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Rating Action:

Moody's upgrades Washington Gas Light to A1 from A2 and confirms WGL Holdings P-2 Commercial Paper Rating; rating outlook is stable

30 Jan 2014

Over $550 million of rated debt affected

New York, January 30, 2014 -- Moody's Investors Service upgraded the senior unsecured rating of Washington Gas Light Company (Washington Gas) to A1 from A2 and confirmed WGL Holdings, Inc.'s (WGL) P-2 commercial paper rating. This rating action completes our review of Washington Gas and WGL initiated on November 8, 2013. The outlook for Washington Gas is 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.

Washington Gas' A1 rating is supported by a strong balance sheet, solid financial metrics, and a supportive regulatory environment with a good ability to recover operating expenses in a timely manner. Washington Gas benefits from an economically diverse and largely residential and small commercial customer base, which has historically mitigated the effect of economic downturns. Upward movement in Washington Gas' rating is limited by its sizable capital expenditure program and WGL's growing non-regulated activities.

WGL's Prime-2 rating is supported by the company's solid liquidity profile and WGL's ability to manage the risk profile and liquidity requirements of its unregulated activities. In addition to Washington Gas, WGL owns non-regulated businesses engaged in energy-related services to residential and commercial customers, including government organizations. Washington Gas Energy Services, Inc. (WGES), a sizable, regionally-focused retail energy-marketing operation, is WGL's primary non-regulated business. WGES manages its business risk by matching its purchase of gas and electricity with related customer demand. WGES' source for liquidity support is WGL. Liquidity is needed to fund WGES' working capital needs and to post cash collateral requirements to counterparties. The liquidity requirements of the retail energy-marketing business fluctuate based on market-commodity prices and could be significant at times. In February 2013, WGES entered into a five year supply agreement with Shell Energy North America (US), L.P. (A2 stable), whereby WGES will have the ability to purchase the majority of its power, natural gas and related products from Shell Energy. This agreement significantly reduce WGES' collateral posting requirements and WGL's cash flow risk.

Rating Outlook

The stable rating outlook reflects a supportive regulatory relationship and our expectation that financial metrics will remain in a range commensurate with a A1 rated low risk regulated natural gas distribution utility company including CFO pre-WC to debt in the high 20% range.

What Could Change the Rating - Up

Washington Gas' rating could see positive momentum if our view that its multiple regulatory jurisdictions remain supportive, its financial metrics including CFO pre-WC to debt improve to near 30% on a sustained basis, and we would likely need to see decreased non-regulated activities at WGL.

What Could Change the Rating - Down

Washington Gas' rating could see downward rating pressure if the regulatory environments the utility operates in, in our view, becomes less supportive or if increased capital expenditures at Washington Gas pressure cash flow and debt levels such that the utility's financial metrics decline on a sustained basis such that CFO pre-WC to debt declines to the low 20% range or if WGL significantly increases the risk profile and liquidity requirements of its non-regulated operations, such that Washington Gas was negatively impacted.

Ratings Upgraded Include:

Washington Gas Light Company

Senior Unsecured Rating to A1 from A2

Preferred Stock Rating to A3 from Baa1

Senior Unsecured MTN to (P) A1 from (P) A2

Ratings Confirmed Include:

WGL Holdings, Inc.

Commercial Paper Rating at P-2

Ratings Affirmed Include:

Washington Gas Light Company

Commercial Paper Rating at P-1

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 Washington Gas Light to A1 from A2 and confirms WGL Holdings P-2 Commercial Paper Rating; rating outlook is stable
No Related Data.
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