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Announcement:

Moody's affirms ratings of Iberdrola USA and its regulated utility subsidiaries

25 May 2010

Approximately $3.0 Billion of securities affected

New York, May 25, 2010 -- Moody's Investors Service affirmed Iberdrola USA's (IUSA) Baa3 Bank Credit Facility rating and stable outlook and affirmed the ratings and stable rating outlooks of each of IUSA's rated utility subsidiaries, which include New York State Electric & Gas Corporation (NYSEG; senior unsecured at Baa2); Rochester Gas & Electric Corporation (RG&E; issuer rating at Baa2); Central Maine Power Company (CMP; senior unsecured at Baa1); Connecticut Natural Gas Company (CNG; senior unsecured at Baa1); Southern Connecticut Gas Company (SCG; Issuer Rating at Baa2); and Berkshire Gas Company (BGC; Issuer Rating at Baa2). The affirmation of these ratings follows the announcement that UIL Holdings Corporation (UIL; Issuer Rating Baa3; stable outlook) entered into a definitive agreement with IUSA, a subsidiary of Iberdrola S.A. (senior unsecured A3; stable outlook) to acquire SCG, CNG, and BGC for a purchase price of $1.296 billion, including the assumption of approximately $411 million of net debt. Subject to requisite approvals from the Connecticut Department of Public Utility Control (DPUC), the Massachusetts Department of Public Utilities, and Hart-Scott-Rodino Act approval, SCG, CNG, and BGC would become utility subsidiaries of UIL.

"The affirmation of ratings considers Moody's view that the lost revenue, earnings, and cash flow from former LDC operations would be balanced by the reduction of approximately $411 million of LDC net debt and the receipt of approximately $900 million of gross cash proceeds from sale of these LDCs", said Moody's Vice President, Kevin Rose. "The affirmation of ratings also assumes that after-tax proceeds from the sale of the LDCs will likely be redeployed in credit supportive ways, including possible repayment of debt within the IUSA family and/or funding for capital expenditures at the remaining IUSA subsidiaries", Rose added. Capital expenditure needs are especially present at CMP, where significant transmission-related projects are being pursued. From a credit perspective, reducing debt within the IUSA family or using cash proceeds for utility capital expenditures should lessen the pressure for subsidiary dividends to IUSA and lower external financing requirements. We also believe that the transaction may eliminate the uncertainty associated with certain Connecticut court proceedingsas well as any concerns over recent challenges with the DPUC.

While Connecticut and Massachusetts regulatory approval is required for the deal to close, the purchase agreement is not subject to shareholder approval. We understand that management at UIL and IIUSA are hopeful for a fairly benign regulatory approval process that would allow for the transaction to close by the first quarter of 2011; however, we note that it is not uncommon for regulatory approvals of this nature to be associated with various conditions that could lengthen or complicate the process. It is also possible that approvals in Connecticut could be influenced by pending state court challenges by IUSA related to recent rate case decisions for SCG and CNG.

Moody's will monitor the regulatory approval process to be sure there are no material changes to existing terms and conditions of the purchase agreement. Such changes, although not considered likely at this stage, could cause us to revisit this action. Moody's will also further explore IUSA's plans post divestiture, with the goal of understanding the specific use of proceeds and the timing for such application. If asset sales proceeds are deployed in a manner that is not credit supportive, Moody's cannot rule out the possibility that rating adjustments may become necessary.

Meanwhile, Moody's notes that the stable rating outlooks for IUSA and its regulated utilities assumes a reasonable degree of regulatory support will be provided in pending and future proceedings, while management follows a fairly conservative and flexible financing strategy and dividend policy. The outlooks also take into account that the New York utilities have ring-fencing mechanisms in place, including those that limit dividends they can pay under certain circumstances.

The last rating action taken on CMP and RG&E occurred on August 3, 2009 when CMP's senior secured debt rating was upgraded to A2 from A3 and RG&E's senior secured debt rating was upgraded to A3 from Baa1 and stable rating outlooks were maintained for both companies as part of Moody's decision to widen the notching of ratings for senior secured and senior unsecured debt of most regulated utilities.

The last rating action taken on SCG occurred on August 5, 2009 when a Baa2 Issuer Rating was assigned and the stable rating outlook was maintained.

The last rating actions taken on IUSA, NYSEG, CNG, and BGC occurred on April 9, 2009 when we downgraded IUSA's unsecured bank revolver rating to Baa3 from Baa2; we downgraded NYSEG's senior unsecured rating to Baa2 from Baa1; we downgraded CNG's senior unsecured rating to Baa1 from A3; and we downgraded BGC's Issuer Rating to Baa2 from Baa1. In each of the aforementioned instances we established a stable rating outlook.

The principal methodology used in rating IUSA, NYSEG, RG&E, CMP, SCG, CNG, and BGC was Rating Methodology: Regulated Electric & Gas Utilities, published in August 2009, and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Ratings affirmed include the following:

Iberdrola USA

Sr. Unsecured Bank Facility Rating at Baa3

New York State Electric & Gas Corp.

Sr. Unsecured Debt and Issuer Ratings at Baa2

Preferred Stock at Ba1

Rochester Gas & Electric Corp.

Sr. Secured Debt at A3

Issuer Rating at Baa2

Central Maine Power Company

Sr. Secured Debt at A2

Sr. Unsecured Debt & Issuer Ratings at Baa1

Preferred Stock at Baa3

Connecticut Natural Gas Corp.

Sr. Unsecured Debt at Baa1

Southern Connecticut Gas Company

Sr. Secured Debt at A3

Issuer Rating at Baa2

Berkshire Gas Company

Issuer Rating at Baa2

Iberdrola USA (formerly known as Energy East Corporation), a wholly owned subsidiary of Iberdrola S.A., is an intermediate holding company and currently serves as the intermediate level parent for six regulated utility energy distribution subsidiaries in the New York/New England region of the United States. It also has modest investments in energy-related, non-regulated businesses. Its headquarters are in Portland, Maine.

New York
Kevin G. Rose
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
A.J. Sabatelle
Senior Vice President
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms ratings of Iberdrola USA and its regulated utility subsidiaries
No Related Data.
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