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Rating Action:

Moody's upgrades Aquarion Company to Baa2 and Aquarion Water Co. of CT to A3; outlooks are stable

17 May 2018

Approximately $400 million of rated debt affected

New York, May 17, 2018 -- Moody's Investors Service, (Moody's) upgraded the issuer and senior unsecured ratings of Aquarion Company (Aquarion) to Baa2 from Baa3 and the issuer and senior unsecured rating of its principal operating subsidiary, Aquarion Water Company of Connecticut (AWC-CT), to A3 from Baa1. The rating outlooks are stable.

Upgrades:

..Issuer: Aquarion Company

.... Issuer Rating, Upgraded to Baa2 from Baa3

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa2 from Baa3

..Issuer: Aquarion Water Company of Connecticut

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

..Issuer: Connecticut Development Authority

....Senior Unsecured Revenue Bonds, Upgraded to A3 from Baa1

Outlook Actions:

..Issuer: Aquarion Company

....Outlook, Remains Stable

..Issuer: Aquarion Water Company of Connecticut

....Outlook, Remains Stable

RATINGS RATIONALE

"Aquarion now benefits from being a part of Eversource Energy, a large and financially strong low-risk regulated utility holding company, after their acquisition in December 2017," said Jeff Cassella, Vice President-Senior Credit Officer.

The rating action also recognizes AWC-CT's historically strong financial metrics that, while now moderating, are supportive of the A3 rating when considered in light of the cash flow predictability that stems from the authorized recovery mechanisms.

AWC-CT's A3 rating reflects its low business risk as a regulated water utility with adequate supply sources operating in a credit supportive regulatory environment in Connecticut. Although financial metrics are expected to deteriorate from previously strong levels primarily due to recent changes associated with US tax reform, Moody's expects AWC-CT's financial metrics, including a ratio of funds from operations (FFO) to net debt in the 18-20% range going forward, to continue to support the rating.

The Connecticut Public Utility Regulatory Authority offers state regulated water utilities transparent rate-recovery mechanisms including revenue decoupling through a revenue adjustment mechanism. Utilities also benefit from a Water Infrastructure Conservation Adjustment (WICA) clause which can be used between rate case proceedings and seeks recovery of allowed costs associated with WICA-eligible capital projects placed in-service. Regulatory mechanisms such as these allow AWC-CT to generate predictable and stable cash flows, a credit positive.

Factored into the ratings is AWC-CT's small size; the sizable amount of debt held at its holding company, limited regulatory ring-fencing at AWC-CT and the lack of a dedicated external line of credit. These challenges were a larger detriment to the Aquarion family's credit quality under the previous ownership by financial sponsor, Macquarie Infrastructure Partners (unrated), and are now somewhat mitigated by the new ownership by a financially strong utility holding company, Eversource Energy (Baa1 stable). Effective January 2018, Aquarion now has liquidity access to Eversource Energy's commercial paper borrowing program, a credit positive.

Aquarion's Baa2 senior unsecured rating reflects the company's weaker financial metrics on a consolidated basis compared to that of AWC-CT; a substantial amount of holding company debt; and structural subordination of parent's obligation to creditors at its largest operating utility subsidiary.

Rating Outlook

The stable rating outlook reflects Moody's expectation that AWC-CT and Aquarion's other subsidiaries will continue to operate in credit supportive regulatory environments, particularly that of Connecticut, and maintain stable financial profiles including a ratio of FFO to net debt of about 9% at Aquarion and a ratio of FFO to net debt in the 18-20% range at AWC-CT.

Factors that Could Lead to an Upgrade

Given the recent upgrade, an upgrade in the near-term is unlikely. Longer term, an upgrade could be considered if there is a significant reduction in holding company debt, an increase in cash flow, or a reduction in consolidated debt leading to a sustained improvement in financial metrics such that AWC-CT's ratio of FFO to net debt is maintained above 20%. Similarly, if Aquarion's ratio of FFO to net debt were to improve to the low-teens range on a sustained basis, along with a reduction in holding company debt, there could be upward rating pressure on its rating.

Factors that Could Lead to a Downgrade

AWC-CT's rating could be downgraded if there is an increase in holding company debt or an adverse change in Connecticut's regulatory environment leading to increased lag or reduced assurance of cost recovery, or a significant deterioration in financial metrics, including AWC-CT's ratio of FFO to net debt below 15% for a sustained period. Aquarion's rating could be downgraded if there is an increase in holding company debt or if consolidated metrics deteriorate, including a ratio of FFO to net debt below 8% on a sustained basis.

Headquartered in Bridgeport, Connecticut, Aquarion Water Company of Connecticut, is a subsidiary of intermediate holding company, Aquarion Water Company (unrated), which is wholly owned by Aquarion Company, an entity ultimately owned by Eversource Energy. AWC-CT is a regulated water utility serving approximately 198,000 customers in 51 cities, primarily in areas of western Connecticut including the cities of Bridgeport and Stamford. The company's rates are regulated by Connecticut's Public Utility Regulatory Authority. Aquarion Water Company also owns two other smaller water utilities in New Hampshire and Massachusetts, which collectively serve about 30,000 customers.

Eversource is a public utility holding company of predominantly regulated utilities and is the largest utility system in the New England region serving approximately 4 million electric, natural gas and water customers. With headquarters in Hartford, CT, and Boston, MA, Eversource has a total rate base of about $15.7 billion.

The principal methodology used in these ratings was Regulated Water Utilities published in December 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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.

Jeffrey F. Cassella
VP - Sr Credit Officer/Manager
Infrastructure 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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