2012 10K - Exelon Corporation

needs if internal funds are not available from the Registrants’ respective operations. Disruptions in the capital and credit markets in the
United States or abroad can adversely affect the Registrants’ ability to access the capital markets or draw on their respective bank revolving
credit facilities. The Registrants’ access to funds under their credit facilities is dependent on the ability of the banks that are parties to the
facilities to meet their funding commitments. Those banks may not be able to meet their funding commitments to the Registrants if they
experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests from the Registrants and other
borrowers within a short period of time. The inability to access capital markets or credit facilities, and longer term disruptions in the capital
and credit markets as a result of uncertainty, changing or increased regulation, reduced alternatives or failures of significant financial
institutions could result in the deferral of discretionary capital expenditures, changes to Generation’s hedging strategy in order to reduce
collateral-posting requirements, or a reduction in dividend payments or other discretionary uses of cash.
In addition, the Registrants have exposure to worldwide financial markets, including Europe. The ongoing European debt crisis has
contributed to instability in global credit markets. Further disruptions in the European markets could reduce or restrict the Registrants’ ability
to secure sufficient liquidity or secure liquidity at reasonable terms. As of December 31, 2012, approximately 31%, or $2.5 billion, of the
Registrants’ available credit facilities were with European banks. The credit facilities include $8.3 billion in aggregate total commitments of
which $6.5 billion was available as of December 31, 2012. There were no borrowings under the Registrants’ credit facilities as of
December 31, 2012. See Note 11 of the Combined Notes to the Consolidated Financial Statements for additional information on the credit
facilities.
The strength and depth of competition in competitive energy markets depend heavily on active participation by multiple trading parties,
which could be adversely affected by disruptions in the capital and credit markets and legislative and regulatory initiatives that may affect
participants in commodities transactions. Reduced capital and liquidity and failures of significant institutions that participate in the energy
markets could diminish the liquidity and competitiveness of energy markets that are important to the respective businesses of the
Registrants. Perceived weaknesses in the competitive strength of the energy markets could lead to pressures for greater regulation of those
markets or attempts to replace market structures with other mechanisms for the sale of power, including the requirement of long-term
contracts such as the financial swap contract between Generation and ComEd as described further in Note 3 of the Combined Notes to
Consolidated Financial Statements, which could have a material adverse effect on Exelon’s and Generation’s results of operations and cash
flows.
If any of the Registrants were to experience a downgrade in its credit ratings to below investment grade or otherwise fail to
satisfy the credit standards in its agreements with its trading counterparties, it would be required to provide significant
amounts of collateral under its agreements with counterparties and could experience higher borrowing costs. (Exelon,
Generation, ComEd, PECO and BGE)
Generation’s business is subject to credit quality standards that may require market participants to post collateral for their obligations. If
Generation were to be downgraded or lose its investment grade credit rating (based on its senior unsecured debt rating) or otherwise fail to
satisfy the credit standards of trading counterparties, it would be required under its hedging arrangements to provide collateral in the form of
letters of credit or cash, which may have a material adverse effect upon its liquidity. The amount of collateral required to be provided by
Generation at any point in time is dependent on a variety of factors, including (1) the notional amount of the applicable hedge, (2) the nature
of counterparty and related agreements, and (3) changes in power or other commodity prices. In addition, if Generation were downgraded, it
could experience higher borrowing costs as a result of the downgrade. Generation could experience a downgrade in its ratings if any of the
credit rating agencies concludes that the level of business or financial risk and overall creditworthiness of the power generation industry or
Generation has deteriorated. Changes in ratings methodologies by the credit rating agencies could also have a negative impact on the ratings
of Generation.
42