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S&P downgrades FirstEnergy following $1.95B draw on revolving credit facility

S&P Global Ratings downgraded FirstEnergy Corp. and certain subsidiaries after the companies borrowed nearly $2 billion under two revolving credit facilities.

"Although we believe the company's decision to significantly increase its borrowings under its revolving credit facility demonstrates prudent risk management given the unique challenges the company is facing, in our view, it is also an acknowledgment that the company may not have consistent access to the capital markets," the rating agency said in a Nov. 24 research update.

S&P Global Ratings noted that on Nov. 17, FirstEnergy amended credit facilities because it was out of compliance with representations and warranties in those facilities related to anticorruption laws and sanctions. The waiver restored the ability of FirstEnergy to draw on those credit facilities.

On Nov. 19, FirstEnergy disclosed a 2019 payment of approximately $4 million to "an individual who subsequently was appointed to a full-time role as an Ohio government official directly involved in regulating" the company's Ohio utilities. The next day, Public Utilities Commission of Ohio Chairman Sam Randazzo, who fit that description, resigned in a letter to the governor that noted FirstEnergy's disclosure.

Randazzo's resignation marked another development stemming from the FBI's ongoing investigation of bribery related to the passage of House Bill 6, a law subsidizing nuclear plants in Ohio. FirstEnergy on Oct. 29 announced it had fired CEO Charles Jones Jr., as well as two other senior executives, following an internal review into the company's role in the passage of HB 6. Ratings downgraded FirstEnergy to BB+ from BBB following Jones' ouster.

"We believe these violations at the highest level of the company are demonstrative of insufficient internal controls and a cultural weakness. We view the severity of these violations as significantly outside of industry norms and, in our view, they represent a material deficiency in the company's governance," S&P Global Ratings said.

S&P Global Ratings downgraded FirstEnergy's issuer credit rating to BB from BB+ and affirmed a BB issuer credit rating on Allegheny Generating Co. The rating agency also lowered its senior unsecured rating on FirstEnergy and FirstEnergy Transmission LLC to BB from BB+ based on a recovery rating of 3.

The senior unsecured issue ratings on Cleveland Electric Illuminating Co., 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. were lowered to BB+ from BBB- based on S&P Global Ratings' recovery rating of 2.

The agency also lowered the senior secured issue ratings on Cleveland Electric, Ohio Edison, Toledo Edison Co. and Monongahela Power Co. to BBB from BBB+, reflecting a 1+ recovery rating.

The ratings on FirstEnergy and its subsidiaries remain on CreditWatch with negative implications.

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