ֳ

Rating Action Commentary

ֳ Rates Eversource Energy's Senior Notes 'BBB+'

Wed 03 Jan, 2018 - 11:17 AM ET

ֳ-New York-03 January 2018: ֳ has assigned a 'BBB+' rating to Eversource Energy's $500 million issuance of senior unsecured notes, series M, due Jan. 15, 2028.

In addition, Eversource is adding on $150 million to its existing senior unsecured notes, series I, due March 15, 2021. Following this add-on issuance, the aggregate principal amount of outstanding series I notes will be $400 million. The series I notes are rated 'BBB+'.

The series M and series I notes rank pari passu with Eversource's other existing unsecured debt. Net proceeds from the issuances will be used to repay at maturity Eversource's $150 million senior unsecured notes, series G, due Jan. 15, 2018, to repay at maturity Eversource's $300 million senior unsecured notes, series E, due May 1, 2018, and to repay a portion of Eversource's outstanding short-term debt.

Eversource's Long-Term Issuer Default Rating (IDR) is 'BBB+'/Positive.

The Positive Outlook on Eversource is tied to Northern Pass Transmission (NPT), Eversource's large electric transmission project. NPT would improve Eversource's business risk profile by increasing the company's exposure to transmission assets regulated by the Federal Energy Regulatory Commission (FERC), which ֳ considers to be among the most constructive regulatory bodies. Management expects NPT's construction to begin in the first half of 2018 and to be completed in the second half of 2020. ֳ would consider a one-notch upgrade to Eversource's ratings after construction is underway if pro forma financial metrics were expected to be in line with those listed in the Rating Sensitivities section below.

KEY RATING DRIVERS

Conservative Business Model: Eversource's ratings largely reflect the relatively stable earnings and cash flow of the company's regulated electric and natural gas distribution utility subsidiaries: The Connecticut Light & Power Company (CL&P; A-/Stable), NSTAR Electric Company (A/Stable), NSTAR Gas Company (A-/Stable), Public Service Company of New Hampshire (PSNH; A-/Stable) and The Yankee Gas Services Company (not rated by ֳ).

Regulatory Diversity: Eversource's three-state service territory provides some regulatory diversity that is further enhanced by significant investment in transmission projects regulated by the Federal Energy Regulatory Commission (FERC). FERC-regulated transmission operations account for approximately 36% of rate base, with electric distribution accounting for 50%, natural gas distribution for 9% and electric generation for 5%. Planned transmission investments and PSNH's sale of its generation assets are expected to increase the FERC-regulated portion of rate base to 42% by 2020.

Cost Savings: Operational changes implemented following the 2012 acquisition of NSTAR Electric and NSTAR Gas have provided long-term cost-saving opportunities. These cost-cutting initiatives have been more fruitful than originally anticipated, with annual operating & maintenance (O&M) expense reduced by approximately $250 million through 2016. Management expects to be able to continue to lower O&M expense over the next few years.

Low-Risk Growth Strategy: Eversource is pursuing a relatively low-risk growth strategy. Planned capex over 2017-2020 is $9.6 billion, including $3.9 billion in FERC-regulated transmission projects. Most of Eversource's planned capex will be recovered with limited lag, reflecting FERC construction work in progress and distribution trackers. The remainder of capex is distribution infrastructure, including expansion of the natural gas delivery business in Connecticut, which also receives timely recovery.

DERIVATION SUMMARY

Eversource is favorably positioned at the upper end of the 'BBB+' rating category compared with its peers. Eversource has a strong business risk profile, primarily attributed to its ownership solely of regulated utilities. The utility subsidiaries of Eversource and peer AVANGRID, Inc. (BBB+/Stable) operate in some of the same states in the Northeast in relatively balanced regulatory environments and benefit from some regulatory diversification and exposure to FERC oversight of their electric transmission assets, favorable factors that peer Consolidated Edison, Inc. (ConEd; BBB+/Stable) lacks. AVANGRID has an unregulated renewable energy business, which ֳ considers to be riskier than regulated utility operations. Eversource's financial metrics are supportive of its 'BBB+' rating and similar to those of ConEd, but not nearly as strong as those of AVANGRID. ֳ expects Eversource's adjusted debt/EBITDAR and FFO-adjusted leverage to average 4.0x-4.3x and 4.4x-4.8x, respectively, through 2020; AVANGRID's leverage metrics are both expected to average 2.8x-3.2x through 2020.

