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Fitch upgrades Exelon, subsidiaries on improved metrics

Fitch Ratings on March 14 upgraded the long-term issuer default and senior unsecured ratings of Exelon Corp. to BBB+ from BBB, with a stable outlook.

"The upgrade of [Exelon] is predicated on actual metrics post the [Pepco Holdings LLC] merger, which are stronger than originally anticipated, continued strides in securing favorable rate outcomes in most [Pepco] jurisdictions, and the strength of its legacy operating utilities," the rating agency said in a note to investors.

In 2016, Exelon acquired Pepco and its subsidiaries Atlantic City Electric Co., Delmarva Power & Light Co. and Potomac Electric Power Co. for $27.25 per share in cash, with the assumption of approximately $6 billion in net debt.

Fitch said the acquisition allows Exelon to become a stronger capitalized parent company to support its current ratings, while Pepco and its subsidiaries benefit from the improved operating efficiency and lower costs as a result of the deal.

Exelon's upgrade also considers the commitment to a $2.2 billion to $2.8 billion combined reduction in Exelon's parent-only/Exelon Generation Co. LLC debt, according to the rating agency. Exelon's short-term issuer default ratings, or IDR, and commercial paper ratings were affirmed at F2.

Fitch also upgraded the long-term issuer default ratings of PECO Energy Co. and Baltimore Gas and Electric Co. to A- from BBB+, and affirmed the utilities' short-term IDR and commercial paper ratings at F2. Further, the rating agency upgraded PECO's first mortgage bonds to A+ from A and Baltimore Gas and Electric's senior unsecured notes to A from A-.

"The upgrades of PECO and [Baltimore Gas and Electric] reflect that both companies have met Fitch's previously stated FFO adjusted leverage upgrade target of 4.0x or better over the forecast period. Both subsidiaries were able to absorb the negative cash flow impact of tax reform and are expected to continue to achieve favorable outcomes in their respective regulatory jurisdictions," Fitch said.

The agency affirmed the BBB+ IDRs of Commonwealth Edison Co. and Delmarva Power and Light and the BBB long-term IDR of Exelon Generation, Pepco Holdings, Potomac Electric Power and Atlantic City Electric, all with stable outlooks.