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Rating Action:

Moody's upgrades Ameren Corp. and Ameren Illinois; affirms Union Electric; outlooks stable

07 Apr 2015

Approximately $2.7 billion debt upgraded

NOTE: On July 07, 2015, the press release was corrected as follows: In the list of upgrades, under Ameren Illinois Company, added Backed Senior Secured LT IRB/PC, Upgraded to A1 from A2; Senior Secured Underlying LT IRB/PC, Upgraded to A1 from A2; Backed Senior Secured, Upgraded to A1 from A2; Backed Pref. Stock, Upgraded to Baa2 from Baa3; Backed LT IRB/PC, Upgraded to A3 from Baa1; Underlying LT IRB/PC, Upgraded to A3 from Baa1. Revised release follows.

New York, April 07, 2015 -- Moody's Investors Service, ("Moody's") today upgraded Ameren Corporation (Ameren; Issuer Rating to Baa1 from Baa2); and Ameren Illinois Company (Ameren Illinois; Issuer Rating to A3 from Baa1). Moody's affirmed the ratings of Union Electric Company (Baa1 Issuer Rating) . The rating outlooks for Ameren, Ameren Illinois, and Union Electric are stable.

The upgrade of Ameren Illinois is primarily driven by the improved regulatory environment in Illinois, which is now more credit supportive of investor-owned T&D utilities. Specifically, the extension of the sunset review of the Energy Infrastructure Modernization Act (EIMA) until the end of 2019 will continue to provide Ameren Illinois a visible path for infrastructure-related capital investments and cost recovery over the next five years. "Not only does the current formula ratemaking mechanism provides clarity for investment cost recovery and improved transparency in cash flows for Ameren Illinois," said Jairo Chung, Analyst, "but it also significantly reduces contentiousness around rate cases."

The upgrade of parent company Ameren is primarily driven by the upgrade of utility subsidiary Ameren Illinois but is further supported by the parent's consistent financial profile, credit metrics that compare well to similarly rated holding company peers, an improved risk profile, and the elimination of the parent-level long-term debt. With the completion of its merchant generation segment sale in late 2013 and the focus on expanding its utility investment opportunities with minimal regulatory lag, the business risk profile of Ameren has improved significantly. "Over the next five years Ameren plans to grow both Ameren Illinois and its Federal Energy Regulatory Commission (FERC) regulated transmission rate base by approximately 12%", said Chung, "we expect this investment strategy to result in greater cash flow resiliency and to help Ameren maintain a stable financial profile."

The affirmation of the ratings of Union Electric reflects a below average but improving regulatory framework in Missouri and our expectation that the utility will maintain a consistent financial profile and credit metrics that are strong for its Baa1 rating. Also, Moody's expects a fairly constructive outcome in the current general rate case which is expected to be completed in May 2015.

Upgrades:

..Issuer: Ameren Corporation

.... Issuer Rating, Upgraded to Baa1 from Baa2

....Subordinate Shelf, Upgraded to (P)Baa2 from (P)Baa3

....Senior Unsecured Shelf, Upgraded to (P)Baa1 from (P)Baa2

..Issuer: Ameren Illinois Company

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

....Senior Secured Shelf, Upgraded to (P)A1 from (P)A2

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

....Preferred Shelf, Upgraded to (P)Baa2 from (P)Baa3

....Pref. Stock Preferred Stock, Upgraded to Baa2 from Baa3

....Senior Secured First Mortgage Bonds, Upgraded to A1 from A2

....Senior Secured Regular Bond/Debenture, Upgraded to A1 from A2

....Backed Senior Secured LT IRB/PC, Upgraded to A1 from A2

....Senior Secured Underlying LT IRB/PC, Upgraded to A1 from A2

....Backed Senior Secured, Upgraded to A1 from A2

....Backed Pref. Stock, Upgraded to Baa2 from Baa3

....Backed LT IRB/PC, Upgraded to A3 from Baa1

....Underlying LT IRB/PC, Upgraded to A3 from Baa1

Outlook Actions:

..Issuer: Ameren Corporation

....Outlook, Remains Stable

..Issuer: Ameren Illinois Company

....Outlook, Remains Stable

..Issuer: Union Electric Company

....Outlook, Remains Stable

Affirmations:

..Issuer: Ameren Corporation

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

..Issuer: Ameren Illinois Company

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

..Issuer: Missouri Env. Imp. & Engy. Res. Auth.(Supported by Union Electric Company)

....Senior Secured Revenue Bonds, Affirmed A2

....Senior Unsecured Revenue Bonds, Affirmed A2/P-2

..Issuer: Union Electric Company

.... Commercial Paper, Affirmed P-2

.... Issuer Rating, Affirmed Baa1

....Senior Secured Shelf, Affirmed (P)A2

....Preferred Shelf, Affirmed (P)Baa3

....Senior Unsecured Shelf, Affirmed (P)Baa1

....Pref. Stock Preferred Stock, Affirmed Baa3

....Senior Secured First Mortgage Bonds, Affirmed A2

....Senior Secured Regular Bond/Debenture, Affirmed A2

RATINGS RATIONALE

Ameren is now comprised of three regulated businesses: Union Electric Company (dba Ameren Missouri) , Ameren Illinois and a FERC-regulated transmission business, American Transmission Company of Illinois (unrated). With the sale of its coal-fired merchant generation assets, Ameren eliminated much of its exposure to commodity and environmental risks. We believe that Ameren has improved its business risk profile, and will maintain a more stable credit profile with its focus on regulated utility investments and operations. It also benefits from minimal borrowing at the parent level. Based on the company's current capital investment program, Moody's expects Ameren to maintain a three-year average CFO pre-WC to debt ratio between 20% and 23%.

