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Announcement:

Moody's confirms Exelon's and Exelon Generation's ratings; outlook negative

08 Nov 2012

Approximately $9.3 billion of Debt Securities and Bank Credit Facilities Affected

New York, November 08, 2012 -- Moody's Investors Service has confirmed the ratings of Exelon Corporation (Exelon: Baa2 senior unsecured), including its Prime-2 commercial paper rating, and confirmed the long-term ratings of primary subsidiary, Exelon Generation Company, LLC (ExGen: Baa1 senior unsecured). Moody's also affirmed ExGen's short-term rating for commercial paper at Prime-2. Today's rating action concludes the review for possible downgrade at Exelon and ExGen, which was initiated on June 11th. Exelon and ExGen's rating outlook is negative.

RATINGS RATIONALE

The rating confirmation reflects last week's announcement by management to defer $2.3 billion in growth capital expenditures thereby enhancing free cash flow generation from 2012 through 2015. The rating confirmation further acknowledges statements by management during the company's third quarter earnings call that revisiting its dividend policy would be among the range of options for management and the board to consider in preserving its investment-grade rating should power prices not recover in the next six months as completely or as rapidly as Exelon's fundamental views suggest. To that end, the rating confirmation acknowledges these and other public statements concerning the company's firm commitment to maintain an investment-grade rating at all registrants within the Exelon family.

While weak market fundamentals are negatively affecting the entire unregulated power space, Exelon remains unique relative to its diversified peers, given its high reliance on the unregulated power business for earnings and cash flow growth. Exelon is also unique in terms of its scale and the size of its nuclear fleet. Although up-rate investments at several nuclear plants remain unchanged, free cash flow will be enhanced by the deferral of $1.025 billion of capital investment for extended power nuclear up-rates at LaSalle and at Limerick until 2017 and by the removal of an additional $1.25 billion for new renewable projects. That said, we anticipate Exelon and ExGen's key credit metrics will decline from recent historical levels during the next two years due to expiring hedges and current market prices. Based on the current market, we estimate that even with the scaled back capital spending program, ExGen's cash flow (CFO-pre W/C) to debt will be in the low-mid 30% range over the next few years while its retained cash flow to debt will average around 15%, with very modest free cash flow generation, which together represent credit metrics more reflective of a mid-Baa rated unregulated power company. However, the nature of Exelon's fleet means that it would benefit from any uptick in power pricing.

The reduction in capital expenditures will enhance ExGen's ability to meet other funding requirements, which includes providing the lion's share of the parent $1.8 billion dividend. This is particularly the case over the next several years when capital investments at regulated subsidiary Commonwealth Edison Company (ComEd: Baa2 senior unsecured) are expected to be elevated and dividend payments are prohibited from regulated subsidiary Baltimore Gas & Electric Company (BG&E: Baa1 senior unsecured) through 2014. In that vein, a decision by Exelon to modify its dividend policy would further benefit ExGen, and in particular ExGen's free cash flow metric.

The rating confirmation acknowledges the expected decline in Exelon's liquidity arrangements owing to the Exelon-Constellation Energy Group, Inc. merger this past March. Beginning in 2013, Exelon's liquidity arrangements supporting its unregulated power business will equal $6.1 billion, a decline of $4.2 billion from the $10.3 billion level that existed immediately following merger close. This decline, while substantial on a notional basis, is largely reflective of the reduced collateral requirements that occurs when a company that is long on generation is combined with one that has a large retail network. At October 24, 2012, there was $4.2 billion of availability under the $6.1 billion in Exelon and ExGen facilities, after giving effect to $1.9 billion of ExGen letters of credit issued. At October 24th, Exelon and ExGen had no commercial paper outstanding. The $6.1 billion of credit facilities that supports Exelon's unregulated power business expires in August 2017. The legacy CEG $1.5 billion credit facility, which was assumed by Exelon at merger close and was unutilized at October 24th, will expire at year-end 2012.

The negative rating outlook for Exelon and ExGen factors in the expected decline in certain key credit metrics that we anticipate occurring over the intermediate-term due to sustained weak market fundamentals even with the decline in growth capital spending. The negative outlook also acknowledges, that, despite the low-cost fleet, we believe ExGen would need to experience some increase in power prices above current market forwards in order to generate metrics consistent with their current rating category. The negative rating outlook further considers the sizeable dividend requirements at ExGen along with the parent's reliance on a large unregulated platform which can add to cash flow volatility.

In light of the negative rating outlook, the ratings at Exelon and ExGen's are not likely to be upgraded in the near-term. The rating outlook could, however, stabilize if the company continues to take actions that we believe are supportive of sustained long-term credit quality, particularly as it relates to capital allocation decisions.

The rating could be downgraded if future capital allocation decisions result in higher than anticipated negative free cash being financed with incremental indebtedness. Specifically, management has stated their intention to examine future dividend policy in light of ongoing power prices, so if power price expectations remain subdued and dividend policy is not reevaluated, or if the modification is only modest despite relatively sustained weaknesses, ExGen's ratings are likely to be downgraded. To that end, the rating could be downgraded if initiatives being pursued by management to improve cash flow and strengthen the balance sheet prove to be less effective during this down cycle resulting in sustained weakness in ExGen's metrics, including cash flow to debt below 30%, retained cash flow to debt below 15%, or free cash flow that is negative or negligible.

Ratings Confirmed:

..Issuer: Exelon Corporation

.... Issuer Rating at Baa2

....Senior Unsecured Regular Bond/Debenture at Baa2

....Shelf for senior unsecured, subordinated debt and preferred at (P)Baa2, (P)Baa3, and (P)Ba1

....Senior Unsecured Commercial Paper at Prime-2

..Issuer: Exelon Generation Company, LLC

.... Issuer Rating at Baa1

....Senior Unsecured Regular Bond/Debenture at Baa1

....Shelf for senior unsecured and preferred stock at (P) Baa1 and (P)Baa3

..Issuer: Pennsylvania Economic Dev. Fin. Auth.

....Senior Unsecured Revenue Bonds at Baa1

..Issuer: Constellation Energy Group, Inc. (Assumed by Exelon Corporation)

....Senior Unsecured Regular Bond/Debenture at Baa2

....Senior Unsecured Bank Credit Facility at Baa2

....Junior Subordinated Regular Bond/Debenture at Baa3

..Issuer: Exelon Capital Trust I

....Pref. Stock Shelf at (P)Baa3

..Issuer: Exelon Capital Trust II

....Pref. Stock Shelf at (P)Baa3

..Issuer: Exelon Capital Trust III

....Pref. Stock Shelf at (P)Baa3

Headquartered in Chicago, IL, Exelon is the holding company for non-regulated subsidiary, ExGen and for regulated subsidiaries, ComEd, PECO, and BG&E. At 09/30/2012, Exelon had total assets of $78.4 billion.

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

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. 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.

A.J. Sabatelle
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

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 confirms Exelon's and Exelon Generation's ratings; outlook negative
No Related Data.
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