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Rating Action:

Moody's reviews Exelon and Exelon Generation for possible downgrade

Global Credit Research - 11 Jun 2012

Approximately $7.7 billion of Debt Securities and Bank Credit Facilities Affected

New York, June 11, 2012 -- Moody's Investors Service today placed the ratings of Exelon Corporation (Exelon: Baa2 senior unsecured) under review for possible downgrade along with the long-term ratings of its primary subsidiary, Exelon Generation Company, LLC (ExGen: Baa1 senior unsecured). Exelon's Prime-2 short-term rating for commercial paper is also under review for possible downgrade; however, ExGen's short-term rating for commercial paper is not under review and affirmed at Prime-2.

"Today's rating action follows our assessment and concerns with Exelon's financing plan outlined last week which contemplates debt financing 100% of the expected negative free cash flow over the next few years caused by weakened operating cash flow, a sizeable dividend, and a substantial capital investment program," said A. J. Sabatelle, Senior Vice President at Moody's. "Over the next three years, we estimate that debt at ExGen /Exelon could increase by more than $3 billion, a nearly 40% increase from the March 31, 2012 level of about $8.3 billion. An increase in debt of this magnitude would, most likely, permanently weaken key financial metrics and credit quality at ExGen and Exelon."

RATINGS RATIONALE

The rating review reflects our analysis and concerns over the company's financing plan for the next three years which includes primarily debt financing the expected negative free cash flow of Exelon's unregulated businesses caused by weakened operating margins and funding a large capital investment program and a common dividend. While weak market fundamentals are negatively affecting the entire unregulated power space, Exelon remains unique relative to its peers, given its high reliance on the unregulated power business for earnings and cash flow. Negative free cash flow will persist at Exelon over the intermediate term based upon the funding requirements for its nuclear up-rate program, committed solar and wind projects, and the continuing payment of the common dividend. In light of sizable capital requirements anticipated at regulated subsidiary Commonwealth Edison Company (ComEd: Baa2 senior unsecured) and the existence of dividend restrictions at regulated subsidiary Baltimore Gas & Electric Company (BG&E: Baa1 senior unsecured), the majority of the company's $1.8 billion common dividend requirements will be borne by ExGen while it also funds its strategically important, multi-year nuclear up-rate investment program. Exelon's current plan does not include the issuance of new common equity during this timeframe leading to deteriorating credit metrics at both ExGen and at Exelon.

Moody's believes that Exelon remains firmly committed to maintaining an investment grade rating at Exelon and ExGen, and we opine that the company's current plans, as we understand them, will enable Exelon and ExGen to maintain investment grade ratings during this down commodity cycle. To that end, should the outcome of the rating review result in a rating downgrade at Exelon and ExGen, the downgrade would be limited to one notch enabling both entities to maintain an investment grade rating.

The review will examine the company's near-term and intermediate term financing plans in greater detail, including the merger requirement to sell its Maryland based fossil fuel generation assets. The review will also access the announced plans to grow the company's retail business, the likelihood of the company reaching its revised merger saving targets, and the feasibility of achieving anticipated reductions in liquidity levels across the commodity platform.

The ratings and stable rating outlook for Exelon's regulated utilities, ComEd, BG&E, and PECO Energy Company (A3: Issuer Rating) are unaffected by today's rating action at Exelon and ExGen reflecting an expectation for strong credit metrics for the respective rating categories at these utilities, the existence of dividend restrictions at BG&E and a view that the boards of ComEd and PECO will continue to follow a responsible dividend policy that first considers the capital and infrastructure needs of each utility. For more information, please review the most recent Credit Opinion on moodys.com.

On Review for Possible Downgrade:

..Issuer: Constellation Energy Group, Inc.

....Junior Subordinated Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Baa3

....Senior Unsecured Bank Credit Facility, Placed on Review for Possible Downgrade, currently Baa2

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Baa2

..Issuer: Exelon Capital Trust I

....Pref. Stock Shelf, Placed on Review for Possible Downgrade, currently (P)Baa3

..Issuer: Exelon Capital Trust II

....Pref. Stock Shelf, Placed on Review for Possible Downgrade, currently (P)Baa3

..Issuer: Exelon Capital Trust III

....Pref. Stock Shelf, Placed on Review for Possible Downgrade, currently (P)Baa3

..Issuer: Exelon Corporation

.... Issuer Rating, Placed on Review for Possible Downgrade, currently Baa2

....Multiple Seniority Shelf, Placed on Review for Possible Downgrade, currently a range of (P)Ba1 to (P)Baa2

....Multiple Seniority Shelf, Placed on Review for Possible Downgrade, currently a range of (P)Ba1 to (P)Baa2

....Multiple Seniority Shelf, Placed on Review for Possible Downgrade, currently a range of (P)Ba1 to (P)Baa2

....Senior Unsecured Commercial Paper, Placed on Review for Possible Downgrade, currently P-2

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Baa2

....Senior Unsecured Shelf, Placed on Review for Possible Downgrade, currently (P)Baa2

..Issuer: Exelon Generation Company, LLC

.... Issuer Rating, Placed on Review for Possible Downgrade, currently Baa1

....Multiple Seniority Shelf, Placed on Review for Possible Downgrade, currently (P)Baa3, (P)Baa1

....Multiple Seniority Shelf, Placed on Review for Possible Downgrade, currently (P)Baa3, (P)Baa1

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Possible Downgrade, currently Baa1

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

....Senior Unsecured Revenue Bonds, Placed on Review for Possible Downgrade, currently Baa1

Outlook Actions:

..Issuer: Constellation Energy Group, Inc.

....Outlook, Changed To Rating Under Review From No Outlook

..Issuer: Exelon Capital Trust I

....Outlook, Changed To Rating Under Review From Negative

..Issuer: Exelon Capital Trust II

....Outlook, Changed To Rating Under Review From Negative

..Issuer: Exelon Capital Trust III

....Outlook, Changed To Rating Under Review From Negative

..Issuer: Exelon Corporation

....Outlook, Changed To Rating Under Review From Negative

..Issuer: Exelon Generation Company, LLC

....Outlook, Changed To Rating Under Review From Negative

Headquartered in Chicago, IL, Exelon is the holding company for non-regulated subsidiary, ExGen and for regulated subsidiaries, ComEd, PECO, and BG&E. At 03/31/2012, Exelon had total assets of $77.6 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.

Information sources used to prepare the rating are the following : parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

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 the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

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 reviews Exelon and Exelon Generation for possible downgrade
No Related Data.

 

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