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Rating Action:

Moody's changes outlook for Niagara Mohawk Power Corporation to negative

15 Feb 2018

London, 15 February 2018 -- Moody's Investors Service (Moody's) has today affirmed the ratings of Niagara Mohawk Power Corporation (NiMo) and changed the outlook on the ratings to negative from stable.

A complete list of affected ratings is included toward the end of this release.

The action follows the filing of a Joint Proposal with the New York Public Service Commission (NYPSC) for a three-year rate plan that incorporates a material adverse impact from recent US tax reforms on allowed revenues, which Moody's estimates will reduce NiMo's ratio of cash flow from operations pre working capital (CFO pre-WC) to gross debt by around 2.5 percentage points. The action also reflects the increase in debt and resulting pressure on credit metrics resulting from the company's decision to pay a $550 million dividend in the 2017/18 financial year.

RATINGS RATIONALE

NiMo's rating benefits from the low business risk of its transmission and distribution businesses and the supportive New York regulatory environment, which provides for forward-looking rate plans that allow for the timely recovery of operating and capital expenditure and includes a variety of de-risking provisions. Its rating also benefits from a relatively large customer base, relatively low leverage, and strong ring-fencing provisions, which protect credit quality from additional leverage at parent companies.

In January 2018, NiMo and the NYPSC filed a Joint Proposal for new three-year rate plans covering NiMo's electric and gas businesses. The proposed rate plans would permit NiMo to increase in revenue by $206 million in 2018/19 with smaller incremental increases in 2019/20 and 2020/21, and would reflect an ROE of 9.0%. A final decision on the new rate plans is expected to be announced in spring 2018.

However, the rate plans reflect a material adverse impact from US tax reforms, which will reduce NiMo's ratio of CFO pre-WC to gross debt by around 2.5 percentage points. In addition, shortly before receiving the Joint Proposal, NiMo paid a dividend of $550 million to align its debt/capitalisation with the regulator's assumptions, which will depress CFO pre-WC to gross debt by a further 2.5-3.0 percentage points from 2017/18. Certain regulatory accruals, which have supported metrics in recent years, are also likely to reverse starting in 2018/19. Unless the company takes significant mitigating action, we expect these developments to result in significantly weaker credit metrics than previously anticipated.

WHAT COULD CHANGE THE RATING UP/DOWN

The ratings could be stabilised if the National Grid group bolstered NiMo's balance sheet such that the ratio of CFO pre-WC to gross debt was likely to remain in the high teens, in percentage terms.

The ratings could be downgraded if CFO pre-WC to gross debt appeared likely to fall below the high teens on a persistent basis. The ratings could also be downgraded if Moody's perceived a decrease in the supportiveness of the NYPSC, or if the credit quality of the wider National Grid group deteriorated.

LIST OF AFFECTED RATINGS

Affirmations:

Issuer: Niagara Mohawk Power Corporation

.... LT Issuer Rating, A2

.... Senior Unsecured Shelf, Affirmed (P)A2

.... Senior Secured Shelf, Affirmed (P)Aa3

.... Preferred Stock, Affirmed Baa1

....Senior Unsecured Medium-Term Note Program, Affirmed (P)A2

....Senior Unsecured Regular Bond/Debenture, Affirmed A2

Issuer: New York State Energy Research & Dev. Auth.

....BACKED Senior Secured Revenue Bonds, Affirmed Aa3

....Underlying Senior Secured Revenue Bonds, Affirmed Aa3

Outlook Actions:

Issuer: Niagara Mohawk Power Corporation

....Outlook, Changed To Negative From Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Regulated Electric and Gas Utilities published in June 2017. Please see the Rating 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.

Graham Taylor
VP - Senior Credit Officer
Infrastructure Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Neil Griffiths-Lambeth
Associate Managing Director
Infrastructure Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2018 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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