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Rating Action:

Moody's downgrades ConEd to Baa1, CECONY to A3 and O&R to Baa1; outlooks stable

30 Oct 2018

New York, October 30, 2018 -- Moody's Investors Service ("Moody's") today downgraded the long-term ratings of Consolidated Edison, Inc. (ConEd, senior unsecured to Baa1 from A3) and its subsidiaries Consolidated Edison Company of New York, Inc. (CECONY, senior unsecured to A3 from A2) and Orange and Rockland Utilities, Inc. (O&R, senior unsecured to Baa1 from A3) due to a weaker financial profile. Moody's also downgraded CECONY's short-term commercial paper rating to P-2 from P-1. The P-2 commercial paper ratings for ConEd and O&R were affirmed. See a full debt list of affected ratings at the end of this press release. The outlooks for ConEd, CECONY and O&R are stable.

RATINGS RATIONALE

"ConEd's financial profile is weaker due to cash flow headwinds from tax reform, coupled with incremental holding company debt" said Ryan Wobbrock, Vice President -- Senior Analyst. "We see ConEd's ratio of consolidated cash flow to debt falling to around 15%, down from over 20% historically" added Wobbrock.

ConEd's credit is primarily driven by CECONY, since the utility represents roughly 90% of consolidated cash flow. In August, CECONY received some clarity on rate treatment of tax reform via a New York Public Service Commission (NYPSC) order, which includes sur-credits for electric and gas revenue in 2019 and amortization of accumulated deferred tax benefits to be determined in an upcoming general rate case. This means that CECONY will have a series of revenue and cash flow reductions that will offset some of the expected general rate increases that the utility would otherwise have.

As such, we expect CECONY's cash flow to remain steady, at the same time that the utility's capital spending -- and debt - is expected to increase for infrastructure resiliency, energy efficiency and other New York policy priorities. The combination will result in CECONY cash flow to debt ratios around 16-17% through 2020, which is also down from over 20% in recent years.

O&R faces the same type of cash flow headwinds and rate treatment as CECONY, which will reduce currently strong ratios of cash flow from operations before working capital (CFO pre-WC) to debt of over 20% to the mid-teen's over the next 2-3 years.

ConEd's financial decline reflects that of its utility subsidiaries and will be exacerbated by its intent to issue around $825 million of incremental amortizing debt as part of a 981 megawatt (MW) of renewable generation assets purchase. The $2.1 billion purchase, of mostly solar electric generation assets, includes the assumption of roughly $576 million of project level debt. This will increase the amount of ConEd's non-utility debt to around 16% of consolidated debt, from almost 13%, based on June 30 amounts.

ConEd's credit is supported by its ownership of rate regulated utility operations in transparent and supportive regulatory environments. It's unregulated business exposure remains relatively low, at just above 10% of expected 2019 consolidated EBITDA, and is backed by contracted revenue with credit-worthy counterparties.

The credit profiles of CECONY and O&R reflect their low business risk electric and gas (and steam, for CECONY) transmission and distribution assets that benefit from a suite of timely cost recovery mechanisms. These mechanisms allow the companies to generate stable and predictable cash flow and earned returns.

Factors that Could Lead to an Upgrade

Material improvements to financial metrics could lead to upgrades for ConEd, CECONY and O&R. This could occur with better than anticipated regulatory outcomes that drive sustainable CFO pre-WC to debt ratios to around 20% for ConEd, the low-to-mid 20% range for CECONY and at least 19% for O&R.

Factors that Could Lead to a Downgrade

ConEd could be downgraded if CECONY is downgraded, if unregulated operations become riskier and grow to 15-20% of consolidated EBITDA, or if incremental parent-debt results in CFO pre-WC to debt consistently below 15%.

CECONY could be downgraded if regulatory support declines or if CFO pre-WC to debt declines consistently below 17%.

O&R could be downgraded if regulatory support declines or if CFO pre-WC to debt declines consistently to around 15%.

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.

Downgrades:

..Issuer: Consolidated Edison Company of New York, Inc.

.... Issuer Rating, Downgraded to A3 from A2

....Senior Unsecured Commercial Paper, Downgraded to P-2 from P-1

....Senior Unsecured Regular Bond/Debenture, Downgraded to A3 from A2

....Underlying Senior Unsecured Regular Bond/Debenture, Downgraded to A3 from A2

..Issuer: Consolidated Edison, Inc.

.... Issuer Rating, Downgraded to Baa1 from A3

....Senior Unsecured Shelf, Downgraded to (P)Baa1 from (P)A3

....Senior Unsecured Regular Bond/Debenture, Downgraded to Baa1 from A3

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

....Senior Unsecured Revenue Bonds, Downgraded to A3 from A2

....Underlying Senior Unsecured Revenue Bonds, Downgraded to A3 from A2

..Issuer: New York State Research & Development Auth.

....Senior Unsecured Revenue Bonds, Downgraded to A3 from A2

....Underlying Senior Unsecured Revenue Bonds, Downgraded to A3 from A2

..Issuer: Orange and Rockland Utilities, Inc.

.... Issuer Rating, Downgraded to Baa1 from A3

....Senior Unsecured Regular Bond/Debenture, Downgraded to Baa1 from A3

Outlook Actions:

..Issuer: Consolidated Edison Company of New York, Inc.

....Outlook, Changed To Stable From Negative

..Issuer: Consolidated Edison, Inc.

....Outlook, Changed To Stable From Negative

..Issuer: Orange and Rockland Utilities, Inc.

....Outlook, Changed To Stable From Negative

Affirmations:

..Issuer: Consolidated Edison, Inc.

....Senior Unsecured Commercial Paper, Affirmed P-2

..Issuer: Orange and Rockland Utilities, Inc.

....Senior Unsecured Commercial Paper, Affirmed P-2

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.

Ryan Wobbrock
Vice President - Senior Analyst
Infratructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Jim Hempstead
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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