S&P cuts FirstEnergy

S&P said it lowered the issuer ratings for FirstEnergy Corp. and its subsidiaries to BB+ from BBB-. The agency also downgraded Allegheny Generating Co. to BB from BBB- after FirstEnergy reported firing its top three executives Friday.

S&P cut the senior unsecured issue-level rating on FE and FirstEnergy Transmission to BB+ from BBB- and assigned 3 recovery ratings, indicating meaningful (50% to 70%; rounded estimate: 65%) recovery in a default. The recovery rating is capped at 3 consistent with the approach for assigning recovery ratings to unsecured debt issued by BB category corporate entities because recovery prospects are highly vulnerable to impairment before default by added debt issuance, S&P said.

The agency also lowered the senior unsecured issue ratings on American Transmission Systems Inc., Jersey Central Power & Light Co., Metropolitan Edison Co., Mid-Atlantic Interstate Transmission, Ohio Edison Co., Pennsylvania Electric Co., and Trans-Allegheny Interstate Line Co., to BBB- from BBB and assigned 2 recovery ratings indicating substantial (70% to 90%; rounded estimate: 85%) recovery in a default. The recovery rating is capped at 2 consistent with the approach for assigning recovery ratings to unsecured debt issued by BB category regulated utilities because recovery prospects are somewhat vulnerable to impairment before default by added debt issuance, the agency said.

S&P downgraded the senior unsecured issue ratings on Cleveland Electric Illuminating Co. to BBB- from BBB and assigned 2 recovery rating, indicating substantial (70% to 90%; rounded estimate: 75%) recovery in a default. Finally, the agency trimmed the senior secured issue ratings on Cleveland Electric, Ohio Edison Co., Toledo Edison Co., and Monongahela Power Co. to BBB+ from A-, reflecting a 1+ recovery rating.

“The two-notch downgrade reflects the termination of the company's CEO Chuck Jones and two other executives, for violating company policies and its code of conduct. We view the severity of these violations at the highest level within the company as demonstrative of insufficient internal controls and cultural weakness. We view these violations as significantly outside of industry norms and, in our view, represent a material deficiency in the company's governance,” S&P said in a press release.

The ratings remain on CreditWatch with negative implications, where they were placed on July 20.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.