Moody's rates NE Energy loans B1, B3

Moody's Investors Service said it assigned a B2 corporate family rating, B2 probability-of-default rating and SGL-3 speculative grade liquidity rating to NE Energy, Inc., a B1 rating with a loss-given-default rate of LGD 3 (42%) to the company's first-lien senior secured credit facility - which includes a $550 million term loan B due 2013, $100 million revolver due 2013 and $35 million revolver due 2011 - and a B3 rating with a with a loss-given-default rate of LGD 5 (76%) to its $170 million second-lien senior secured term loan C due 2014.

The outlook is stable.

Proceeds from the term loans, along with $397 million of cash equity from Energy Capital Partners, will be used to finance NE Energy's acquisition of Northeast Generation Co. and certain other assets from Northeast Utilities, Inc.

The agency said the ratings reflect several key credit challenges, including NE Energy's highly leveraged financial profile (pro forma debt to EBITDA of 8.5x) and the market and concentration risk associated with to-be-acquired Northfield Mountain pumped storage hydro facility, which is expected to operate on a fully merchant basis.

These challenges are expected to be mitigated by the strong operating history of the to-be-acquired assets, the competitive nature of the portfolio and the hedging of the output of the to-be-acquired run-of-river and conventional hydro generating units, which is expected provide additional cash flow stability, Moody's said.

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