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Rating Action:

Moody's Upgrades Pepco Holdings; Changes Rating Outlook to Stable from Developing; Exelon Affirmed

24 Mar 2016

Approximately $5 billion of debt affected

New York, March 24, 2016 -- Moody's Investors Service, ("Moody's") today upgraded the ratings for Pepco Holdings, Inc. (PHI), including the senior unsecured rating to Baa2 from Baa3 and the short term commercial paper rating to Prime-2 (P-2) from Prime-3 (P-3). In addition, Moody's changed the rating outlook for PHI to stable from developing. Concurrently with this action, Moody's affirmed the ratings for Exelon Corporation (Exelon), including the Baa2 senior unsecured rating and Prime-2 (P-2) short term commercial paper rating. Exelon's rating outlook is stable.

Upgrades:

..Issuer: Pepco Holdings, Inc.

.... Issuer Rating, Upgraded to Baa2 from Baa3

....Senior Unsecured Commercial Paper, Upgraded to P-2 from P-3

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa2 from Baa3

Outlook Actions:

..Issuer: Exelon Capital Trust I

....Outlook, Remains Stable

..Issuer: Exelon Capital Trust II

....Outlook, Remains Stable

..Issuer: Exelon Capital Trust III

....Outlook, Remains Stable

..Issuer: Exelon Corporation

....Outlook, Remains Stable

..Issuer: Pepco Holdings, Inc.

....Outlook, Changed To Stable From Developing

Affirmations:

..Issuer: Constellation Energy Group, Inc.

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

..Issuer: Exelon Capital Trust I

....Pref. Stock Shelf, Affirmed (P)Baa3

..Issuer: Exelon Capital Trust II

....Pref. Stock Shelf, Affirmed (P)Baa3

..Issuer: Exelon Capital Trust III

....Pref. Stock Shelf, Affirmed (P)Baa3

..Issuer: Exelon Corporation

.... Issuer Rating, Affirmed Baa2

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

....Subordinate Shelf, Affirmed (P)Baa3

....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

RATINGS RATIONALE

"With the merger completed, PHI benefits as an intermediate subsidiary holding company of Exelon," said Jim Hempstead, Associate Managing Director. "We see Exelon's larger size and scale bringing more resources and capital to help accelerate PHI's investment plans."

PHI's Baa2 rating reflects the company's status as an intermediate subsidiary holding company of Exelon, and its portfolio of three low business risk profile transmission and distribution (T&D) utilities. PHI's utilities (Atlantic City Electric Company, (Baa2 stable); Delmarva Power and Light Company, (Baa1 stable) and Potomac Electric Power Company, (Baa1 stable)) provide electric and natural gas delivery services to roughly 2.0 million customers. PHI's service territories cover the District of Columbia (DC), Maryland, Delaware and New Jersey, and are contiguous to Exelon's Maryland and Pennsylvania service territories. In 2015, PHI's T&D utilities produced roughly $1.0 billion in cash flow that covered approximately $7.1 billion in debt.

For Exelon, and its Baa2 senior unsecured rating, the acquisition of PHI is credit positive because it helps transition the company more towards a regulated business. PHI brings an incremental $8 billion in rate base to Exelon's roughly $20 billion, and adds regulatory diversity with new service territories in DC, Delaware and New Jersey.

"We see Exelon's business shifting more towards its regulated utilities, so we will now assess Exelon's credit profile under our Global Regulated Electric and Gas Utilities rating methodology," Hempstead added.

Prospectively, we see Exelon's roughly $28 billion of regulated T&D utility rate base remaining higher than its combined T&D utility debt of approximately $20 billion. In addition, we count an additional $5.0 billion in parent holding company debt, which if added to the T&D utility debt, is still below the rate base, a credit positive. When looking at Exelon without its unregulated business operations, we see an ability to generate a ratio of cash flow to debt in the 20% range (considering only the T&D utility debt) and the mid-teen's range (considering the T&D utility debt and incorporating the holding company debt). In addition, we see approximately $3.5 billion of debt at Baltimore Gas and Electric Company (A3 stable), $8.1 billion of debt at Commonwealth Edison Company (Baa1 positive), $3.1 billion of debt at PECO Energy Company (A2 stable), $1.3 billion of debt at Atlantic City Electric Company (Baa2 stable), $1.6 billion of debt at Delmarva Power and Light Company (Baa1 stable) and $2.6 billion of debt at Potomac Electric Power Company (Baa1 stable).

Liquidity Profile

PHI's Prime-2 short term commercial paper rating reflects the strength and liquidity resources of Exelon. Going forward, we incorporate a view that PHI will no longer be utilized as a principal financing vehicle, and we expect the debt at PHI, including its existing short-term debt, to slowly transition to the Exelon parent holding company level.

Rating Outlook

The stable rating outlook for PHI reflects its role as an intermediate subsidiary holding company of Exelon. Exelon's stable rating outlook reflects the stability and predictability of its larger suite of T&D utilities, its adequate liquidity profile and its conservatively managed and capitalized unregulated business operations. The stable outlook incorporates a view that Exelon will generate a consolidated ratio of cash flow to debt ratio in the high-teen's to 20% range on a sustained basis.

What Could Change the Rating -- Up

PHI's Baa2 rating could be upgraded with an upgrade in Exelon's rating. Exelon's Baa2 rating could be upgraded if its consolidated ratio of cash flow to debt rose to the mid-20% range for a sustained period of time, or if there was a material reduction in the corporate family's business risk profile.

What Could Change the Rating - Down

PHI's Baa2 rating could be downgraded with a downgrade in Exelon's rating. Exelon's Baa2 rating could be downgraded if there was a material increase in regulatory contentiousness in one or more of its major jurisdictions (i.e., Illinois, Maryland or Pennsylvania), or if the consolidated ratio of cash flow to debt declined to the low-to-mid-teen's range for a sustained period of time. Ratings could also be downgraded if Exelon deployed a more aggressive corporate finance strategy, where the level of holding company debt as a percentage of total consolidated debt rose to over 25% (excluding the debt of Exelon Generation Company LLC) or if there were any materially adverse developments in the unregulated business operations related to the nuclear generation fleet or the retail trading and marketing business.

The principal methodology used in these ratings was Regulated Electric and Gas Utilities published in December 2013. 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 Upgrades Pepco Holdings; Changes Rating Outlook to Stable from Developing; Exelon Affirmed
No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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