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