Moody’s downgrades TD Bank credit, places CT gas utilities on negative outlook

TD Bank, Southern Connecticut Gas, and Connecticut Natural Gas received some bad news about their credit ratings of outstanding debt from Moody’s Ratings.

On Oct. 23, the rating agency downgraded the long-term issuer rating to A3 from A2 of TD Group US Holdings LLC, (GUS) the U.S. Intermediate Holding Company of TD Bank US Holding Co., the parent company for TD Bank, N.A. Additionally, it downgraded the long-term ratings and assessments of The Toronto-Dominion Bank, including its baseline credit assessment, to a2 from a1, its long-term counterparty risk ratings to Aa2 from Aa1 and the bank’s long-term counterparty risk assessment to Aa3(cr) from Aa2(cr).

The rating outlooks for the long-term deposits, issuer ratings, senior unsecured and junior senior unsecured debt ratings at TD as well as the outlook for the long-term issuer rating at TD GUS included in rating action were changed to stable from negative.

SCG, CNG

On Oct. 24, Moody’s changed the outlooks of Southern Connecticut Gas Company and Connecticut Natural Gas Corp. to negative from stable.  The rating action follows proposed rate decisions issued by the state Public Utility Regulatory Authority on Oct 7, which recommend rate cuts for both utilities.

The agency stated the PURA action reflects increasing demographic and societal risks in the utilities’ regulatory relationships. The ratings of both companies, including SCG’s A3 Issuer Rating and CNG’s A2 senior unsecured rating, were affirmed.

“PURA’s proposed decisions signal that the regulator will likely cut rates for both Southern Connecticut Gas and Connecticut Natural Gas in the coming weeks, which will also reduce the companies’ cash flow and financial ratios,” said Ryan Wobbrock, Moody’s vice president, senior credit officer. “The proposed decisions also evidence continued regulatory relationship challenges for the state’s utilities, where the disparity between filed rate requests and ultimate rate orders has become considerable.”

In November 2023, SCG and CNG filed for new rates, seeking a total of around $63 million in annual increases as a result of ongoing capital investments and higher operating expenses. However, the proposed decision indicates that a roughly $76 million rate reduction could be in store for the companies (approximately $37 million for SCG and about $39 million for CNG.)

The proposed decision includes several provisions that will impair the utilities’ future cash flow, including rebates of non-firm margins previously collected, tax-related customer credits, lower depreciation rates, various rate base disallowances and a lower allowed return on equity of 9.20%. (currently 9.25% for SCG and 9.30% for CNG).

As a result of these provisions, as well as the continued difficult regulatory environment in Connecticut, the financial profiles for SCG and CNG are likely to decline, possibly to levels below their downgrade thresholds of cash flow from operations before changes in working capital to debt, according to Moody’s.

At the time of the PURA decision, the chief executive of Connecticut Natural Gas and Southern Connecticut Gas rejected the rate cuts of 9% and 8%, respectively, for CNG and SCG in the decision issued by the state utility regulator on Oct. 4.

“While we continue to assess the extensive draft decisions and their far-reaching impacts, we reject the unprecedented $75 million revenue cuts across CNG and SCG,” said Frank Reynolds, president and CEO of Connecticut Natural Gas (CNG) and Southern Connecticut Gas (SCG), subsidiaries of Avangrid Inc.

TD Bank

The rating action follows TD’s announcement on Oct. 10 that it has resolved its civil and criminal investigations into its anti-money laundering program by the Financial Crimes Enforcement Network and the U.S. Department of Justice.

The total financial penalties of $3.09 billion was largely covered by the bank’s previous provisions of $3.05 billion, according to Moody’s. The parent company pleaded guilty to causing the bank to fail to have a program that complies with federal requirements and to fail to file accurate transaction reports. TD has several branches in Fairfield and Westchester counties.

“The downgrade of TD’s BSA (U.S. Bank Secrecy Act) reflects the scale and severity of the bank’s risk management failures as evidenced by its BSA/AML settlement with the Department of Justice and regulators, which has changed our view of the effectiveness of TD’s governance” said Robert Colangelo, Moody’s Ratings vice president, senior credit officer. “Next year will be a transitional year for the bank’s US operations as it continues to invest in its US BSA/AML remediation program and undertakes its balance sheet restructuring to comply with the asset cap that was imposed on its US bank subsidiaries.”