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Rating Action:

Moody's upgrades PNM Resources and subsidiaries; rating outlooks positive

Global Credit Research - 30 Jan 2014

Approximately $2 billion of rated debt affected

New York, January 30, 2014 -- Moody's Investors Service upgraded the senior unsecured ratings of PNM Resources, Inc. (PNMR) to Baa3 from Ba1, the senior unsecured and issuer ratings of Public Service Company of New Mexico (PNM) to Baa2 from Baa3, and the issuer rating Texas-New Mexico Power (TNMP) to Baa1 from Baa2. This rating action completes our review of PNMR, PNM and TNMP initiated on November 8, 2013. The outlooks for PNMR, PNM and TNMP are positive.

"The positive outlooks acknowledge our view that the New Mexico regulatory framework is improving and is more credit supportive" said Jeffrey Cassella, Moody's Analyst, "reflecting the use of enhanced recovery mechanisms and implementation of the use of a future test-year in rate case filings. The positive outlooks also consider the continuing credit supportive regulatory framework for T&D utilities in ERCOT as well as the strong financial metrics generated at each entity."

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.

PNMR's Baa3 rating is primarily driven by PNM's credit factors and reflects structural subordination from its principal operating utility. PNMR and PNM's ratings reflect the improving regulatory environment in New Mexico including reasonable cost recovery mechanisms, and financial metrics that are strong for their rating. The ratings also reflect the expectation that management will continue to maintain its focus on its regulated operations.

TNMP's Baa1 rating reflects the low risk nature of its transmission and distribution (T&D) business; the stability and predictability of its revenues and cash flows; the credit supportive regulatory environment for T&D's in the Electric Reliability Council of Texas (ERCOT) system and financial metrics that are strong for its rating.

Rating Outlook

PNMR and its subsidiaries' positive rating outlooks reflect our expectation that the regulatory environment in New Mexico continues to improve and Texas remains supportive of the T&D business; financial metrics will remain consistent with our expectations for their respective ratings and that the timeline for the San Juan environmental compliance requirements plays out such that PNM is able to recover prudently incurred costs and investments in a timely manner. The outlook also assumes that planned capital expenditures will be financed in a manner that is consistent with the entities' current financial position.

What Could Change the Rating - Up

PNMR and its subsidiaries' ratings could be upgraded if we continue to observe sustained improvement in the credit supportiveness of the New Mexico regulatory environment that include greater predictability, timeliness and/or sufficiency of rates such that financial metrics would be expected to improve on a sustained basis relative to our current view.

What Could Change the Rating - Down

PNMR and its subsidiaries' ratings could experience negative rating pressure if we believe the New Mexico regulatory framework has become less supportive or predictable such that there is an adverse rate case ruling or cost recovery disallowances; or if financial metrics deteriorated to levels that did not support their respective ratings.

Ratings Upgraded Include:

PNM Resources, Inc.

Senior Unsecured Rating to Baa3 from Ba1

Shelf Registration: Senior Unsecured to (P)Baa3 from (P)Ba1

Public Service Company of New Mexico

Issuer Rating to Baa2 from Baa3

Senior Unsecured Rating to Baa2 from Baa3

Shelf Registration: Senior Unsecured to (P)Baa2 from (P)Baa3

Texas-New Mexico Power Company

Issuer Rating to Baa1 from Baa2

Senior Secured Rating to A2 from A3

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.

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.

Jeffrey F Cassella
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 PNM Resources and subsidiaries; rating outlooks positive
No Related Data.

 

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