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PSEG Power's Senior Notes Rated 'BBB+' by Fitch Ratings.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 26, 2004

Fitch Ratings has assigned a 'BBB+' rating to PSEG Power LLC's (Power) $500 million offering of five and ten-year senior notes. The new issues include a $250 million 3.75% senior note due April 1, 2009 and a $250 million 5.0% senior note due April 1, 2014. Proceeds, together with available cash, will be used to fund the early redemption of $800 million of project finance debt incurred to construct two generating facilities in Ohio and Indiana. Repayment of the debt will allow the termination of an above market tolling agreement between the projects and Power's trading and marketing affiliate. Fitch already included the project debt in the calculation of Power's credit metrics and as a result the financing reduces debt by about $300 million. Power is a multi-regional wholesale energy supply business and a wholly owned subsidiary of Public Service Enterprise Group (PSEG). Ratings on outstanding senior unsecured notes are also affirmed at 'BBB+' by Fitch. The Rating Outlook is Stable.

The ratings are supported by a financial profile that is consistent with the rating category, a rational business strategy that focuses on the northeast region with a heavy concentration in the highly liquid PJM Power Pool where the company has extensive operating experience, and from its affiliation with Public Service Electric and Gas Company (PSE&G), a local electric and gas distribution utility. Revenue stability for Power is assured in the near-term from contractual electric sales to other wholesale suppliers to serve the basic generation service (BGS) load in New Jersey. Power has achieved its objective to enter into load serving contracts and trading positions for at least 75% of its anticipated output over an 18-month to 24-month horizon.

Longer-term, the company is well positioned to continue to be a primary supplier, either directly or indirectly, of the BGS load, and is expected to derive the majority of its earnings and cash flow from BGS contracts. In February 2004, the Board of Public Utilities (BPU) approved the results of the third annual BGS auction covering the 12-month and 36-month periods beginning June 1, 2004. PSE&G entered fixed price contracts for small and medium sized accounts at an average price in the $55 per mwh range, which was similar to last years results.

The current ratings assume the BGS auction process will continue in its present form indefinitely. The primary credit concerns are counterparty credit risk associated with multiple bilateral BGS contracts that extend in varying terms through June 2007, merchant exposure from approximately 2,000 MW of new capacity in the weak ECAR market, and operational and nuclear risk. The counterparty risk is mitigated by Power's ability to sell directly to PSE&G and other load serving entities if the counter parties were unable to perform. A significant change in New Jersey's auction process could be problematic if Power was unable to secure a long-term contract with its affiliate PSE&G or other credit worthy counterparties.
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Publication:Business Wire
Geographic Code:1USA
Date:Mar 26, 2004
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