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Rating Action:

MOODY'S DOWNGRADES THE RATINGS OF ENTERGY NEW ORLEANS (SR. SEC. TO B1); RATINGS REMAIN ON REVIEW FOR POSSIBLE FURTHER DOWNGRADE

20 Sep 2005
MOODY'S DOWNGRADES THE RATINGS OF ENTERGY NEW ORLEANS (SR. SEC. TO B1); RATINGS REMAIN ON REVIEW FOR POSSIBLE FURTHER DOWNGRADE

Approximately $175 Million of Debt Securities Affected

New York, September 20, 2005 -- Moody's Investors Service downgraded the debt ratings of Entergy New Orleans, Inc. Ratings downgraded include Entergy New Orleans' senior secured debt to B1 from Baa2; Issuer Rating to B3 from Baa3; and preferred stock to Caa2 from Ba2. Moody's placed the ratings of Entergy New Orleans under review for downgrade on September 8. Following today's rating action, the company's ratings remain under review for possible further downgrade.

The downgrade reflects today's announcement that Entergy New Orleans will consider seeking a petition for protection under federal bankruptcy law. Entergy Corporation (Entergy) today also provided an initial Hurricane Katrina damage estimate for Entergy New Orleans of between $325 million and $475 million, which is well above the capacity of the utility to meet with its existing financial resources and approved debt capacity without parent company or other outside financial support. Moody's notes that the damage to Entergy New Orleans' service territory is so severe such that the utility is expected to suffer a permanent loss of ratepayers, limiting the ability of the utility to recover costs and lost revenues through cost of service filings under the normal regulatory process.

In addition to considering a bankruptcy filing, Entergy is also pursuing a wide range of other options to maintain the long-term financial viability of Entergy New Orleans, including insurance, possible federal legislation, and regulatory recovery mechanisms. Entergy is also considering alternatives to support the liquidity of Entergy New Orleans, including additional advances under its money pool arrangement, debt issuance, the expansion of short-term borrowing capacity, and equity infusions. However, because the damage estimates appear to be well above the utility's internal capacity, Moody's believes that a bankruptcy filing is a distinct possibility in the near term. Moody's understands that such a filing, absent any waivers, would trigger cross defaults with four parent company bank facilities, including Entergy's $2 billion revolving credit facility.

The downgrade also considers the slow pace of the restoration process in the City of New Orleans, much of which remains inaccessible; the permanent impact the storm may have had on the economic vitality of the City; substantial anticipated lost revenues at the utility due to electric and gas outages and difficulties in billing and collecting for previously provided services; the utility's limited financial flexibility in the face of a massive rebuilding effort; and its need to rely on Entergy or other external resources, such as public or governmental assistance, for a substantial amount of financial support. The company estimates that between 115,000 and 130,000 of its customers are still unable to accept electric and gas service, which represents a sizeable majority of its customer base prior to the storm. The utility's three generating units remain out of service and Entergy has provided no specific damage estimate or timetable for their return to service.

Entergy New Orleans' ratings remain under review for possible further downgrade. The review will focus on the potential for a bankruptcy filing; the extent of financial support to be provided by Entergy Corporation and its affiliates; progress on the various alternatives under consideration for outside financial support for the utility; the level of insurance and regulatory recovery mechanisms available to the utility; and the progress of restoration and recovery of the utility's infrastructure. The review will also focus on the utility's ongoing financial flexibility as it undergoes this rebuilding process, including that it has a $100 million limitation on borrowings from the Entergy system money pool and a $40 million limitation on the issuance of additional unsecured debt.

Entergy New Orleans, Inc. is a public utility subsidiary of Entergy Corporation, an integrated energy company headquartered in New Orleans, Louisiana. Entergy is also the parent company of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, and System Energy Resources.

New York
Daniel Gates
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Michael G. Haggarty
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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