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06 Oct 2010
$225 million of Debt Securities Rated
New York, October 06, 2010 -- Moody's Investors Service assigned a senior secured rating of A3
to Entergy Arkansas' new issuance of first mortgage bonds,
to be used to refinance outstanding first mortgage bonds. Concurrent
with this rating assignment, Moody's affirmed all of Entergy
Arkansas' existing ratings, including all senior secured debt
at A3; all senior unsecured debt and its Issuer Rating at Baa2;
and all preferred stock at Ba1. The rating outlook is stable.
Entergy Arkansas $225 MM First Mortgage Bonds due 2026 at A3.
Entergy Arkansas' A3 all senior secured; Baa2 all senior unsecured
and Issuer Rating; and Ba1 all preferred stock.
The ratings of Entergy Arkansas reflect the below average regulatory environment
in Arkansas, although its most recent rate case outcome was an improvement
over its last rate case outcome in 2007. The new June 2010 rate
case settlement included a $63.7 million rate increase and
a 10.2% allowed return on equity, approximately 40%
of the company's revised request. The settlement did not
include some of the cost recovery mechanisms requested by the company,
however, including a formula rate plan and transmission rider,
that Moody's would have viewed as credit supportive. The
settlement did allow for a formula rate plan to be addressed in a separate
Regulatory risk at Entergy Arkansas has been largely offset by financial
and cash flow coverage metrics that have historically been strong for
its rating. These include CFO pre-working capital interest
coverage of between 5.3x and 5.5x and CFO pre-working
capital to debt ranging from 23% to 28% from 2005 through
2008. Unlike several of its affiliate Entergy utilities,
EA has not exhibited the variability in coverage metrics caused by large
hurricane related costs and subsequent recoveries. EA's coverage
metrics declined in 2009 to 4.4x CFO pre-working capital
interest coverage and 17.4% CFO pre-working capital
to debt due partly to the rate reduction implemented following the 2007
rate case decision, which negatively affected cash flow.
The company also experienced slowing demand and recessionary conditions
in its service territory. Financial metrics should improve somewhat
following the company's most recent rate settlement and should continue
to remain sufficient to support its current ratings.
The rating also considers ongoing uncertainty over the utility's
continued participation in the Entergy system agreement, the arrangement
among Entergy's operating companies to share generating capacity
and other generating resources. Because of EA's concern that
its participation in the system agreement may no longer be cost effective,
it submitted its notice in 2005 that it will terminate its participation
in the agreement effective 2013. The company is considering operating
as a stand-alone utility, as a member of the Southwest Power
Pool (SPP), or with a successor agreement with Entergy. On
August 31, 2010, the Arkansas Public Service Commission (APSC)
issued an order indicating that it thought that the utility was not completely
and expeditiously analyzing the alternatives to its continued participation
in the system agreement. The APSC established a speedier procedural
schedule that calls for EA to submit its assessment and recommendation
by April 22, 2011, much earlier than the utility's proposed
date of November 2011. The utility has indicated that it will meet
the new timetable.
EA relies for the most part on its participation in the Entergy system
money pool for short-term funding needs, maintaining a small
$75 million bank credit facility on its own, which had no
outstandings as of June 30, 2010. The parent company maintains
a $3.5 billion credit facility expiring in August 2012,
which had approximately $3 billion outstanding as of September
13, 2010. The parent company has since improved its liquidity
position by reducing its revolver borrowings by approximately $1
billion following the issuance of senior notes in September.
The rating outlook of Entergy Arkansas is stable, reflecting Moody's
expectation that the company will continue to generate financial metrics
supportive of its current rating, offsetting the risk associated
with operating in a below average regulatory environment. It also
considers that the most recent rate case settlement was in improvement
over its 2007 rate case outcome and will allow the company to reverse
the decline in financial metrics, reduce regulatory lag, and
earn closer to its allowed return on equity. The stable outlook
also assumes that the ongoing dispute over the Entergy system agreement
will eventually be resolved in a manner not detrimental to credit quality.
Ratings could be raised if there is an improvement in the credit supportiveness
of the regulatory environment in Arkansas, including the implementation
of a formula rate plan; if there is a resolution of the uncertainty
surrounding the system agreement; or if there is a sustainable improvement
in coverage metrics, including CFO pre-working capital interest
coverage above 5.0x and CFO pre-working capital to debt
above 25%. Ratings could be lowered if the utility experiences
adverse regulatory developments or unsupportive rate case outcomes,
if there is a termination of or any changes to the utility's rate
riders that would prevent full and timely recovery of prudently incurred
costs; or if there is a sustained decline in coverage metrics,
including CFO pre-working capital interest coverage below 4.0x
and CFO pre-working capital to debt below 20% for an extended
The principal methodology used in rating Entergy Arkansas, Inc.
was Regulated Electric and Gas Utilities rating methodology published
in August 2009. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found on Moody's
Entergy Arkansas, Inc. is a public utility headquartered
in Little Rock, Arkansas and a subsidiary of Entergy Corporation,
an integrated energy company headquartered in New Orleans, Louisiana.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service's information, confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Michael G. Haggarty
Senior Vice President
Infrastructure Finance Group
Moody's Investors Service
William L. Hess
MD - Utilities
Infrastructure Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's Assigns A3 Rating to new issue of Entergy Arkansas First Mortgage Bonds
250 Greenwich Street
New York, NY 10007
No Related Data.
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