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Rating Action:

Moody's confirms Cleco Corporate Holdings at Baa3; affirms Cleco Power at A3; outlooks stable

08 Jan 2019

New York, January 08, 2019 -- Moody's Investors Service ("Moody's") today confirmed the Baa3 issuer and senior unsecured ratings of Cleco Corporate Holdings LLC (Cleco). This concludes the review for downgrade that was initiated on 7 February 2018. At the same time, Moody's affirmed the A3 issuer and senior unsecured ratings for Cleco's primary subsidiary, Cleco Power LLC (Cleco Power). The rating outlook for both companies is stable.

"Cleco has made several credit positive commitments to regulators as the company looks to complete the acquisition of certain unregulated generation assets" stated Nana Hamilton, analyst. "The most important commitments include a reduced amount of acquisition debt and a promise to repay the acquisition debt before the power contracts expire" added Hamilton.

The pending acquisition is likely to close imminently. The transaction was approved by the Federal Energy Regulatory Commission (FERC) on 17 December 2018 and is pending LPSC approval.

Outlook Actions:

..Issuer: Cleco Corporate Holdings LLC

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

..Issuer: Cleco Power LLC

....Outlook, Remains Stable

Confirmations:

..Issuer: Cleco Corporate Holdings LLC

.... Issuer Rating, Confirmed at Baa3

....Senior Unsecured Bank Credit Facility, Confirmed at Baa3

....Senior Unsecured Regular Bond/Debenture, Confirmed at Baa3

Affirmations:

..Issuer: Cleco Power LLC

.... Issuer Rating, Affirmed A3

....Senior Unsecured Regular Bond/Debenture, Affirmed A3

..Issuer: Louisiana Public Facilities Authority

....Senior Unsecured Revenue Bonds, Affirmed A3

..Issuer: Rapides Finance Authority, LA

....Senior Unsecured Revenue Bonds, Affirmed A3

RATINGS RATIONALE

Moody's placed Cleco on review for downgrade in February 2018, following the company's announcement to acquire approximately 3,555 MW of unregulated generation assets and associated contracts from NRG Energy, Inc. (NRG, Ba2 positive) for approximately $1 billion. Since then, Cleco has revised its financing plan for the acquisition to 40%/60% debt/equity from the original 60%/40% debt/equity at announcement. Furthermore, the company has committed to the Louisiana Public Service Commission (LPSC) that it will make minimum annual debt payments such that the acquisition debt is fully repaid by 2024 before the majority of the asset contracts expire, which helps mitigate re-contracting risk.

Pro-forma the transaction, Moody's calculates a ratio of cash flow from operations before changes in working capital (CFO pre-WC) to debt for Cleco in the 13-14% range over the next few years. Prospectively, Cleco will derive of approximately 75% of its revenues from regulated utility operations in the credit supportive regulatory jurisdiction of Louisiana and 25% from unregulated operations under medium-term contracts.

Cleco eventually plans to move the acquired assets, which will be held under Cleco subsidiary Cleco Cajun LLC, into Cleco Power's rate base and under LPSC regulatory supervision. However, Moody's does not expect this to occur before 2021. Adding these assets to Cleco Power's rate base would be credit positive for Cleco as it would reduce more-risky unregulated operations.

For Cleco Power, the A3 rating affirmation considers the credit supportive regulatory jurisdiction in Louisiana, with automatic and timely recovery of prudent costs and investments under a formula rate plan framework. That said, the financial profile is expected to be weaker, but still stable. Going forward, the commitments made with the going-private transaction, combined with the negative impact of tax reform, will result in weaker cash flows. For Cleco Power, Moody's calculates a ratio of CFO pre-WC/debt in the 20-21% range.

Outlook

Cleco's and Cleco Power's stable rating outlooks reflect Moody's expectation that the Louisiana regulatory environment will remain credit supportive and provide timely recovery mechanisms for costs and investments and that financial metrics will be stable. The stable outlook also assumes that there will be no debt-financed, shareholder-friendly activities or acquisitions that compromise Cleco's financial strength or that of its utility. Cleco's stable outlook further incorporates Moody's expectation that the unregulated assets at Cleco Cajun will eventually be regulated in the next two to three years.

What could change the rating -- UP

Cleco's rating could be upgraded if there was a material reduction in parent level debt below 40% and a sustained improvement in financial metrics, including CFO pre-W/C to debt in the high teens range. Cleco's rating could also be upgraded with an upgrade to Cleco Power's rating.

Cleco Power's rating could be upgraded if the regulatory framework in Louisiana continues to be credit supportive, if there is a sustained improvement to key financial metrics including CFO pre-WC to debt above 25% and if there is a substantial reduction in debt at Cleco, such that parent leverage is reduced to below 40% of consolidated debt

What could change the rating -- DOWN

Cleco's rating could be downgraded if financial metrics deteriorate such that Cleco's CFO pre-W/C to debt is sustained below 13%. In addition Cleco's rating could experience downward rating pressure if its financial risk profile weakens or if additional leverage is used to fund aggressive shareholder-friendly activities or new unregulated investments. Cleco's rating could be downgraded if Cleco Power's rating is downgraded.

Cleco Power's rating could be downgraded if we believe the Louisiana regulatory framework has become more contentious or less credit supportive such that there are delays in the recovery of prudently incurred costs and investments or if the utility exhibits weak financial metrics such as CFO pre-W/C to debt below 20% on a sustained basis. Cleco Power's rating could be downgraded if Cleco's financial risk profile weakens with additional leverage used to fund aggressive shareholder friendly activities or new unregulated investments.

The principal methodology used in these ratings was Regulated Electric and Gas Utilities published in June 2017. 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.

Nana Hamilton
Asst Vice President - Analyst
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Michael G. Haggarty
Associate Managing Director
Infrastructure Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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