FirstEnergy Corp. earned a two-notch downgrade from S&P Global Ratings and a downgrade from Fitch Ratings, following the termination of three executives, including CEO Charles Jones Jr.
On Oct. 29, FirstEnergy announced the termination of Jones after an internal review related to the company's role in an alleged bribery scheme behind the passage of Ohio's nuclear subsidy law.
The company also terminated its senior vice president of product development, marketing and branding, identified on the company's website as Dennis Chack, and its senior vice president of external affairs, identified as Michael Dowling.
FirstEnergy's Independent Review Committee of the Board determined that the terminated executives violated certain FirstEnergy policies and its code of conduct.
On July 21, the U.S. Attorney's Office for the Southern District of Ohio and the FBI announced the filing of criminal charges against former Ohio House Speaker Larry Householder and four associates accused of accepting more than $60 million in bribes and using a "slush fund" to steer House Bill 6 through the Ohio Legislature.
An affidavit filed by an FBI special agent implies that FirstEnergy and affiliated entities, though not mentioned by name, wired funds through a 501(c)(4) nonprofit group called Generation Now to support H.B. 6 and Householder-backed candidates in the Ohio House of Representatives while defeating a ballot initiative to overturn the law.
Earlier Oct. 29, two of the people charged agreed to plead guilty.
"We view the severity of these violations at the highest level within the company as demonstrative of insufficient internal controls and a cultural weakness," S&P Global Ratings said in an Oct. 30 report. "We view these violations as significantly outside of industry norms and, in our view, represent a material deficiency in the company's governance. To account for these deficiencies, we revised our assessment of the company's Management & Governance score downward to weak from fair, which lowers the issuer credit rating by two notches."
Ratings downgraded FirstEnergy and its subsidiaries, including its issuer credit rating, to BB+ from BBB, and lowered the issuer credit rating on Allegheny Generating Co. to BB from BBB-.
Ratings downgraded the senior unsecured issue level rating on FirstEnergy and FirstEnergy Transmission LLC to BB+ from BBB-, and lowered to BBB- from BBB the senior unsecured issue ratings on American Transmission Systems Inc., Jersey Central Power & Light Co., Metropolitan Edison Co., Mid-Atlantic Interstate Transmission, Ohio Edison Co., Pennsylvania Electric Co., and Trans-Allegheny Interstate Line Co.
Ratings lowered the senior unsecured issue ratings on Cleveland Electric Illuminating Co. to BBB- from BBB, and the senior secured issue ratings on Cleveland Electric, Ohio Edison, Toledo Edison Co. and Monongahela Power Co. to BBB+ from A-.
FirstEnergy and its subsidiaries remain on CreditWatch with negative implications. Ratings expects to resolve the CreditWatch placement in the following months, pending the outcomes of multiple investigations, criminal allegations, and civil lawsuits.
Separately, Moody's on Nov. 1 affirmed a Baa3 senior unsecured and issuer rating for FirstEnergy and maintained a negative outlook.
Fitch downgraded FirstEnergy's and FirstEnergy Transmission's long-term issuer default ratings to BBB- from BBB.
Fitch also downgraded all of FirstEnergy's rated operating utility subsidiaries' long- and short-term IDRs except Monongahela Power, Allegheny Generating and Potomac Edison. Fitch's ratings outlook is negative for FirstEnergy and all of its rated subsidiaries.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings.