S&P downgrades Exelon Generation to BBB- following spinoff announcement

S&P Global Ratings downgraded Exelon Generation Co. LLC to BBB- from BBB with a stable outlook, following the announcement of its planned spinoff from parent Exelon Corp.

With the spinoff, the rating agency now considers Exelon Generation as nonstrategic to Exelon and said its business risk is at the lower end of being satisfactory, according to a Feb. 24 research note.

The downgrade also reflected the underperformance of the company's fleet at the peak of the polar vortex crisis in the Electric Reliability Council Of Texas Inc., with the impact estimated at about $750 million to $950 million across its portfolio.

"We expect the company's 2021 financial ratios to be below the levels we expect for the rating category but we expect that Exelon will capitalize [Exelon Generation's] balance sheet at levels that result in adjusted [funds from operations] to debt at, or over, 30% on a sustained basis. Measures would include retentions of 2021 distributions at [Exelon Generation], if required," Ratings said.

According to the rating agency, Exelon Generation's open gross margins are under pressure from falling natural gas prices, which affects its baseload nuclear fleet, and the proliferation of renewable power.

"We believe [Exelon Generation's] business risk profile has weakened because we see its competitive advantage eroding from pressures of declining costs for renewable power that is also becoming firmer as storage technologies advance," Ratings said.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings.