Moody’s cuts FirstEnergy, Allegheny Energy

Moody's Investors Service said it downgraded FirstEnergy Solutions Corp.'s corporate family rating to Caa1 from Ba2 and probability of default rating to Caa1-PD from Ba2-PD.

The outlook remains negative. The speculative grade liquidity rating was lowered to SGL-3 from SGL-2.

At the same time, Moody's downgraded Allegheny Energy Supply Co., LLC’s corporate family rating to B1 from Ba1 and probability of default rating to B1-PD from Ba1-PD.

The outlook remains negative. The speculative grade liquidity rating was lowered to SGL-3 from SGL-2.

Moody's also affirmed the Baa3 unsecured ratings and maintained the stable outlook at Allegheny Generating Co. (AGC). Both FirstEnergy and Allegheny Energy are wholly-owned subsidiaries of FirstEnergy Corp. AGC is 60% owned by Allegheny Energy and 40% owned by Monongahela Power Co. (MP, Baa2 stable) a regulated utility subsidiary of FirstEnergy.

"We believe FirstEnergy will exit its unregulated merchant generating businesses, and we view regulatory or political intervention within the 18-month timeframe as unlikely, making a restructuring or bankruptcy filing a more likely outcome," Moody’s senior vice president Swami Venkataraman said in a news release.

"While FES is expected to be free cash flow positive through 2019, other near term risks include the outcome of a pending arbitration related to certain coal transportation contracts, and remarketing obligations for about $500 million in revenue bonds at FES during 2018."

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