong over the next few years but the company will need to lean heavily on its balance sheet and maintain ample sources of liquidity," said Jim Hempstead, Associate Managing Director. "We calculate a ratio of cash flow, adjusted for maintenance capital and nuclear fuel, to debt in the mid-teen's range, which is pretty strong relative to its peers."

ExGen's Baa2 senior unsecured rating is supported by a strong financial profile, where the ratio of funds from operations (FFO) to debt should stay near the 30% range over the next few years. Excluding nuclear fuel and maintenance capital, we still see a ratio in the mid-teen's range, which provides sufficient cushion to execute on its corporate strategies during a sustained period of low natural gas and electricity prices. In our financial analysis, we see ExGen generating over $3.5 billion in cash flow, which needs to service $2.0 billion in nuclear fuel and maintenance capital expenses every year. We also estimate roughly $1.0 billion a year in capacity revenues, primarily due to the large nuclear fleet.

Recently, ExGen's management articulated several credit positive corporate finance policies, including a plan to lower debt balances. We also see an ability to reduce the upstream dividend obligation that ExGen makes to its parent. A strong balance sheet is important for ExGen because low power prices hurt its 19 GW nuclear generation fleet, which carry very high fixed costs. We think ExGen can generate electricity from its nuclear generating fleet for approximately $35 - $45 / mega-watt hour, depending on the unit.

ExGen's rating is constrained by its large hedging, trading and marketing program which is designed to provide near-term cash stability while simultaneously benefiting from expected price movements in outer years. We also think ExGen's retail marketing operations are closely tied to the hedging program, and that the retail operations can generate close to $1.0 billion in annual gross margins, thanks to the sustained decline in power prices. ExGen hedges approximately 90%, 60-80% and 30-50% of its expected electric loads over the following three years, respectively. But these operations come with the potential for material demands on liquidity and collateral postings, due to sizeable amounts of outstanding derivative contracts.

Natural gas prices in the United States are at historic lows; after declining sharply to the $3/MMBtu range near the end of 2014, the downward slide continued with current pricing under $2/MMBtu in most markets. Forward curves remain upward sloping, with prices returning above $2/MMBtu in 2016; however, most indications remain below $3/MMBtu for the foreseeable future. Moody's is currently assuming average pricing of $2.25/MMBtu in 2016 and $2.50 MMBtu in 2017. While low natural gas prices do not necessarily translate directly into lower power prices, particularly in the PJM Interconnection (PJM, Aa3 stable) where there are delivery constraints and a meaningful amount of power is still produced by coal-fired generating plants, they do tend to move together.

Liquidity Profile

ExGen's liquidity profile is considered adequate. As of December 31, 2015, ExGen's principal liquidity arrangements included $0.4 billion in cash and $5.7 in a committed facilities, $5.3 billion of which is syndicated across numerous financial institutions. The facility is currently scheduled to expire in May 2019. As of December 31, 2015, ExGen had no commercial paper and $1.5 billion of letters of credit outstanding, leaving about $4.2 billion available at the revolver.

The core syndicated credit facility is primarily used to provide liquidity support and for the issuance of letters of credit. While the credit agreement does not contain any rating triggers that would affect borrowing access to the commitment and does not require material adverse change (MAC) representation for borrowings or the issuance of LOCs, there is a financial covenant wherein the company was in compliance.

We see cash flow from operations remaining above $3.0 billion and a decline in capital expenditures beginning in 2016. ExGen's next scheduled debt maturity is a $700 million 6.2% senior unsecured note due in October 2017.

Rating Outlook

ExGen's stable rating outlook reflects its current strong financial profile and our expectation that the company will manage through today's tough market conditions. We still see some structural uplift potential in ExGen's markets and with respect to its nuclear generation fleet, given nuclear's unique high reliability and carbon-friendly generation characteristics. Finally, the stable outlook also reflects the continued application of a conservative set of sophisticated hedging strategies, which are fundamentally designed to insulate the company's financial profile from severe swings in natural gas and power-related commodity prices.

What Could Change the Rating - Up

ExGen's ratings could be upgraded to the Baa1 ratings category if the company reduced its overall risk profile or improved its financial profile, where the ratio of cash flow to debt rose to above the 40% range for a sustained period of time or the company began to produce a steady stream of positive free cash flow.

What Could Change the Rating - Down

ExGen's ratings could be downgraded if weaker than expected financials surfaced, where the ratio of cash flow to debt fell into the low to mid 20% range for a sustained period of time, or if there was a material change to its corporate finance policies, especially with respect to the dividend and/or capital expenditures which indicated a steady rise in leverage or decline in the ratio of retained cash flow to debt into the mid-teen's range.

Exelon Generation Company, LLC (ExGen; Baa2, stable) is one of the largest unregulated utilities in our rated universe, as measured by assets. ExGen owns approximately 32 GW of generating capacity which is well positioned for potential carbon dioxide regulations, including 19 GW of nuclear capacity, 8 GW of natural gas capacity, 2 GW of hydro capacity and 1GW of other, mostly wind and solar renewable capacity. ExGen also has 2 GW of oil-fired capacity, and a small exploration & production business. In addition to unregulated electric power generation, ExGen owns one of the largest national retail energy supply business, serving over 1 million customers with about 150 terawatt-hours (TWH's) of electric load. ExGen is regulated by the Federal Energy Regulatory Commission (FERC) and by the Nuclear Regulatory Commission (NRC). ExGen is a wholly-owned subsidiary of Exelon Corporation (Exelon; Baa2, stable).

The principal methodology used in these ratings was Unregulated Utilities and Unregulated Power Companies published in October 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

James Hempstead
Associate Managing Director
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

William L. Hess
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Affirms Exelon Generation's Baa2 Senior Unsecured Rating; Outlook Stable
No Related Data.
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