Moody's may cut Exelon; Constellation positive

Moody's Investors Service said it placed the long-term ratings of Exelon Corp. (Baa1 senior unsecured) and Exelon Generation Co., LLC (A3 senior unsecured) under review for possible downgrade following the announced plan to merge with Constellation Energy Group, Inc. (Baa3 senior unsecured) in a stock-for-stock transaction.

Moody's affirmed all of the ratings of Constellation and changed its outlook to positive from stable. Exelon and Exelon Generation's short-term ratings for commercial paper were affirmed at Prime-2, while Constellation's short-term rating for commercial paper was affirmed at Prime-3.

Moody's affirmed all of the ratings for Exelon's regulated subsidiaries and their subsidiaries and maintained the stable outlook at Commonwealth Edison Co. (Baa3 senior unsecured), PECO Energy Co. (A3 senior unsecured), ComEd Financing III (Ba1 subordinated debt) and PECO Energy Capital Trust III (Baa1 subordinated debt).

Moody's also affirmed all of the ratings of Baltimore Gas and Electric Co. (Baa2 senior unsecured) and subsidiary BGE Capital Trust II (Baa3 subordinated debt). The outlooks are positive.

The rating review for Exelon and Exelon Generation reflects the pending acquisition of a lower-rated entity and the expected increase in leverage, particularly off-balance sheet debt, at a time when electric margins are compressed, the agency said.

The review for possible downgrade also considers the expectation for a decline in consolidated financial metrics following the merger driven in part by reduced power prices as well as the substantial increase in off-balance leverage that accompanies this merger due in large part to the addition of third party guarantees and other potential calls on capital, the agency added.

For Constellation, the rating affirmation and change in outlook reflects the expected benefits with being integrated into a larger, more diverse and more financially robust company, Moody's said. The affirmation and maintenance of a stable outlook at Commonwealth Edison and at PECO reflects the credit neutral impact that the transaction will have on both utilities' financial performance.

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