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Rating Action:

Moodys changes MidAmerican Energy Co sr uns debt to Aa3 sr sec

12 Sep 2013

Approximately $950 million of first mortgage bonds rated Aa3

New York, September 12, 2013 -- Moody's Investors Service assigned an Aa3 senior secured rating to MidAmerican Energy Company's (MEC) issuance of first mortgage bonds. Moody's also changed to Aa3 senior secured from A2 senior unsecured the rating on approximately $2 billion of MEC's outstanding senior unsecured debt, which under the negative pledge clause in their indentures have become secured and pari passu with those first mortgage bonds. Approximately $195 million of senior unsecured variable-rate revenue bonds, rated A2/VMIG 1, and its senior unsecured short-term obligations, rated Prime-1, have no such negative pledge clause under their terms; therefore, neither their seniority nor ratings are affected. Moody's affirmed MEC's A2 senior unsecured issuer rating and the A3 senior unsecured rating of MEC's holding company, MidAmerican Funding, LLC. MEC and MidAmerican Funding's rating outlook is stable.

RATINGS RATIONALE

"MEC's first mortgage bond issue will result in its debt capital structure becoming substantially all senior secured, a class of debt which historically has proven to be lower risk, and thus have commanded lower debt costs and better debt capital market access compared to senior unsecured bonds," said Moody's Senior Vice President Mihoko Manabe.

The two-notch differential between MEC's Aa3 first mortgage bond rating and A2 senior unsecured debt rating is in keeping with Moody's notching practice based on its analysis of the history of regulated utility defaults, which indicates that regulated utilities have defaulted at a lower rate and experienced lower loss given default rates than non-financial, non-utility corporate issuers. Consequently, secured debt is typically offered at lower coupon rates than those for senior unsecured debt and is beneficial to interest coverage.

MEC has not had any first mortgage bonds outstanding since 2008, and prior to this issuance, its debt was all senior unsecured. As of June 30, 2013, MEC had six senior unsecured debt issues that were issued under MEC's 2002 and 2006 indentures, which contain the negative pledge clauses that require the company to equally and ratably secure these issues if the company were to incur secured debt.

The A2 senior unsecured continues to indicate MEC's unenhanced credit quality, reflecting the stability of MEC's cash flow, its supportive regulatory environment, and prudent financial strategy. The outlook incorporates Moody's expectation that, while bonus depreciation and production tax credits have kept cash flow from operations before working capital changes (CF pre-w/c) to debt into the high 20% to 30% range in recent years, those metrics will likely subside to the mid 20% range over the next few years.

MEC's ratings could be upgraded with a sustained increase in cash flow or a significant reduction in leverage, resulting in a permanent improvement in credit metrics as demonstrated, for example, by a ratio of CF pre-w/c to debt in the 30% range.

MEC's ratings could be downgraded if its regulatory relationships deteriorate, or if the company pursues a more aggressive financial strategy, causing its credit metrics to weaken as demonstrated, for example, by a ratio of CF pre-w/c to debt sustained in the low 20% range.

Moody's has taken the following rating actions:

Upgrades:

..Issuer: MidAmerican Energy Company

....Senior Unsecured Regular Bond/Debenture Oct 1, 2014, Upgraded to Aa3 from A2

....Senior Unsecured Regular Bond/Debenture Dec 30, 2031, Upgraded to Aa3 from A2

....Senior Unsecured Regular Bond/Debenture Jul 15, 2017, Upgraded to Aa3 from A2

....Senior Unsecured Regular Bond/Debenture Oct 15, 2036, Upgraded to Aa3 from A2

....Senior Unsecured Regular Bond/Debenture Nov 1, 2035, Upgraded to Aa3 from A2

....Senior Unsecured Regular Bond/Debenture Mar 15, 2018, Upgraded to Aa3 from A2

Assignments:

..Issuer: MidAmerican Energy Company

....Senior Secured First Mortgage Bonds, Assigned Aa3

Outlook Actions:

..Issuer: MidAmerican Energy Company

....Outlook, Remains Stable

..Issuer: MidAmerican Funding, LLC

....Outlook, Remains Stable

Affirmations:

..Issuer: MidAmerican Energy Company

.... Issuer Rating, Affirmed A2

..Issuer: MidAmerican Funding, LLC

....Senior Unsecured Regular Bond/Debenture Mar 1, 2029, Affirmed A3

MidAmerican Energy Company is a subsidiary of MidAmerican Energy Holdings Co., a diversified utility holding company headquartered in Des Moines, Iowa.

The principal methodology used in this rating was Regulated Electric and Gas Utilities Methodology published in August 2009. Please see the Credit Policy 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Mihoko Manabe
Senior Vice President
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

James Hempstead
Associate Managing Director
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

Moodys changes MidAmerican Energy Co sr uns debt to Aa3 sr sec
No Related Data.
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​

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