March 14 -
Summary analysis -- Constellation Energy Group Inc. --------------- 14-Mar-2012
CREDIT RATING: BBB-/Watch Pos/A-3 Country: United States
Primary SIC: Electric Services
Mult. CUSIP6: 210371
Mult. CUSIP6: 210387
Credit Rating History:
Local currency Foreign currency
02-Nov-2009 BBB-/A-3 BBB-/A-3
13-Aug-2008 BBB/A-2 BBB/A-2
Standard & Poor’s Ratings Services’ corporate credit ratings on Constellation Energy Group Inc. remain on CreditWatch, where they were placed with positive implications on April 28, 2011. Our ratings on utility subsidiary, Baltimore Gas & Electric Co. (BGE), is ‘BBB+', with a stable outlook.
The CreditWatch placement on Constellation’s ratings followed Exelon Corp.’s (BBB/Stable/A-2) announcement that it had agreed to merge with Constellation in a stock-for-stock transaction. The Nuclear Regulatory Commission (NRC) approved the merger on Feb. 16, 2012, while the Maryland Public Service Commission (MPSC) conditionally approved the merger on Feb. 17, 2012.
On March 9, 2012, the Federal Energy Regulatory Commission’s (FERC) approved the merger of Exelon Corp. and Constellation Energy Group Inc. We expected the FERC approval following approvals from the Maryland Public Service Commission and the PJM market monitor, but also note the record-setting fine the FERC levied on Constellation for alleged market manipulation charges dating back to trading activity in 2007 and 2008. Constellation has denied any wrongdoing, but agreed to the settlement that resolves the charges. Over the next several weeks, we will assess the combined company’s financial risk profile. Although power markets have declined meaningfully--and hurt the credit quality of the unregulated generation business--we expect the pro forma financials to support a ‘BBB’ rating.
From a credit perspective, we view the merger transaction favorably. Exelon’s strategy with its merger with Constellation is premised on several benefits:
-- The complementary nature of retail operations and wholesale generation. Exelon has generation in the regions serviced by the Midwest Independent Transmission System Operator (MISO) system; the Pennsylvania, Jersey, Maryland Power Pool; and the Electric Reliability Council of Texas (ERCOT), while Constellation has significant retail load in these locations but is short in generation.
-- A broadened nuclear footprint.
-- Generation and load diversity across six different regions.