Fitch: Denial of Exelon/Pepco Merger Unfavorable for Pepco

NEW YORK--()--Fitch Ratings considers the District of Columbia Public Service Commission's (PSC) denial of the proposed merger between Exelon Corp. (EXC) and Pepco Holdings, Inc. (PHI; 'BBB' IDR, Outlook Stable) to be negative for PHI and its operating subsidiaries.

Each of the operating subsidiaries deferred rate case filings during the 16 months the merger was under review which has and will weaken credit metrics, which were only marginally supportive of the existing ratings before the rate case avoidance.

Prior to the merger announcement the three operating utilities had pursued an aggressive strategy of annual rate filings to combat regulatory lag. The strategy had the intended effect of improving credit metrics leading up to the April 2014 merger announcement. In affirming the ratings of PHI and its subsidiaries in April 2015, Fitch noted the expected deterioration of credit metrics through 2016 being mitigated by the financial flexibility afforded by the anticipated EXC ownership. Without the EXC ownership the financial deterioration is a greater credit concern.

It should be noted that EXC is likely to request reconsideration of the PSC decision that may include additional customer benefits.

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' (Aug. 17, 2015);

--'Recovery Ratings and Notching Criteria for Utilities' (March 5, 2015);

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

Applicable Criteria

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362

Recovery Ratings and Notching Criteria for Utilities (pub. 05 Mar 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863298

Related Research

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

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

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Contacts

Fitch Ratings
Robert Hornick, +1-212-908-0523
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Daniel Neama, +1-212-908-0561
Associate Director
or
Media Relations:
Alyssa Castelli, New York, +1-212-908-0540
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Robert Hornick, +1-212-908-0523
Senior Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Daniel Neama, +1-212-908-0561
Associate Director
or
Media Relations:
Alyssa Castelli, New York, +1-212-908-0540
alyssa.castelli@fitchratings.com