Approximately $3.7 billion of debt securities affected
NOTE: On July 02, 2018, the press release was corrected as follows: In the debt list, under Upgrades for issuer Connecticut Light and Power Company, added “…Underlying Senior Secured First Mortgage bonds, Upgraded to A1 from A2.” Revised release follows.
New York, June 27, 2018 -- Moody's Investors Service (Moody's) upgraded The Connecticut Light and
Power Company's (CL&P) ratings, including Issuer Rating
to A3 from Baa1 and first mortgage bond rating to A1 from A2. The
rating outlook is stable. This rating action concludes the review
of CL&P's ratings initiated on 8 June 2018.
Upgrades:
..Issuer: Connecticut Development Authority
....Senior Secured Revenue Bonds, Upgraded
to A1 from A2
....Senior Unsecured Revenue Bonds,
Upgraded to A3 from Baa1
..Issuer: Connecticut Light and Power Company
.... Issuer Rating, Upgraded to A3 from
Baa1
....Pref. Stock Preferred Stock,
Upgraded to Baa2 from Baa3
....Senior Secured First Mortgage Bonds,
Upgraded to A1 from A2
…Underlying Senior Secured First Mortgage bonds, Upgraded to A1 from A2
....Senior Secured Shelf, Upgraded to
(P)A1 from (P)A2
Outlook Actions:
..Issuer: Connecticut Light and Power Company
....Outlook, Changed To Stable From
Rating Under Review
RATINGS RATIONALE
"The upgrade of CL&P incorporates our expectation that the utility's
financial performance going forward will result in coverage metrics that
support a higher rating while benefiting from a credit supportive Connecticut
regulatory environment" said Jeff Cassella, Vice President --
Senior Credit Officer.
CL&P's A3 rating reflects its low risk business profile as an
electric transmission and distribution (T&D) utility operating under
an increasingly supportive Connecticut regulatory framework. The
rating also considers that CL&P's substantial transmission business
that is under the purview of Federal Energy Regulatory Commission (FERC),
which we view as a highly credit supportive regulatory jurisdiction.
CL&P's rating upgrade incorporates our view that the company's financial
metrics will deteriorate in 2018, such that its ratio of cash flow
pre-W/C to debt will decline to the mid-teens range from
over 20%, due primarily to recent changes associated with
US tax reform. However, we expect CL&P's financial metrics
to improve back to historical levels in 2019, including a ratio
of cash flow pre-W/C to debt of about 20%.
The upgrade follows CL&P's recent rate case outcome which resulted
in a settlement approved by the Public Utilities Regulatory Authority
(PURA), a credit positive. The settlement was an indication
that Connecticut intervenors and regulatory staff are amenable to agreeing
to terms negotiated as part of general rate case filings instead of having
to fully litigate rate cases which had been the norm in this jurisdiction
for many years.
The settlement resulted in a $124.7 million phased-in
base electric distribution revenue increase, including a $64.3
million increase on 1 May 2018, $31.1 million in May
2019 and $29.2 million in May 2020. The phased-in
rate increase seeks to mitigate some of the immediate rate effect on customers.
Although the agreement was less than half of CL&P's request of $336.9
million, the agreed revenue increase is partially affected by lower
revenue collected from customers owing to the recent change in the corporate
federal tax rate.
The agreement included a return on equity (ROE) of 9.25%
and an equity ratio of 53%. Although the ROE is lower than
the national average of around 9.7%, it is higher
than the ROE of 9.17% allowed in CL&P's previous
2014 rate-case decision. The utility must share 50%
of any earnings above the 9.25% ROE with its customers.
Additionally, CL&P will be able to earn a return on a higher
equity ratio compared with the 50.38% allowed in its last
rate case.
The rate order also allows CL&P to continue to use a revenue decoupling
mechanism that was adopted in its last rate case. Revenue decoupling
is credit positive because it adds to the predictability and stability
of revenue and cash flow generation. CL&P's decoupling mechanism
reconciles the amounts recovered from customers, on an annual basis,
with the distribution revenue requirement to be set by the PURA.
In addition, the settlement included a core capital tracker that
will allow for timely recovery of the utility's capital investments for
core capital projects of up to $270 million for the calendar years
2018-20 and up to $300 million for each year after 2020
until its next rate case proceeding.
The stable rating outlook reflects our view that CL&P's low business
risk as an electric T&D utility will be maintained as it operates
in a credit supportive Connecticut regulatory environment that allows
for timely recovery of prudently incurred costs and investments.
The stable outlook also reflects our expectation that CL&P's financial
profile will rebound in 2019 after a decline in its financial metrics
in 2018 resulting from the impact from changes in US tax reform.
We expect CL&P's ratio of CFO pre-W/C to debt will improve
to about 20% in 2019.
Factors that Could Lead to an Upgrade
Given the recent rating upgrade, we do not foresee another upgrade
in the near to intermediate future. However, CL&P's rating
could experience positive rating momentum if the credit supportiveness
of the Connecticut regulatory environment continues to strengthen through
future regulatory decisions that further improves the timeliness in recovery
of costs and investments and increases allowed returns. In addition,
the rating could be upgraded if CL&P's financial profile continues
to show sustained improvement such that its ratio of CFO pre-W/C
to debt increases to the mid-20% range.
Factors that Could Lead to a Downgrade
CL&P's rating could be downgraded if there is a deterioration in the
credit supportiveness of the Connecticut regulatory environment or if
CL&P's financial performance declines such that its ratio of
CFO pre-W/C to debt declines to the mid-teens on a sustained
basis.
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.
Headquartered in Berlin, CT, CL&P is the state's largest
regulated electric transmission and distribution company serving over
1.1 million customers. CL&P is the largest operating
subsidiary of Eversource Energy (Baa1 stable), with total assets
of about $11.1 billion as of 31 March 2018. CL&P's
other affiliated companies include regulated electric utilities NSTAR
Electric Company (A2 positive), Public Service Company of New Hampshire
(A3 stable), and NSTAR Gas (unrated), a natural gas distribution
company in Massachusetts. CL&P's operations are regulated by
the Connecticut Public Utilities Regulatory Authority and the Federal
Energy Regulatory Commission.
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
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
