Fitch may lift Northeast Utilities, cut Nstar

Fitch Ratings said it placed Northeast Utilities' BBB issuer default rating on Rating Watch positive and Nstar's A- issuer default rating on Rating Watch negative in response to NU's plans to merge with NStar.

The stock-for-stock exchange is structured as an acquisition of Nstar by NU, which will be the surviving parent company with Nstar initially remaining as an intermediate holding company, according to the agency.

The merger will combine two companies of comparable size with similar strategies. Both companies are owners of sound and stable electric and gas utilities in the New England region and are partners in various transmission development projects, the agency said.

The possible upgrade of NU is driven by the improved capability of the merged entity to fund the substantial capital investments in electric transmission projects as well as the complementary nature of the two companies' operations and business strategies, Fitch said.

The negative watch for Nstar is driven by the higher capital spending and greater funding needs of NU relative to NSTAR's current capital expenditures and financial profile, the agency noted.

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