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Rating Action:

Moody's upgrades Public Service Co. of New Hampshire to A3 from Baa1; outlook is stable

19 Jul 2016

Approximately $1 billion of rated debt affected

New York, July 19, 2016 -- Moody's Investors Service upgraded Public Service Company of New Hampshire's (PSNH) issuer rating to A3 from Baa1 and senior secured and first mortgage bond ratings to A1 from A2. The rating outlook is stable.

RATINGS RATIONALE

"PSNH's rating upgrade is prompted by the recent regulatory decision by the New Hampshire Public Utilities Commission (NHPUC) to allow PSNH to recover essentially all stranded costs associated with the planned and approved sale of its generation assets through the use of securitization financing," said Jeff Cassella, Vice President -- Senior Analyst. "We believe PSNH's credit profile will strengthen as it transitions to a lower risk regulated transmission and distribution (T&D) utility upon the sale of the generation assets," added Cassella.

PSNH's A3 issuer rating reflects the credit supportive New Hampshire regulatory environment and its strong financial profile, including a ratio of cash flow from operations pre-working capital (CFO pre-W/C) to debt in the low-to-mid 20% range. The A3 rating also anticipates the utility's transition to a lower risk regulated T&D utility when it completes the divestiture of its power generation fleet, expected by mid-2017. The rating factors in the NHPUC's approval to permit timely recovery of essentially all stranded costs related to the sale of its generation fleet through the use of securitization financing and the issuance of rate reduction bonds. The rating also reflects our expectation that PSNH's financial metrics will decline modestly upon the sale of these assets and the issuance of securitization debt such that we expect PSNH's CFO pre-W/C to debt to be in the high-teens range. However, excluding the securitization debt from the calculation, PSNH's CFO pre-W/C to debt would remain in the low 20% range.

On July 1, 2016, the NHPUC approved PSNH's 2015 Restructuring and Rate Stabilization Agreement or settlement agreement. The settlement allows PSNH to recover its investments in pollution control equipment at the Merrimack power station and divest all of its power generation assets, a credit positive. Upon the sale of these assets, PSNH will become a lower-risk regulated T&D utility delivering power purchased on the competitive market, which reduces PSNH's business risk. The costs of the purchased power will be recovered as a pass-through on customer bills. We view power generation as the highest risk component of the regulated electric utility business because generation plants are typically the most capital intensive part of a utility's infrastructure and are subject to the greatest risks in both construction and operation, including the risk that incurred costs will either not be recovered in rates or recovered with material delays.

PSNH expects to complete the sale of its generation assets by mid-2017. Any stranded costs or book value attributed to the generation assets that are not covered by the sale proceeds will be recovered from customers through the use of a securitization financing and a rate-reduction bond charge on monthly bills. The use of securitization financing will provide PSNH with a timely recovery of these costs, a credit positive, while limiting the effect on customers' rates. The settlement agreement also allows PSNH to recover $415 million of the cost to install scrubber pollution control equipment at the Merrimack power station. PSNH agreed to forgo recovery of $25 million of deferred equity related to the scrubber's cost.

Rating Outlook

PSNH's stable rating outlook reflects our expectation that the sale of its generation assets and the corresponding securitization financing will proceed as planned without a material delay. The stable outlook also reflects our expectation that the regulatory frameworks under the purview of the NHPUC and the Federal Energy Regulatory Commission will remain credit supportive and PSNH's financial metrics will remain stable including its CFO pre-W/C to debt in the low 20% range.

Factors that Could Lead to an Upgrade

Given the recent upgrade, Moody's does not foresee further positive ratings actions in the near-to-intermediate term. However, over the longer-term, PSNH's rating could be upgraded if the regulatory environments in which it operates remain credit supportive and PSNH's financial metrics continue to strengthen such that the utility's ratio of CFO pre-W/C to debt was in the mid-20% range on a sustained basis.

Factors that Could Lead to a Downgrade

PSNH's rating could be downgraded if the divestiture of its generation assets is not completed as planned, PSNH's financial profile suffers due to excessive delays, or if the stranded costs associated with the generating assets are not fully recovered. In addition, PSNH's rating could downgraded if the credit supportiveness of the New Hampshire regulatory environment deteriorates or if PSNH's financial performance declines such that its CFO pre-W/C to debt falls to below 16% (including the planned issuance of securitization debt) or 19% (excluding the securitization debt) on a sustained basis.

Upgrades:

..Issuer: Public Service Company of New Hampshire

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

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

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

..Issuer: New Hampshire (State of) Business Fin. Auth.

....Senior Secured Revenue Bonds, Upgraded to A1 from A2

..Issuer: New Hampshire St. Business Finance Authority

....Senior Secured Revenue Bonds, Upgraded to A1 from A2

Outlook Actions:

..Issuer: Public Service Company of New Hampshire

....Outlook, Changed To Stable From Positive

Assignments:

..Issuer: Public Service Company of New Hampshire

....Senior Secured Shelf, Assigned (P)A1

Headquartered in Manchester, New Hampshire, Public Service Company of New Hampshire (PSNH) is a vertically integrated regulated utility serving approximately 503,000 retail customers in 211 communities. PSNH currently owns and operates approximately 1,200 MW of generation capacity, of which about 85% is coal-fired. PSNH is subject to the regulatory jurisdiction of the New Hampshire Public Utilities Commission and the Federal Energy Regulatory Commission.

PSNH is the third largest subsidiary of Eversource Energy (Baa1 stable) with total assets of approximately $3.5 billion as of March 31, 2016. Its affiliated companies include regulated electric utilities, Connecticut Light and Power (Baa1 stable), NSTAR Electric (A2 stable), Western Massachusetts Electric Company (A2 stable), and regulated local gas distribution companies, Yankee Gas Services (Baa1 stable) and NSTAR Gas (not rated).

The principal methodology used in these ratings was Regulated Electric and Gas Utilities published in December 2013. Please see the Ratings 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
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

James Hempstead
Associate Managing Director
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 Public Service Co. of New Hampshire to A3 from Baa1; outlook is stable
No Related Data.
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