Approximately $9 Billion of Debt Securities affected
New York, January 31, 2014 -- Moody's Investors Service upgraded the long-term ratings
of Northeast Utilities (Senior unsecured and Issuer Rating to Baa1 from
Baa2); Public Service Company of New Hampshire (Issuer Rating to
Baa1 from Baa2 and senior secured to A2 from A3); Yankee Gas Services
(Issuer Rating to Baa1 from Baa2 and senior secured to A2 from A3);
Connecticut Light and Power Company (Issuer Rating to Baa1 from Baa2;
senior secured to A2 from A3 and preferred stock to Baa3 from Ba1) and
Western Massachusetts Electric Company (Senior unsecured and Issuer Rating
to A3 from Baa2).
Concurrently, Moody's confirmed the rating of NStar Electric
Company. (Issuer Rating and senior unsecured at A2 and preferred
stock at Baa1).
This rating action concludes our review of these companies' ratings
initiated on November 8, 2013. The rating outlooks of Northeast
Utilities and all of its subsidiaries are stable.
RATINGS RATIONALE
The primary driver of today's rating action is Moody's more
favorable view of the relative credit supportiveness of the US regulatory
framework, as detailed in our September 23, 2013 Request for
Comment: "Proposed Refinements to the Regulated Utilities
Rating Methodology and our Evolving View of US Utility Regulation."
Factors supporting this view include better cost recovery provisions,
reduced regulatory lag, and generally fair and open relationships
between utilities and regulators. The US utility sector's
low number of defaults, high recovery rates, and generally
strong financial metrics from a global perspective provide additional
corroboration for these upgrades.
The two notch upgrade of the ratings of WMECO is underpinned by the shift
in its business mix. WMECO's transmission rate base has doubled
to around $600 million from $270 million in 2010 following
the completion of the 40-mile Greater Springfield Reliability Project
(GSRP) that interconnects Massachusetts with Connecticut. As a
result, around 60% of the utility's rate base is currently
under the jurisdiction of the Federal Energy Regulatory Commission (FERC)
which is generally viewed as having greater consistency and predictability.
WMECO's rating is currently tempered by its financial metrics.
The upgrade of the ratings of YGS is largely driven by Moody's view
that there is some evidence of improvements in the credit supportiveness
of the regulatory framework in Connecticut, particularly for natural
gas local distribution companies. This opinion is largely predicated
on the final order issued by the Connecticut Public Utilities Regulatory
Authority (PURA) at the end of November 2013 approving the State's
joint infrastructure expansion plan pursuant to the Connecticut Comprehensive
Energy Strategy, and enabling legislation (House Bill 63602) enacted
in 2013.
The upgrade of the rating of CL&P is predicated on the assumption
of a more constructive relationship with PURA and that the prospects for
an improving regulatory environment in Connecticut will result in an outcome
for its next rate case that is supportive from a credit perspective.
Under the 2012 merger settlement CL&P agreed to file for new distribution
rates by mid-year 2014, with new rates becoming effective
December 1, 2014. Importantly, with the expiration
of the current distribution base rate freeze at the end of this year,
CL&P will be able to start recouping its significant deferred storm
restoration costs that aggregated $490.7 million at the
end of September 2013. The recovery of said costs will extend over
a six year period which compares poorly with other jurisdictions.
This recovery is subject to PURA's review and approval but today's
rating action assumes that CL&P will be able to recover the vast majority
of these costs. CL&P's ratings also incorporate the utility's
exposure to the FERC regulatory purview given that its transmission operations
account for about 45% of its total rate base, a credit positive.
The upgrade of PSNH reflects credit metrics that are well positioned within
the Baa-rating category and Moody's view that the regulatory
environment in New Hampshire is about average for US utilities in terms
of credit supportiveness and the ability to recover costs on a timely
basis and earn adequate returns. The rating action also assumes
that PSNH will be able to recover all costs and investments associated
with its generation investments with a rate base of around $750
million should the New Hampshire Commission decide that the utility needs
to disinvest those assets.
The confirmation of NSTAR Electric reflects Moody's opinion that
its current ratings already capture our view that the regulatory environment
for its distribution operations in Massachusetts is slightly above average
along with the benefits associated with the exposure of its transmission
operations to FERC's regulatory purview. The rating further
acknowledges that NSTAR Electric's credit metrics are commensurate
with the mid range of the A-rating category and that it compares
well relative to other A2-rated transmission and distribution peers
operating in a single metro area. It also captures that NSTAR Electric
has a standalone $450 million committed credit facility and that
the utility's historical ability to report significant amounts of
positive free cash flow has diminished in recent years.
The rating action at NU largely reflects the upgrade of the majority of
its publicly rated subsidiaries. NU's rating is mainly driven
by the structural subordination given that the subsidiaries' dividends
are NU's main source of cash flow, that its outstanding holding
company indebtedness accounts for less than 20% of the consolidated
debt and the group's limited exposure to unregulated business.
It further captures the diversification benefits from owning six regulated
utilities and considers that the utilities' rate base of around
60% are rated Baa1 senior unsecured while the balance is rated
A.
NU's ratings also take into consideration the group's significant
reliance on its short-term debt arrangements. This results
in a somewhat weaker liquidity profile compared to its peers given the
limited available amounts under its committed revolving credit facility
which at the end of September approximated US$263 million.
In September 2013, NU increased the size of its committed credit
facility from $1.15 billion to $1.45 billion.
