Fitch Rates Public Service Company of New Hampshire's First Mortgage Bonds 'A'

NEW YORK--()--Fitch Ratings assigns an 'A' rating to Public Service Company of New Hampshire's (PSNH) $75 million, 3.50% first mortgage bonds, Series S, due Nov. 1, 2023. The Series S bonds will be part of the same series of debt securities issued by PSNH in November 2013 with the same terms coupon and maturity date. The Rating Outlook is Stable.

Net proceeds will be used to refinance short-term debt. As of Oct. 1, 2014 short-term debt outstanding was approximately $153.1 million.

KEY RATING DRIVERS:

--Low-risk business profile;

--Solid financial metrics;

--Balanced regulatory treatment;

--Impact of customer switching

Strong Financial Metrics: Fitch expects financial metrics to remain strong for the current rating level due to increasing FERC related transmission rate increases and merger related cost synergies. Fitch expects the ratio of debt/EBITDAR to average about 3.0x over the next several years and FFO fixed charge coverage to be well in excess of 6.0x.

Balanced Regulatory Environment: Fitch considers the regulatory environment in New Hampshire to be balanced. PSNH is currently operating under a five-year distribution rate settlement agreement effective through July 2015. As part of the agreement PSNH implemented a $12.6 million rate increase effective July 1, 2013. Temporary rates also took effect in April 2012, reflecting approximately two-thirds of the $421 million scrubber investment at the Merrimack coal plant.

Customer migration: The increased pace of retail customer switching remains a concern for Fitch as the cost of maintaining the company's generation assets falls on a smaller customer base. Consequently, legislation has been enacted in New Hampshire requiring the Public Utility Commission by July 1, 2015 to initiate a proceeding to determine whether some or all of PSNH's generating assets should be divested or retired. Current ratings assume PSNH would be held harmless from any disposition of the generating assets.

RATING SENSITIVITY

Positive: Not likely during prior to a resolution of the pending investigation with respect to PSNH's generating assets.

Negative: Given PSNH's strong position within its current rating level a downgrade is not likely in the near term. However, any regulatory action that results in less than full recovery of the capital and operating costs of its generating assets could have an adverse ratings impact.

Fitch would also consider a negative rating action if on a sustained basis Debt/EBITDAR increased above 4.0x and FFO fixed charge coverage fell below 4.25x.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology - Including Short-term Ratings and Parent and Subsidiary Linkage' (May 28, 2014;

--'Recovery Ratings and Notching Criteria for Utilities' (Nov. 19, 2013);

--'Rating U.S. Utilities, Power and Gas Companies (Sector Credit Factors) (March 11, 2014).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Recovery Ratings and Notching Criteria for Utilities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=722085

Rating U.S. Utilities, Power and Gas Companies (Sector Credit Factors)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=735155

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=891174

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Contacts

Fitch Ratings, Inc.
Primary Analyst
Robert Hornick, +1-212-908-0523
Senor Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Philippe Beard, +1-212-908-0242
Director
or
Committee Chairperson
Glen Grabelsky, +1-212-908-0977
Managing Director
or
Media Relations
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings, Inc.
Primary Analyst
Robert Hornick, +1-212-908-0523
Senor Director
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Philippe Beard, +1-212-908-0242
Director
or
Committee Chairperson
Glen Grabelsky, +1-212-908-0977
Managing Director
or
Media Relations
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com