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Rating Action:

Moody's downgrades Cleco Power to Baa2

04 Nov 2009

Approximately $1 billion of debt rated

New York, November 04, 2009 -- Moody's Investors Service downgraded the ratings of Cleco Power, LLC (Power) to Baa2 senior unsecured from Baa1. The rating of its parent Cleco Corporation (Corp, Baa3 senior unsecured) was not under review and is affirmed. The outlook is stable for both entities. The rating agency attributed these rating actions to the prospect of limited improvement in Power's credit metrics once its Rodemacher 3 construction project ends and its new rate settlement is implemented. The downgrade concludes the rating review that was initiated on June 16, 2009, which was precipitated by Power's credit metrics that have been well below previous forecasts and comparable levels of other Baa1-rated integrated electric utilities.

"The completion of its large Rodemacher 3 project and its recent rate settlement will relieve much of the stress on Cleco Power's credit metrics," says Moody's vice president Mihoko Manabe. "The terms of the rate settlement and ongoing expenditures on smaller projects over the next couple of years should position the company weakly within the Baa3 rating category temporarily; however, further improvement in the metrics is expected thereafter in support of the current Baa2 rating."

Moody's notes that the billion-dollar Rodemacher project will have about doubled both Power's rate base and related debt from pre-construction levels when the plant comes into service in December. Proportionally, cash flow will increase much less, principally because of credits Power will give to customers over the next five years as a return of funds collected during construction to help finance Rodemacher, in accordance with the rate settlement. These givebacks will constitute a significant burden to Power's cash flow (estimated at about $23 million after-tax) equal to almost 30% of Power's cash flow from operations, after Moody's standard adjustments, during the first nine months of this year.

After Rodemacher is completed, capital expenditures will ease but are expected to remain higher than normal for at least the next two years as the company accelerates investments of roughly $200 million in additional generation, transmission, and reliability projects. Power's pending $300 million acquisition of a combined cycle gas facility from its Acadia affiliate will be accomplished through an equity contribution from the parent. Moody's notes that the ratings look beyond the near-term period of temporary softness in Power's credit metrics since the debt incurred to finance these additional projects is also expected outpace the initial cash flows generated by them. The rating agency added that that the ratings would be subject to review, should the expected softness in the company's credit metrics extend beyond this period.

Adjusted for Moody's standard adjustments, Power's cash flow pre-working capital-to-debt ratio for the last twelve months ended September 2009 was 9% and cash flow-to-interest was 2.3 times. These ratios are below levels that were previously forecast with little likelihood of returning to Power's former levels of credit strength, and in Moody's opinion, are below the average of other Baa1-rated vertically integrated electric utilities.

The downgrade of Power's ratings reduces the rating differential between Power and Corp's ratings by one notch, which is more appropriate, given Cleco's continuing unwinding of its former Midstream business with the pending sales of its affiliate Acadia's two plants to Power and to Entergy Corporation. Those transactions will reduce the overall business risk of the Cleco organization by moving one underutilized plant into rate base and divesting the other which will reduce its exposure to its historically underperforming unregulated power production business. The one-notch differential reflects the increasing dominance of Power within the Cleco organization and the modest proportion of consolidated debt at the parent level.

Cleco Corporation's ratings are confirmed as consolidated metrics remain within levels commensurate with its Baa3 rating. Corp had $118 million borrowed under its $150 million credit facility at September 30, 2009. Its cash flow-to-debt was 11% and cash flow-to-interest was 2.7 times.

The last rating action with respect to the Cleco Power was on June 16, 2009 when Power's ratings were placed under review for possible downgrade and Corp's rating was affirmed.

The principal methodology used in rating Cleco Power is Global Regulated Electric and Gas Utilities, which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating Cleco can also be found in the Rating Methodologies sub-directory on Moody's website.

Downgrades:

..Issuer: Cleco Power LLC

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

....Preferred Stock Preferred Stock, Downgraded to Ba1 from Baa3

....Preferred Stock Shelf, Downgraded to (P)Ba1 from (P)Baa3

....Senior Unsecured Bank Credit Facility, Downgraded to Baa2 from Baa1

....Senior Unsecured Medium-Term Note Program, Downgraded to Baa2 from Baa1

....Senior Unsecured Regular Bond/Debenture, Downgraded to Baa2 from Baa1

....Senior Unsecured Shelf, Downgraded to (P)Baa2 from (P)Baa1

..Issuer: DeSoto (Parish of) LA

....Senior Unsecured Revenue Bonds, Downgraded to Baa2 from Baa1

..Issuer: Louisiana Public Facilities Authority

....Senior Unsecured Revenue Bonds, Downgraded to Baa2 from Baa1

..Issuer: Rapides (Parish of) LA, Industrial Devel. Bd.

....Senior Unsecured Revenue Bonds, Downgraded to Baa2 from Baa1

..Issuer: Rapides Finance Authority, LA

....Senior Unsecured Revenue Bonds, Downgraded to Baa2 from Baa1

Outlook Actions:

..Issuer: Cleco Power LLC

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

Cleco Corporation and its subsidiary Cleco Power, LLC are an electric utility company based in Pineville, Louisiana.

New York
Mihoko Manabe
VP - Senior Credit Officer
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
William L. Hess
Managing Director
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades Cleco Power to Baa2
No Related Data.
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