This was executed jointly with the bulk of its subsidiaries.
Rating Outlook
The stable outlook of NU and its subsidiaries largely reflects our expectation
that they will continue to benefit from their overall credit supportive
regulatory environments, and report credit metrics that are commensurate
with their respective current rating categories according to the financial
ratio guidelines outlined in Moody's Regulated Electric and Gas Utility
ratings methodology published in December 2013.
What Could Change the Rating -- UP
Positive momentum of NU's subsidiaries is likely if Moody's
perceives a significant improvement in the regulatory framework in terms
of credit supportiveness under which each of the utilities operate and
if the utilities are able to report a material improvement in their credit
metrics after excluding the cash savings associated with bonus depreciation,
on a sustained basis. Specifically, the ratings of PSNH,
CL&P and YGS could be upgraded if they report 3-year average
CFO pre-W/C to debt well in excess of 20%, respectively,
on a sustainable basis. NSTAR Electric's ratings could be
considered for upgrade if it reports CFO Pre-W/C to debt in the
very high twenties, while WMECO would have to record CFO pre-W/C
to debt metrics above the mid twenties. Additional upward pressure
on NU's ratings is possible if the ratings of its largest subsidiaries
were to be upgraded, and/or upon a substantial improvement in its
consolidated credit metrics.
What Could Change the Rating - Down
The rating of NU and its subsidiaries could come under pressure if in
Moody's opinion the utilities' regulatory environments deteriorate
significantly from a credit supportiveness perspective, upon a substantial
deterioration in the group's liquidity profile and/or credit metrics,
on a sustained basis. Specifically, if NU (consolidated)
CL&P, PSNH or YGS report CFO pre-W/C to debt below 13%,
or if NSTAR Electric's and WMECO's CFO pre-W/C to debt
fall below 22%, respectively.
Northeast Utilities
Ratings upgraded:
LT Issuer Rating to Baa1 from Baa2
Senior Unsecured (Domestic) to Baa1 from Baa2
BACKED Senior Unsecured (Domestic) to Baa1 from Baa2
Senior Unsec. Shelf (Domestic) to (P)Baa1 from (P)Baa2
Pref. Shelf (Domestic) to (P)Baa3 from (P)Ba1
Ratings affirmed
Commercial Paper -- P-2
Outlook Stable
NSTAR Electric Company
Ratings confirmed:
LT Issuer Rating at A2
Senior Unsecured (Domestic) at A2
Pref. Stock (Domestic) at Baa1
Senior Unsec. Shelf (Domestic) at (P)A2
Pref. Shelf (Domestic) at (P)Baa1
Ratings affirmed
Commercial Paper -- P-1
Outlook Stable
Connecticut Light and Power Company
Ratings upgraded:
LT Issuer Rating to Baa1 from Baa2
Pref. Stock (Domestic) to Baa3 from Ba1
First Mortgage Bonds (Domestic) to A2 from A3
Backed First Mortgage Bonds (Domestic) to A2 from A3
Underlying First Mortgage Bonds (Domestic) to (P)A2 from (P)A3
Senior Secured Shelf (Domestic) to (P)A2 from (P)A3
Outlook Stable
Public Service Company of New Hampshire
Ratings upgraded:
LT Issuer Rating to Baa1 from Baa2
First Mortgage Bonds (Domestic) to A2 from A3
Senior Secured Shelf (Domestic) to (P)A2 from (P)A3
Outlook Stable
Western Massachusetts Electric Company
Ratings upgraded:
LT Issuer Rating to A3 from Baa2
Senior Unsecured (Domestic) to A3 from Baa2
Senior Unsec. Shelf (Domestic) to (P)A3 from (P)Baa2
Outlook Stable
Yankee Gas Services Company
Ratings upgraded:
LT Issuer Rating (Domestic) to Baa1 from Baa2
First Mortgage Bonds (Domestic) to A2 from A3
Outlook Stable
The principal methodology used in this rating 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.
Headquartered in Hartford and Boston, Northeast Utilities is a utility
holding company of mostly a regulated group of companies. With
a combined rate base of around $13 billion it makes up the largest
utility system in the New England region with around 3 million electric
and 500,000 natural gas customers through six regulated utilities.
The group includes the vertically integrated utility Public Service Company
of New Hampshire (PSNH); the electric transmission and distribution
utilities Connecticut Light and Power (CL&P), NSTAR Electric
Company (NSTAR Electric), Western Massachusetts Electric Company
(WMECO), and Northern Pass Transmission LLC (via NU Transmission
Ventures; not rated); as well as the local gas distribution
(LDC) utilities Yankee Gas Services Company (YGS; Baa2; stable)
and NSTAR Gas (not rated).
The utilities are regulated at the state level by their respective public
utility commissions in Connecticut (PURA), Massachusetts,
and New Hampshire, and are also subject to the Federal Energy Regulatory
Commission (FERC) purview which oversees the group's transmission businesses
and PSNH's hydro-electric license conditions. The group's
unregulated businesses consist mainly of the former NSTAR LLC's small
non-regulated subsidiaries that include a telecommunication company
(NSTAR Com, not rated) and liquefied natural gas service operations
(Hopkinton), and NU's Enterprises' energy services business as well
as Select Energy along with the service support providers NUSCO,
RRR and Renewable Properties, Inc. and Properties,
Inc.
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.
Natividad Martel
Vice President - Senior 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
Moody's upgrades NU and five subsidiaries, outlooks stable
