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Fitch Upgrades Cedar Brakes I & II to 'BBB+'; Outlook Stable

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CHICAGO--(BUSINESS WIRE)--

Fitch Ratings has upgraded the following Cedar Brakes bonds to 'BBB+' from 'BBB-':

--Cedar Brakes I, LLC's 8.5% series C senior secured bonds due 2014;

--Cedar Brakes II, LLC's 9.875% series C senior secured bonds due 2013;

--Cedar Brakes II, LLC's 9.875% series B senior secured bonds due 2013.

The rating upgrades are based upon the execution of the merger between Exelon Corporation (EXC; 'BBB+' with a Stable Outlook by Fitch) and Constellation Energy Group (CEG). The Rating Outlook for Cedar Brakes I and Cedar Brakes II (collectively, the projects) is Stable.

KEY RATING DRIVERS

Counterparty Linkage: The rating of the bonds is linked to the lower counterparty credit rating of Public Service Electric & Gas Company (PSE&G; 'BBB+' with a Stable Outlook by Fitch) or EXC. Due to the structural balance of the power purchase agreements (PPAs), Cedar Brakes' risk exposure is limited to PSE&G's ability to make payments under the amended and restated PPA and EXC's unconditional guarantee of Constellation Energy Commodities Group, Inc.'s (CECG) performance under the mirror PPA.

WHAT COULD TRIGGER A RATING ACTION

Counterparty Rating Change: The ratings of the projects would change if either PSE&G or EXC were downgraded, or if both counterparties were upgraded.

SECURITY

The bonds are secured by all rights, title and interest in the assets, which include the amended and restated PPAs with PSE&G, the mirror PPAs with CECG, cash accounts administered by the trustee, and various guarantees and support agreements.

CREDIT UPDATE

The upgrade of Cedar Brakes' rating to 'BBB+' from 'BBB-' is based upon the execution of the merger between EXC and CEG, the former guarantor of CECG's contractual obligations under the mirror PPAs. EXC has assumed the guarantee of CEG, which no longer exists as a distinct entity post-merger. Thus, the rating continues to reflect the linkage of Cedar Brakes' credit quality to that of its counterparties.

EXC merged with CEG following the receipt of final regulatory approvals on March 12, 2012. Prior to the merger, Fitch had rated CEG at 'BBB-' with a Stable Outlook. PSE&G and CEG have continued to fulfill their respective contractual performance obligations since the inception of the projects, which have made full and timely payment of debt service consistent with originally projected financial performance.

Cedar Brakes I and II are separate projects with nearly identical contractual structures. Each project purchases energy from CECG under long-term contracts (the mirror PPAs) and resells that energy to PSE&G under substantially similar PPAs. The contractual capacity and energy payments from PSE&G comprise the projects' only source of revenue. Debt service has been structured to match the price differential between the PPAs and the mirror PPAs. The projects have no physical assets or employees and effectively act as pass-through entities.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance' (Aug. 16, 2011).

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648832

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Fitch Ratings
Primary Analyst
Christopher Joassin, +1-312-368-3166
Director
Fitch Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Dino Kritikos, +1-312-368-3150
Associate Director
or
Committee Chairperson
Gregory Remec, +1-312-606-2339
Senior Director
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Media Relations:
Sandro Scenga, +1-212-908-0278
Email: sandro.scenga@fitchratings.com

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