The issuer default rating of Northeast Utilities (NYSE:NU) was upgraded by Fitch Ratings to "BBB+" from "BBB" and the IDR of NSTAR downgraded to "BBB+" from "A-" after the merger of NSTAR into NU.
The upgrade of Northeast Utilities is driven by the greater financial flexibility and improved capability to fund the substantial capital investment particularly for electric transmission projects planned over the next three years.
Additionally, Fitch has removed ratings of Northeast Utilities from Rating Watch Positive and NSTAR's from Rating Watch Negative. The Rating Outlook is now Stable. NSTAR LLC (successor to NSTAR; name change will be effective on closing) will be a second-tier holding company subsidiary of Northeast Utilities.
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Fitch expects management of Northeast Utilities to effectively utilize synergies achieved through the merger, as well as effective cost management over the respective distribution base rate freeze periods to stabilize credit metrics.
Fitch forecasts key performance metrics of EBITDA-to-interest and funds from operations (FFO)-to-debt above 5.0 times and 17.0%, respectively through 2014, which approximate 'BBB+' financial guideline measures.
Fitch has equalized the ratings of Northeast Utilities and NSTAR LLC (successor to NSTAR), which is a second-tier holding company subsidiary of Northeast Utilities. In addition, Fitch assigns an 'F2' rating to NSTAR LLC's new $175 million commercial paper (CP) program.
NU is trading down 2.23% at $35.97 on Tuesday.