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Rating Action:

MOODY'S PLACES THE RATINGS OF ENTERGY NEW ORLEANS (Baa2 SR. SEC.) UNDER REVIEW FOR POSSIBLE DOWNGRADE; AFFIRMS THE RATINGS OF ENTERGY CORPORATION, ENTERGY ARKANSAS, ENTERGY GULF STATES, ENTERGY LOUISIANA, ENTERGY MISSISSIPPI, AND SYSTEM ENERGY RESOURCES

08 Sep 2005
MOODY'S PLACES THE RATINGS OF ENTERGY NEW ORLEANS (Baa2 SR. SEC.) UNDER REVIEW FOR POSSIBLE DOWNGRADE; AFFIRMS THE RATINGS OF ENTERGY CORPORATION, ENTERGY ARKANSAS, ENTERGY GULF STATES, ENTERGY LOUISIANA, ENTERGY MISSISSIPPI, AND SYSTEM ENERGY RESOURCES

Approximately $175 Million of Debt Securities On Review for Possible Downgrade

New York, September 08, 2005 -- Moody's Investors Service placed the debt ratings of Entergy New Orleans, Inc. under review for possible downgrade. Ratings under review include Entergy New Orleans' Baa2 senior secured debt, Baa3 Issuer Rating, and Ba2 preferred stock. Moody's affirmed the ratings of Entergy Corporation (Baa3 Issuer Rating, stable outlook) and its other subsidiaries: Entergy Gulf States, Inc. (Baa3 senior secured, stable outlook); Entergy Louisiana, Inc. (Baa1 senior secured, stable outlook); Entergy Mississippi, Inc. (Baa2 senior secured, stable outlook); and System Energy Resources, Inc. (Baa3 senior secured, stable outlook).

The review of the ratings of Entergy New Orleans reflects the extraordinary damage that Hurricane Katrina caused to the utility's infrastructure and service territory; the likelihood of a lengthy and protracted restoration process; the permanent impact the storm may have on the economic vitality of the City of New Orleans; substantial anticipated lost revenues due to electric and gas outages and difficulties in billing and collecting for previously provided services; the possible permanent loss of rate base due to the loss of some customers from the utility's service territory; the utility's limited financial flexibility in the face of a massive rebuilding effort; and its potential need to rely on the Entergy system or other external resources, such as public or governmental sources, for some financial support. The review could result in a multi-notch downgrade of the ratings of Entergy New Orleans.

The review will focus on the magnitude of the damage to the utility's infrastructure and collateral for its first mortgage bonds, the ultimate cost of recovery, the speed of the restoration process and, most importantly, on the ability of the utility to recover its costs in a timely manner through cost of service filings or other regulatory mechanisms. Moody's notes that Entergy New Orleans is regulated by the New Orleans City Council, which will have numerous other unprecedented issues to address in the city over the next several months, in addition to providing for recovery of the utility's restoration costs and lost revenues. Like the rest of the city's infrastructure, Entergy New Orleans may require federal or state government financial support to assist in its recovery. The review will also focus on the utility's financial flexibility as it undergoes this rebuilding process, particularly considering 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, and the prospects for financial support from the parent.

The affirmation of the ratings of Entergy Louisiana and Entergy Mississippi, the two other Entergy subsidiaries most seriously affected by Hurricane Katrina, reflects Moody's expectation of a quicker and more complete recovery for these utilities; far less risk of a substantial permanent impact on utility rate base or longer run economic vitality within their service territories; and the expectation that these utilities will be able to recover most uninsured costs from state regulators or other regulatory means in a timely manner. Moody's notes that there are many precedents in which utilities in the U.S. have experienced hurricane damage and that regulators have normally allowed for the gradual recovery of most of the resulting costs and capital spending outlays. At least one Louisiana commissioner has already publicly expressed support for recovery of storm expenses related to Katrina.

The affirmation of the ratings of Entergy Arkansas and Entergy Gulf States reflects the minimal damage to these utility's service territories from the hurricane. The affirmation of the ratings of System Energy Resources reflects the affirmation of the ratings of three of the four Entergy utilities that purchase a total of 83% of its power, with Entergy New Orleans accounting for only 17% of the company's power sales. It also reflects the minimal damage to System Energy's single asset, the Grand Gulf 1 nuclear plant, which remains fully operational and available.

The affirmation of the rating of Entergy Corporation reflects the overall strength and stability of the utility system in spite of the hurricane, the relatively small size of Entergy New Orleans compared to the other operating subsidiaries, financial metrics that are strong for its rating category including a recent history of robust cash flow from its regulated utilities and its competitive nuclear business in the Northeast. The operations in the Northeast were unaffected by the hurricane, other than possibly benefiting from higher natural gas prices. The affirmation also reflects Moody's expectation that Entergy will recover most of its storm damage costs through the regulatory process. The utility system has sufficient financial flexibility to meet its immediate storm costs and to manage modest delays in the timeliness of this recovery, with $900 million available under its $2 billion line of credit, $615 million of cash on hand as of June 30, 2005, a money pool borrowing arrangement among all of its utility subsidiaries, smaller lines of credit at some of the individual utilities, and recent access to the capital markets. The company was in the midst of a $1.5 billion stock buyback program, which it has indicated it will delay to late 2006 as it focuses on rebuilding its infrastructure.

Entergy Corporation is an integrated energy company that is headquartered in New Orleans, Louisiana. It is the parent company of Entergy Arkansas, Entergy Gulf States, Entergy Louisiana, Entergy Mississippi, Entergy New Orleans, 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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