Exelon Corp and PECO Energy see credit ratings upgrade, outlook stable: S&P Global
Investing.com -- S&P Global has upgraded the issuer credit rating of Exelon Corp (NASDAQ: EXC ). and its utility subsidiary PECO Energy Inc. to 'A-' from 'BBB+', following a review of the companies' financial measures and credit supportive rate case outcomes from various utility subsidiaries in late 2024. The issue-level rating on Exelon’s senior unsecured debt has also been raised to 'BBB+' from 'BBB', while the 'A-2' short-term and commercial paper ratings were affirmed.
The same actions were taken for PECO Energy, with the issuer credit rating and issue-level rating on PECO’s preferred securities raised to 'A-' and 'BBB' from 'BBB+' and 'BBB-' respectively. The 'A-2' short-term and commercial paper ratings were affirmed, while PECO’s first mortgage bond rating and recovery rating remain unchanged at 'A' and '1+'.
The stable outlooks on both Exelon and PECO reflect the expectation that Exelon’s business risk profile will continue to focus on its lower-risk regulated utilities and its funds from operations (FFO) to debt will consistently reflect a 13%-14% range through 2028.
The upgrade of Exelon follows the company's consistently improving financial performance. In 2024, Exelon’s subsidiaries received credit supportive rate case orders in Illinois, Maryland, Washington, D.C., Delaware, and Pennsylvania, which will collectively increase revenue by about $1.6 billion. Several of these rate orders reflect multiyear rate plans, supporting the company’s financial measures through 2028. As such, Exelon’s consolidated FFO to debt is expected to be consistently greater than 13% through 2028.
Exelon's business risk profile is assessed as excellent, with its low risk regulated transmission and distribution (T&D) utilities positioning the company at the higher end of the range for its business risk profile. Exelon's utility subsidiaries’ lower risk regulated electric T&D and gas distribution operations serve about 10.7 million customers across six states and D.C.
Exelon's financial risk profile is assessed as significant. Despite the operating cash flow expectations following the numerous rate case and regulatory outcomes in 2024, Exelon's capital spending remains robust, averaging roughly $9 billion per year through 2028. This could lead to annual discretionary cash flow deficits of about $3.4 billion over the same period.
PECO’s stand-alone credit profile (SACP) has been lowered to 'a-' from 'a', reflecting an expectation of modest weakening of PECO’s forward-looking financial measures. The weakening of financial performance primarily reflects higher cash taxes paid because of the new corporate alternative minimum tax that was part of the 2022 Inflation Reduction Act. PECO’s capital spending is expected to gradually rise to about $1.9 billion by 2026.
The stable outlook reflects expectations that Exelon's consolidated S&P Global Ratings-adjusted FFO to debt will remain above 13% through 2028 following multiple 2024 rate case orders. The stable outlook on PECO reflects the stable outlook on parent company Exelon Corp. Under a base-case scenario, PECO’s stand-alone FFO to debt will be 15%-16%.
The ratings on Exelon could be lowered over the next two years if its ability to manage its regulatory risk weakens or its financial performance unexpectedly deteriorates, causing S&P Global Ratings-adjusted FFO to debt to fall to, and remain below, 13%. The ratings on PECO could be lowered if the ratings on parent Exelon are lowered.
The ratings on Exelon could be raised over the next two years if its financial performance strengthens because of more-credit-supportive and prudent capital structure management, as well as higher operating cash flows, that support S&P Global Ratings-adjusted FFO to debt consistently at or above 17%. The ratings on PECO could be raised if the ratings on parent Exelon are raised.
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