ֳ

Rating Action Commentary

ֳ Rates Eversource Senior Notes 'BBB+'; Outlook Positive

Tue 03 Oct, 2017 - 3:56 PM ET

ֳ-New York-03 October 2017: ֳ has assigned a 'BBB+' rating to Eversource Energy's issuance of $450 million 2.90% series L senior unsecured notes due Oct. 1, 2024. The Rating Outlook is Positive.

In addition, ֳ currently rates Eversource's $450 million 2.75% series K senior unsecured notes due March 15, 2022 'BBB+'. These notes are an add-on to its existing series K notes issued on March 10, 2017. After this issuance, the aggregate principal amount of outstanding series K notes will be $750 million.

The series L and K notes will rank pari passu with Eversource's existing unsecured debt. Net proceeds from the issuance will be used to repay outstanding short-term debt.

KEY RATING DRIVERS

Conservative Business Model: Eversource's ratings largely reflect the relatively stable earnings and cash flow of the company's six regulated electric or natural gas distribution utility subsidiaries: CL&P (A-/Outlook Stable), NSTAR Electric (A/Outlook Stable), NSTAR Gas (A-/Outlook Stable), PSNH (A-/Outlook Stable), WMECO (A-/Outlook Positive) 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 FERC-regulated transmission projects. FERC-regulated transmission accounts 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, and 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 relatively balanced regulatory environments overall, with their multistate operations benefiting from 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 adjusted debt/EBITDAR and FFO-adjusted leverage to average 4.0x-4.3x and 4.4x-4.8x, respectively, for Eversource 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

Eversource
Future Developments That May, Individually or Collectively, Lead to Positive Rating Action
--A one-notch upgrade to Eversource's Long-Term Issuer Default Rating 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, WMECO, NSTAR Gas and Yankee Gas participate in a joint $1.45 billion revolving credit facility (RCF) that terminates Sept. 4, 2021. The credit facility primarily supports Eversource's $1.45 billion CP program, which Eversource uses to provide its subsidiaries with intercompany loans.

Under the facility, CL&P has a $600 million borrowing sublimit, PSNH and WMECO each have a $300 million borrowing sublimit, and NSTAR Gas and Yankee Gas each have a $200 million borrowing sublimit. As of June 30, 2017, Eversource had $937.5 million in short-term borrowings outstanding under its CP program, leaving $512.5 million of available borrowing capacity. CL&P, PSNH and WMECO had $101.1 million, $194.1 million and $68.7 million, respectively, of outstanding intercompany loans from Eversource as of June 30, 2017.

NSTAR Electric maintains its own $450 million RCF that is separate from the shared credit facility of parent Eversource and its utility affiliates. The credit facility, which terminates on Sept. 4, 2021, backstops an equal-sized CP program. As of June 30, 2017, NSTAR Electric had no short-term borrowings outstanding, leaving $450 million of available capacity.

Eversource and its utility subsidiaries require modest cash on hand; Eversource had $25 million of unrestricted cash as of June 30, 2017.

Long-term debt maturities over the next five years are manageable, in ֳ's opinion.

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)

Additional Disclosures
Solicitation Status
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