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Global Credit Research - 13 Jul 2010
$468.9 million of asset backed securities rated.
New York, July 13, 2010 -- Moody's Investors Service has assigned the provisional rating of (P) Aaa
to the system restoration bonds, Series 2010, to be 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 Louisiana,
LLC ("ELL") (Baa2), in whose service area the system
restoration charges will be collected and the proceeds of the transaction
will be used by ELL 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)
$112,000,000 System Restoration Bonds, Tranche
A-1, rated (P) Aaa
$111,000,000 System Restoration Bonds, Tranche
A-2 rated (P) Aaa
$121,000,000 System Restoration Bonds, Tranche
A-3, rated (P) Aaa
$124,900,000 System Restoration Bonds, Tranche
A-4, rated (P) 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
Louisiana, LLC. (ELL) (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 ELL 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
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 ELL. 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
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 ELL.
However, it would require dramatic declines in the ELL ratepayer
base to impact the rating of the bonds. We view the likelihood
of such dramatic declines as remote.
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.
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
Moody's assigns (P) Aaa provisional rating to LCDA system restoration bonds to be serviced by Entergy
No Related Data.
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