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Rating Action:

Moody's assigns provisional rating of (P)Aaa to utility Entergy Texas Inc.'s transition bonds

29 Oct 2009

$545.9 million of asset backed securities rated.

New York, October 29, 2009 -- Moody's Investors Service has assigned the provisional rating of (P)Aaa to the $545.9 million of transition bonds to be issued by Entergy Texas Restoration Funding, LLC, a special purpose limited liability company whose sole member is Entergy Texas Inc. (ETI). The bond issuance is permitted under the State of Texas legislation that authorizes utilities to recover certain costs by securitization. Such costs relate to the damages caused by any tropical storm or hurricane, ice or snow storm, flood or other weather-related event or natural disasters that occur in calendar year 2008 or thereafter. The complete rating action is as follows:

Issuer: Entergy Texas Restoration Funding, LLC

$180,800,000 Tranche A-1, rated (P)Aaa

$146,000,000 Tranche A-2, rated (P)Aaa

$219,100,000 Tranche A-3, rated (P)Aaa

The bonds are backed by transition property created by the state's legislation and an irrevocable financing order issued by the Public Utility Commission of Texas that authorizes the imposition and collection of a transition charge on all existing and future retail electric service customers of ETI in its service territory, with a minor exception, throughout the life of the bonds. The transition charge will be adjusted periodically to ensure timely payment of debt service for the bonds. Thus the risk of the securities primarily reflects the repayment ability of the large diverse ratepayer base comprising ETI's service territory.

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.

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 servicer area of ETI. However, it would require dramatic declines in the rate 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 special Texas legislation and specifically authorized by an irrevocable financing order issued by the Public Utility Commission of Texas (PUCT). 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 PUCT 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 utilities' service area must pay this surcharge with only very limited exceptions.

The financing order also stipulates that if one class of customers consume less electricity or fail to pay, then the surcharge will be raised on the rest of the customer base. This essentially means that there is a joint and several obligation by all the current and future users of electricity in the service territory of the utility to pay off the utilities fee bonds.

The credit enhancement to the transaction mainly consists of a true-up 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 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 monthly adjustments will be allowed. Mandatory standard adjustments are automatically approved by the commission. Non-routine true-ups may need a proceeding, but the scope of the proceeding is limited to determine whether the proposed adjustment complies with the financing order. The financing order requires the public services commission to issue an order by the proposed true-up adjustment date. In case PUCT cannot issue its order by that date, then the servicer will be permitted to implement its proposed changes.

The primary risk in this transaction is the political, regulatory and legal risk. We believe that the statutory performance guarantee imbedded in the states statutes and the irrevocable financing order including the true-up mechanism essentially eliminates, for all practical purposes and circumstances, any credit risk to the payment of the utilities fee bonds, and insures that there is minimal probability of default or loss on such bonds.

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
Mark DiRienz
Managing Director
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 provisional rating of (P)Aaa to utility Entergy Texas Inc.'s transition bonds
No Related Data.
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