We expect Ameren to continue utilizing its available sublimit under its credit agreements to fund the FERC-regulated transmission investment within Ameren Transmission Company of Illinois in the near-term. We also expect external borrowings will replace this support from the parent once Ameren Transmission Company of Illinois becomes financially more independent.

For Ameren Illinois, there has been a material improvement in its regulatory environment, specifically after the EIMA was passed. The extension of the current EIMA's sunset review until the end of 2019 is yet another positive regulatory development. Under the EIMA, Ameren Illinois is authorized to use formula rates for cost recovery of its infrastructure investments. With the sunset review of the EIMA extended by two more years following the Illinois governor's signature, Moody's expects a continued credit supportive regulatory environment for Ameren Illinois enabling the utility to generate stable cash flows and credit metrics as it executes its long-term investment program. Ameren Illinois plans to grow its electric energy delivery rate base from $2.3 billion in 2014 to $3.0 billion in 2019. In 2014, the utility's 3-year average CFO pre-WC to debt, interest coverage and RCF to debt ratios were 20.5%, 4.3x, and 16.2%, respectively. We expect metrics such as CFO pre-WC to debt and interest coverage to be consistently in the range of 20% to 23% and 4.5x to 5.5x, respectively.

There have also been some improvements in the Missouri regulatory environment in recent years. Although Union Electric has taken action to reduce regulatory lag through frequent rate cases and cost controls, we expect longer regulatory lag for investment cost recovery in Missouri than in Illinois. However, we expect Union Electric to maintain a consistent financial profile and credit metrics that keep it comfortably positioned at the higher end of the Baa range outlined in Moody's Regulated Electric and Gas Utilities methodology published in December 2013.

Rating Outlook

The stable outlook for Ameren incorporates our view that Ameren's overall risk profile has become less volatile and more measured. Also, it reflects our expectation that Ameren's focus on investing in projects with minimal regulatory lag in cost recovery will help maintain its overall credit profile. Based on its improved risk profile and transparency around cash flows, we expect Ameren to maintain stable credit metrics.

The stable outlook for Ameren Illinois reflects our expectation that the utility will continue to invest under the EIMA and recover its investment costs through a defined formula ratemaking mechanism. It also reflects our expectation that the regulatory environment in Illinois will remain constructive for regulated T&D utilities in the state.

The stable outlook for Union Electric reflects the utility's strong financial and credit profile, slightly offset by the below-average regulatory environment in Missouri. While the regulatory framework in Missouri has been improving, Union Electric's ability to recover costs and to earn appropriate returns continues to be challenging.

What Could Change the Rating - Up

It is unlikely that Ameren would be further upgraded over the near-term as it is now appropriately positioned at the Baa1 rating level. However, an upgrade could be considered if the overall regulatory environment, most notably the regulatory environment in Missouri, improves significantly, resulting in an upgrade of Union Electric or a meaningful improvement in Ameren's consolidated financial profile such that its CFO pre-WC to debt ratio is above 24% on a sustained basis.

It is unlikely that Ameren Illinois would be further upgraded over the near-term. However, if Ameren Illinois demonstrates a significant improvement in its financial profile and credit metrics such that its CFO pre-WC to debt ratio is above 25% on a sustained basis, an upgrade could be considered.

Union Electric could be upgraded if the regulatory environment in Missouri continues to improve, resulting in a meaningful shortening of regulatory lag. Also, if Union Electric is able to maintain strong key credit metrics such as CFO pre-WC to debt ratio above 23% on a sustained basis, an upgrade is a possibility.

What Could Change the Rating - Down

Ameren's rating could be downgraded if there are adverse regulatory or political developments in either Missouri or Illinois, including rate case outcomes that are credit negative; if significant debt is issued at the parent company level; or if Ameren is unable to execute on its large capital spending plan in a fiscally responsible way, such that there is a deterioration in financial metrics, including CFO Pre-WC to debt below 20% for a sustained period.

We do not expect Ameren Illinois to be downgraded based on the current, formula-based regulatory framework in Illinois. However, the rating could be downgraded if there is a significant deterioration in the credit supportiveness of the regulatory environment in the state. The rating could also be downgraded if Ameren Illinois is unable to maintain its financial metrics within the range appropriate for its rating. For instance, if CFO pre-WC to debt and interest coverage ratios decline below 15% and 4.0x, respectively, for a sustained period, it could trigger a downgrade.

A downgrade could be considered for Union Electric if there are any adverse regulatory developments, including an unsupportive rate case outcome, or a decline in cash flow coverage measures, including CFO pre-WC to debt falling below 19% on a sustained basis.

The principal methodology used in these ratings was Regulated Electric and Gas Utilities published in December 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Ameren Corp. is the parent company of Ameren Illinois Company and Union Electric Company, regulated electric and gas utilities in Illinois and Missouri, and is headquartered in St. Louis, Missouri. Along with these utilities, Ameren Corp. also has a FERC-regulated transmission business. Ameren Illinois a regulated electric and gas distribution and transmission company serving approximately 1.2 million electric and 813,000 natural gas customers in central and southern Illinois. Union Electric is an integrated regulated electric and gas utility in Missouri, serving approximately 1.2 million electric and 127,000 natural gas customers.

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 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 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 rating action, and whose ratings may change as a result of this 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.

Jairo Chung
Analyst
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

No Related Data.
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