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Rating Action:

Moody's assigns Aaa rating to LCDA system restoration bonds to be serviced by Entergy

Global Credit Research - 23 Jul 2010

$244.1 million of asset backed securities affected.

New York, July 23, 2010 -- Moody's Investors Service has assigned the definitive rating of Aaa to the system restoration bonds, Series 2010 issued by Louisiana Local Government Environmental Facilities and Community Development Authority (LCDA) (Issuer), a political subdivision of the State of Louisiana. The transaction will be serviced by Entergy Gulf States Louisiana, LLC. ("EGSL") (Baa2), in whose service area the system restoration charges will be collected and the proceeds of the transaction will be used by EGSL for system restoration expenses within its service area. The complete rating action is as follows:

Issuer: Louisiana Local Government Environmental Facilities and Community Development Authority (LCDA)

$97,000,000 System Restoration Bonds, Tranche A-1, rated Aaa

$60,000,000 System Restoration Bonds, Tranche A-2 rated Aaa

$87,100,000 System Restoration Bonds, Tranche A-3, rated Aaa

The ratings are based on the State of Louisiana legislation referred as the Restoration Law, and the state's non-impairment pledge; the irrevocable financing order by the Louisiana Public Service Commission (LPSC) and the LPSC pledge; the remote likelihood of a successful legislative challenge to the Restoration Law, the financing order, and the system restoration charge authorized thereunder; the size and diversity of the ratepayer base from whom the system restoration charge will be collected; credit enhancement consisting of dynamic adjustments or true-up to the system restoration charge and a Debt Service Reserve Subaccount (DSRS) with a required balance equal to 0.50% of the initial principal balance of the bonds; and, Entergy Gulf States Louisiana, LLC. (EGSL) (Baa2)'s ability and experience as a servicer.

The bonds are backed by system restoration property created by the state's legislation and an irrevocable financing order issued by the LPSC that authorizes the imposition and collection of a system restoration charge to all existing and future electric customers subject to LPSC jurisdiction, and receiving electric transmission or distribution service, or both from EGSL or its successors or assignees, including all individuals, corporations, other business entities and governmental and municipal entities, subject to certain exceptions for self-generators.

The system restoration charge will be adjusted as required or necessary to make the debt service payments. The system restoration charge must be mandatorily adjusted at least semi-annually to correct any under collections or over-collections to ensure timely payment of debt service. The financing order permits more frequently true-up adjustment or interim adjustments if the servicer forecasts that there are insufficient collections to make the required debt service payments or to replenish any draws under the DSRS. The financing order also allows non-standard true-up adjustments to address any material deviations between the system restoration charge collections and the required debt service amount. If any bonds are still remaining after the scheduled final maturity date, then mandatory quarterly true-up adjustments will be made until the bonds and all associated costs are paid in full. There is no limit on level of the system restoration charge that may be imposed on customers over the life of the bonds in order to pay scheduled principal and interest on the bonds on a timely basis. There is approximately two-year tail period between the scheduled final maturity date and the final maturity date of the bonds, which provides sufficient cushion to true up the system restoration charge to pay off the bonds in full by the final maturity date.

Securitization is expected to provide savings or economic benefits to the consumers vs. the traditional financing methods.

The system restoration bonds will be issued by LCDA as a conduit issuer. The Issuer as no taxing power and receives no appropriations from the State or any governmental body. The Issuer is an "issuer" within the meaning of the Restoration Law. The Issuer will use the net proceeds of the bonds to make a loan to Louisiana Utilities Restoration Corporation, a not-for-profit public corporation created by the Restoration Law, which is solely vested with the system restoration property. The system restoration property is pledged to the Issuer as security for the bonds.

The principal methodology used in rating the transaction is described below. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on www.moodys.com.

V-SCORE AND LOSS SENSITIVITY

Moody's V Score. The V Score for this transaction is Low, which is the same as the V score assigned for the utility fee bonds or stranded costs bonds sector. The V Score indicates "Low" uncertainty about critical assumptions.

The Low score is primarily driven by the low volatility in performance of the previous securitization serviced by ELL, the good track record of the utilities fee sector as a whole and the low complexity and market value volatility with regards to such transactions. The sector has existed for more than ten years and such bonds have survived one bankruptcy of a servicer, the California energy crisis and the recent economic downturn.

Moody's V Scores provide a relative assessment of the quality of available credit information and the potential variability around the various inputs to a rating determination. The V Score ranks transactions by the potential for significant rating changes owing to uncertainty around the assumptions due to data quality, historical performance, the level of disclosure, transaction complexity, the modeling and the transaction governance that underlie the ratings. V Scores apply to the entire transaction (rather than individual tranches).

Moody's Parameter Sensitivities. While the bonds are subject to political, regulatory and legal risks, we view such risks as remote. The bonds are also exposed to the risk of declines in the rate payer base in the service area of EGSL. However, it would require dramatic declines in the rate payer base to impact the rating of the bonds. We view the likelihood of such dramatic declines as remote. Therefore, the parameter loss sensitivity analysis is not presented for this transaction.

Parameter Sensitivities are not intended to measure how the rating of the security might migrate over time, rather they are designed to provide a quantitative calculation of how the initial rating might change if key input parameters used in the initial rating process differed. The analysis assumes that the deal has not aged. Parameter Sensitivities only reflect the ratings impact of each scenario from a quantitative/model-indicated standpoint. Qualitative factors are also taken into consideration in the ratings process, so the actual ratings that would be assigned in each case could vary from the information presented in the Parameter Sensitivity analysis.

PRINCIPAL RATING METHODOLOGY

The primary asset backing the notes is an intangible property created by the State of Louisiana legislation and specifically authorized by an irrevocable financing order issued by the LPSC. The state statutes provide a state pledge that the state will not take any action that might impair the interest of the bondholders. The financing order issued by the LPSC is irrevocable, and cannot be repealed once the statutory appeal period has passed. The financing order authorizes a surcharge on the customer's bill to pay debt service on the bonds. It also stipulates that the surcharges are nonbypassable, meaning that any user of electricity in the utility' service area subject to LPSC jurisdiction must pay this surcharge with very limited exceptions.

The credit enhancement to the transaction mainly consists of a true-up or adjustment mechanism stipulated in the financing order, which entitles the servicer to adjust the surcharge periodically in order to pay the required interest and scheduled principal payments. The periodic adjustments include mandatory semi-annual adjustments as well as non-routine adjustments which might become necessary if there are unexpected declines in electricity consumption which might cause a shortfall for the scheduled debt service. If the bond is not paid off by the expected final maturity date, then more frequent adjustments such as quarterly adjustments will be allowed. Both semi-annual and interim true-ups are reviewed by the LPSC to confirm mathematical accuracy of the adjustments.

While the bonds are subject to political, regulatory and legal risks, we view such risks as remote. The bonds are also exposed to the risk of declines in the rate payer base in the servicer area of EGSL. However, it would require dramatic declines in the EGSL ratepayer base to impact the rating of the bonds. We view the likelihood of such dramatic declines as remote.

ADDITIONAL RESEARCH

The special report, "Updated Report on V Scores and Parameter Sensitivities for Structured Finance Securities" is available on moodys.com. Additional research, including the pre-sale report for this transaction and reports for prior transactions, are available at www.moodys.com. In addition, Moody's publishes a weekly summary of structured finance credit, ratings and methodologies, available to all registered users of our website, at www.moodys.com/SFQuickCheck.

New York
Michael McDermitt
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Xiaochao Wang
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns Aaa rating to LCDA system restoration bonds to be serviced by Entergy
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