S&P Affirms Ratings on Pepco Holdings (POM), Subsidiaries Following Approval of Exelon (EXC) Merger

Standard & Poor's Ratings Services affirmed its ratings on PEPCO Holdings Inc. (NYSE: POM) and its subsidiaries, Potomac Electric Power Co., Delmarva Power & Light Co., and Atlantic City Electric Co. The outlook is stable.

"The ratings affirmation stems from the close of the merger of PHI with Exelon Corp.," said Standard & Poor's credit analyst Dimitri Nikas. "The affirmation reflects our assessment of the companies' stand-alone credit profiles in the context of certain insulation measures that provide for one notch of separation to the ratings of PHI and its subsidiaries from the group credit profile of parent Exelon," he added.

We base the outlook on PHI on the outlook of Exelon, which is currently stable. However, Standard & Poor's believes that higher-than-expected natural gas production from shale-gas regions and a delay in environmental rules related to plant retirements could weaken the company's financial performance during the next few years. If commodity prices weaken even more, the company might have to address a decline in its earnings profile with commensurate reductions in capital spending and debt. After the close of the merger, we expect Exelon to maintain FFO to debt within a band of about 22% to 24% and debt to EBITDA to increase to about an adjusted 3.2x to 3.4x.

We could lower the ratings on PHI if its stand-alone credit profile weakens by one notch due to unfavorable regulatory developments at its subsidiaries that lead to FFO/debt of consistently less than 13%. We could also lower the ratings on PHI if we lower the ratings on parent Exelon by one or more notches.

We could raise the ratings on PHI if we raise the ratings on Exelon by two or more notches, which we don't currently contemplate.

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