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Announcement:

Moody's changes the outlook of Connecticut Light and Power to negative

15 Mar 2012

New York, March 15, 2012 -- Moody's Investors Service today affirmed the ratings of The Connecticut Light and Power Company (CL&P: Baa1 senior unsecured) and changed the rating outlook to negative from stable.

RATINGS RATIONALE

The rating action is largely prompted by our assessment of the settlement agreement entered into by CL&P's parent company Northeast Utilities (NU), NSTAR, and the Attorney General and Consumer Counsel for the State of Connecticut relating to the pending merger between NU and NSTAR.

"In our opinion, the settlement agreement includes certain elements that are less credit supportive for CL&P, particularly the base distribution rate freeze until December 1, 2014 and the agreement to defer recovery of 2011 storm costs over a six-year period beginning after the base distribution rate freeze expires" said Natividad Martel, an Assistant Vice President at Moody's.

In addition, CL&P reported a significant deterioration in the key credit metrics at year-end 2011 with CFO pre-W/C to debt, CFO pre-W/C interest coverage, and retained cash flow to debt of around 16%, 4.5x and 8%, respectively, which are not commensurate with the current Baa1 rating. The 2011 deterioration in credit metrics over previous years is primarily driven by the termination of cash inflows associated with the utility's Rate Reduction bonds at year-end 2010 (which were $167 million in 2010 and $156 million in 2009); one-time costs associated with the 2011 storms; and a $243 million dividend distribution amid negligible equity contributions received from NU during the year. The utility also recorded an increase in short-term debt of $83 million along with a higher debt adjustment caused by the $174 million underfunded pension obligations (2010: $43 million) which also contributed to the deterioration in metrics despite the tax savings associated with bonus depreciation wherein deferred taxes amounted to $113 million at year-end 2011.

The negative outlook reflects our expectation that CL&P's credit metrics will remain weak for its current rating for an extended period of time, particularly given the anticipated adverse impact on its cash flows from the terms of the settlement agreement, the likely need for additional operating expenses to improve the system reliability and the decision to add debt to its capital structure in connection with the storm cost deferrals that aggregated $263.3 million at year-end 2011.

That said, the rating action also reflects the current uncertainties regarding the financial policies to be implemented by the consolidated organization after the completion of the merger, and how those policies could impact CL&P, particularly during the base distribution rate freeze. These uncertainties include the funding of substantial investments in distribution and transmission rate base, future dividend policy, possible equity contributions to be received from NU, and whether cash flows associated with cost savings initiatives following the merger will materialize. Moody's will also consider the degree to which the NEEWS transmission projects, whose anticipated completion of the first and largest phase is expected late 2013, could offset the anticipated negative impact on CL&P's cash flows associated with the settlement agreement and upcoming financial policy decisions.

It is our understanding that following the settlement agreement NU/NSTAR's management is currently in the process of assessing the group's financial policies in light of the material capital expenditure program at NU and the positive free cash flow expected to be generated by NSTAR. Moody's would expect to gain some clarity about the group's new financial policies before assessing the adequacy of the ratings of each group's entities, including CL&P, NSTAR (A2; Under review for possible downgrade) and NSTAR Electric (A1; Under review for possible downgrade). Approvals by the regulatory bodies in Massachusetts and Connecticut are expected in early April 2012, with the merger expected to close by April 16, 2012.

Given the negative outlook on CL&P, limited prospects exists for a rating upgrade over the near term.

A downgrade of CL&P's rating is likely to occur if we believe that CL&P's financing policy will remain fairly aggressive after the merger, such that its credit metrics remain too weak for its current rating; specifically, if its CFO pre-W/C to debt CFO, pre-w/c interest coverage and RCF to debt do not exceed 19%, 4x, and 14%, respectively, over the medium term.

The principal methodology used in this rating was Regulated Electric and Gas Utilities published in August 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in Berlin, CT, The Connecticut Light and Power Company (CL&P; Baa1; negative outlook) with more than 1.2 million customers is the state's largest regulated electric transmission and distribution utility. Should the merger between NU and NSTAR close, CL&P will rank as the group's largest subsidiary with total assets of approximately $8.8 billion at year-end 2011, closely followed by NSTAR (A2; under review for possible downgrade) that reported assets of around US$ 8.1 billion at the end of 2011.

Headquartered in Hartford, Connecticut, Northeast Utilities (NU; Baa2; stable) is a utility holding company of a largely regulated utilities group, including the vertically integrated utility, Public Service Company of New Hampshire (PSNH; Baa2, stable); CL&P and Western Massachusetts Electric Company (WMECO; Baa2, stable); and the local gas distribution company, Yankee Gas Services Company (YGS; Baa2; stable). NU's unregulated businesses consist mainly of an energy services business and a few remaining wholesale marketing contracts (Select Energy Inc.) that expire in 2013 as this business winds down. As of year-end 2011, NU's consolidated assets amounted to around $15.7 billion.

Headquartered in Boston, NSTAR is a holding company and parent for the regulated electric transmission and distribution utility and the group's largest subsidiary, NSTAR Electric Company (A1; under review for possible downgrade), and the LDC utility, NSTAR Gas Company (unrated), and some other small non-regulated subsidiaries, including telecommunications and liquefied natural gas service operations.

The NU and NSTAR's subsidiaries are regulated at the state level by their respective public utility commissions in Connecticut (PURA), Massachusetts (MDPU), and New Hampshire (NHPUC), and are also subject to the Federal Energy Regulatory Commission (FERC) purview which oversees the group's transmission business and PSNH's hydro-electric license conditions

REGULATORY DISCLOSURES

Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 30 April 2012. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Natividad Martel
Asst Vice President - Analyst
Infrastructure Finance Group
Moody's Investors Service, Inc.

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 changes the outlook of Connecticut Light and Power to negative
No Related Data.
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