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Rating Action:

Moody's Places Entergy Corp. on Review for Upgrade; Entergy Mississippi Upgraded to Baa1 with Stable Outlook

Global Credit Research - 09 Jan 2017

Approximately $18 billion of debt affected

New York, January 09, 2017 -- Moody's Investors Service, ("Moody's") today placed the ratings of Entergy Corporation (Entergy; see debt list below) under review for upgrade. The review is prompted by today's announcement that Entergy will retire the Indian Point nuclear facility by 2021.

At the same time, Moody's upgraded the ratings of Entergy Mississippi Inc. (EMI; long-term issuer rating to Baa1 from Baa2 - see full debt list below), due to improvements made to its formula rate plan (FRP) and expectations for cash flow to debt ratios to be around 20% through 2019. The outlook for EMI is stable.

Upgrades:

..Issuer: Entergy Mississippi, Inc.

.... Issuer Rating, Upgraded to Baa1 from Baa2

....Pref. Stock Preferred Stock, Upgraded to Baa3 from Ba1

....Senior Secured First Mortgage Bonds, Upgraded to A2 from A3

....Senior Secured Shelf, Upgraded to (P)A2 from (P)A3

..Issuer: Independence (County of) AR

....Senior Secured Revenue Bonds, Upgraded to A2 from A3

....Underlying Senior Secured Revenue Bonds, Upgraded to A2 from A3

..Issuer: Mississippi Business Finance Corporation

....Senior Secured Revenue Bonds, Upgraded to A2 from A3

....Underlying Senior Secured Revenue Bonds, Upgraded to A2 from A3

On Review for Upgrade:

..Issuer: Entergy Corporation

.... Issuer Rating, Placed on Review for Upgrade, currently Baa3

....Senior Unsecured Commercial Paper, Placed on Review for Upgrade, currently P-3

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Upgrade, currently Baa3

....Senior Unsecured Shelf, Placed on Review for Upgrade, currently (P)Baa3

Outlook Actions:

..Issuer: Entergy Corporation

....Outlook, Changed To Rating Under Review From Positive

..Issuer: Entergy Mississippi, Inc.

....Outlook, Changed To Stable From Positive

RATINGS RATIONALE

"Entergy's business risk is falling thanks to the steady exit from the higher-risk merchant nuclear business" said Ryan Wobbrock, Vice President -- Senior Analyst.

The review for upgrade will assess Entergy's sustainable financial profile as the planned retirement for Indian Point, as well as other merchant generating facilities, crystalizes future liabilities, including costs associated with its nuclear sustainability plan. The review will also focus on attaining better clarity around Entergy's sizeable deferred tax position and its overall tax strategies in light of potential new Federal tax reforms. In addition, the review will focus on how any potential tax reforms impact the cash flow of Entergy's utility subsidiaries.

Entergy's $1.5 billion nuclear sustainability plan will increase costs at the same time that its merchant business loses cash and holding company leverage increases. At this time, Entergy exhibits enough financial cushion to absorb these costs and maintain its adjusted cash flow to debt ratio in the mid-teen's percent range; however, future cash flow could be impaired if the Federal government were to significantly lower the corporate tax rate. A lower Federal tax rate would revalue over $8 billion of Entergy's deferred tax liabilities and reduce the magnitude of future cash flow contributions from deferred taxes.

EMI's longstanding FRP has evidenced the ability to produce consistently strong cash flow to debt metrics, even when excluding the benefits from deferred taxes. As part of EMI's last FRP filing and evaluation report, the company can now benefit from cost adjustments to transmission and distribution investments and certain operating costs through annual filings. This improved cost recovery, coupled with its 9.89% allowed ROE bandwidth floor, should help the utility to maintain cash flow to debt ratios approaching 20% for the next three years.

Entergy's credit profile is underpinned by formulaic rate making at its three largest utilities and supportive cost recovery provisions across its five state regulatory jurisdictions. FRPs allow for a high degree of visibility into regulatory proceedings, which in turn produces stable cash flow production and financial performance. In the last year, Entergy's cost recovery has improved due to the implementation of a FRP in Arkansas, the incorporation of forward-looking cost recovery provisions in Mississippi and regulatory approvals to increase utility assets and revenue in New Orleans. These enhancements support stronger cash flow generation and should help Entergy to produce consolidated cash flow to debt in the mid-teen's on an ongoing basis.

EMI's exposure to Entergy's nuclear improvement program comes from its contractual obligation to purchase power from the Grand Gulf Nuclear facility, of which EMI is a 33% owner, along with three affiliate utilities. Given the nature of these shared costs and magnitude of exposure for EMI, we believe that the company can absorb these, while maintaining cash flow to debt in the high-teen's percentage range -- a level that is appropriate for a Baa1 vertically integrated utility.

Factors that Could Lead to an Upgrade

Entergy could be upgraded to Baa2 if its utilities continue to receive ample cost recovery, if it makes progress in retiring merchant nuclear plants as planned, and if it is able to produce cash flow to debt in the mid-teen's percent range on an ongoing basis, excluding temporary tax benefits.

EMI could be upgraded to A3 if it generates sustainable cash flow to debt approaching 25% and retains its transparent and predictable regulatory framework.

Factors that Could Lead to an Downgrade

Entergy could be downgraded if the stability and predictability of its key regulatory environments were to decrease, if its tolerance for financial risk increased (e.g., holding company debt above 25% of consolidated debt) or if it were to encounter unforeseen operating or financial difficulties with its nuclear business. Failure to execute the planned retirement of its nuclear generation facilities could also weigh on the rating.

EMI could be downgraded if regulatory support from the Mississippi Public Service Commission were to decline or if significant costs were unable to be recovered. Furthermore, if its financial profile were to drop cash flow to debt levels below the high-teen's, its rating could be pressured downward.

The principal methodology used in these ratings was "Regulated Electric and Gas Utilities" published in December 2013. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Ryan Wobbrock
Vice President - Senior Analyst
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Jim Hempstead
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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