KEY ASSUMPTIONS

ֳ's key assumptions within the rating case for Eversource include:

--Rate base growing to $19.7 billion by year-end 2020;
--Total capex of $9.6 billion over 2017 to 2020;
--Flat-to-declining electric sales growth;
--O&M expense reductions through 2020;
--Northern Pass Transmission completed late 2020;
--Normal weather.

RATING SENSITIVITIES

Future Developments That May, Individually or Collectively, Lead to Positive Rating Action
--A one-notch upgrade to Eversource's Long-Term IDR would likely occur if ֳ were to expect adjusted debt/EBITDAR and FFO-adjusted leverage to average around 4.0x and 4.5x, respectively, on a sustained basis. In addition, ֳ would look for greater clarity regarding the impact the Northern Pass Transmission (NPT) project would have on Eversource's financial metrics.

Future Developments That May, Individually or Collectively, Lead to Negative Rating Action
--A negative rating action could occur if ֳ were to expect adjusted debt/EBITDAR and FFO-adjusted leverage to exceed 4.7x and 5.2x, respectively, on a sustained basis.
--A negative rating action also could occur as a result of adverse regulatory actions or other events that resulted in downgrades to Eversource's utility subsidiaries.

LIQUIDITY

ֳ considers the liquidity for Eversource and each of its regulated utility subsidiaries to be adequate.

Eversource, CL&P, PSNH, NSTAR Gas and Yankee Gas participate in a joint $1.45 billion revolving credit facility (RCF) that terminates Dec. 8, 2022. The RCF primarily supports Eversource's $1.45 billion CP program, which the company uses to provide its subsidiaries with intercompany loans.

Under the RCF, there is a $600 million borrowing sublimit for CL&P and a $300 million sublimit for each of NSTAR Gas, PSNH, and Yankee Gas. As of Sept. 30, 2017, Eversource had $917 million in short-term borrowings outstanding under its CP program, leaving $533 million of available borrowing capacity. PSNH had $202.3 million of outstanding intercompany loans from Eversource as of Sept. 30, 2017.

NSTAR Electric maintains its own $650 million RCF that is separate from the shared credit facility of parent Eversource and its utility affiliates. The RCF, which terminates on Dec. 8, 2022, backstops an equal-sized CP program. As of Sept. 30, 2017, NSTAR Electric had no short-term borrowings outstanding.

Eversource and its utility subsidiaries require modest cash on hand; the company had $126 million of unrestricted cash as of Sept. 30, 2017.

Long-term debt maturities over the next five years are manageable.

Contact:

Primary Analyst
Kevin L. Beicke, CFA
Director
+1-212-908-0618
ֳ, Inc.
33 Whitehall Street
New York, NY 10004

Secondary Analyst
Shalini Mahajan, CFA
Managing Director
+1-212-908-0351

Committee Chairperson
Barbara Chapman, CFA
Senior Director
+1-646-582-4886

Date of Relevant Rating Committee: Sept. 19, 2017


Summary of Financial Statement Adjustments: No financial statement adjustments were made that were material to the rating rationale outlined above.

Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: alyssa.castelli@fitchratings.com.

Additional information is available on

Applicable Criteria
Corporate Rating Criteria (pub. 07 Aug 2017)
Non-Financial Corporates Notching and Recovery Ratings Criteria (pub. 16 Jun 2017)
Parent and Subsidiary Rating Linkage (pub. 31 Aug 2016)

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