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Rating Action:

Moody's takes positive rating actions on CenterPoint Energy

03 May 2010

Approximately $7 billion of corporate debt affected

New York, May 03, 2010 -- Moody's Investors Service placed the ratings of CenterPoint Energy Houston Electric, LLC's (CEHE, Baa3 issuer rating) debt and supported obligations under review for possible upgrade. Moody's also changed the rating outlooks for CEHE's parent CenterPoint Energy, Inc. (CNP, Ba1 senior unsecured) and CNP's subsidiary and CenterPoint Energy Resources Corp. (CERC, Baa3 senior unsecured) to positive from stable. In its actions, Moody's cited CenterPoint's solid financial performance and improving financial position.

"CenterPoint Energy Houston is sustaining solid results despite a large capital program and a weak economy," said Moody's Vice President Mihoko Manabe. "As for the CenterPoint Energy parent company and CenterPoint Energy Resources, an improved balance sheet and ample near-term liquidity should support a substantial investment in the riskier field services business."

Moody's said that it could upgrade CEHE over the next few months if the company continues to perform well. Although CEHE faces some uncertainty related to its imminent rate filing, Moody's noted the generally constructive regulatory environment in Texas and its expectation that the rate order would have at least a neutral impact on CEHE's credit profile.

According to Moody's, CenterPoint's equity has strengthened by organic means as well as from stock issued in recent years from the conversion of convertible notes, offerings to the public as well as to company stock plans. As a result, these efforts have reduced its debt/capital ratio to 66% at year-end 2009 (55% excluding securitization debt), which is still high but down significantly from the 70% range registered in prior years and coming closer to about the 50% average for Baa3-rated electric transmission and distribution holding companies.

CenterPoint's regulated businesses currently comprise almost 90% of operating income, lending considerable stability to its financial results. Over the next few years, however, this regulated component is expected to decline, with the unregulated Field Services business growing faster than the mature regulated utilities. This spurt in Field Services stems from CERC's gathering agreement with subsidiaries of Encana Corporation and Royal Dutch Shell plc. CenterPoint recently announced that the gathering agreement was expanding beyond the initial project to gather and treat the burgeoning gas volumes in the Haynesville Shale.

Moody's noted that, while the Encana/Shell project will increase CenterPoint's exposure to a riskier non-rate regulated business, the project brings a new source of stable fee-based income with a lower risk profile than under a conventional gathering and processing contract. The long-term agreement charges fixed gathering fees, guarantees minimum volumes, and is structured with some return-protecting mechanisms. The project does not entail gas processing, which would present commodity price risk. Encana and Shell are highly creditworthy counterparties that have made sizable investments in the Haynesville Shale that substantiate their strong strategic interests there.

Moody's said that this gathering project entails numerous risks for CERC -- including construction risk in the near term and volume risk longer term -- which at this early stage have been mitigated by the project being financed mostly with equity. Moody's added that more such investment in the midstream business would entail sufficient additional equity to sustain CenterPoint's positive rating momentum.

Another factor Moody's considered in the positive outlook for CNP in particular is a decrease in the parent's indebtedness, which indicates less structural subordination of CNP's debt to those of its subsidiaries. Less structural subordination would be a reason to keep CNP's ratings notched closely to those of its subsidiaries should they be upgraded, said Moody's. Excluding CNP debt that is collateralized by CEHE's mortgage, the amount of outstanding debt at the parent has decreased from $2.4 billion (24% of total) in October 2007 to $1.4 billion (about 15%, adjusting for bonds repurchased and redeemed after December 31, 2009). Given the substantial cash balance with which it started 2010 ($740 million), CNP has stated plans to retire rather than to refinance $200 million of debt this September, which would further reduce parent debt.

Among the issues that Moody's will be watching over the next twelve to eighteen months are CERC's performance under the Shell/Encana project and the evolution of CNP's capital structure as the company pursues these initiatives and any future transactions. Moody's said that if these entities continue their positive trajectory, either or both of them could be considered for a ratings upgrade.

The following CEHE's debt obligations are placed under review for upgrade:

On Review for Possible Upgrade:

..Issuer: Brazos River Authority, TX

....Senior Secured Revenue Bonds, Placed on Review for Possible Upgrade, currently Baa1

....Senior Unsecured Revenue Bonds, Placed on Review for Possible Upgrade, currently Baa1

..Issuer: CenterPoint Energy Houston Electric, LLC

....Issuer Rating, Placed on Review for Possible Upgrade, currently Baa3

....Senior Secured Regular Bond/Debenture, Placed on Review for Possible Upgrade, currently Baa1

....Senior Unsecured Bank Credit Facility, Placed on Review for Possible Upgrade, currently Baa3

..Issuer: Gulf Coast Waste Disposal Authority, TX

....Senior Secured Revenue Bonds, Placed on Review for Possible Upgrade, currently a range of Baa2 to Baa1

..Issuer: Matagorda County Navigation District 1, TX

....Senior Secured Revenue Bonds, Placed on Review for Possible Upgrade, currently Baa1

....Senior Unsecured Revenue Bonds, Placed on Review for Possible Upgrade, currently a range of Ba1 to Baa1

..Issuer: Reliant Energy HL&P

....Senior Secured First Mortgage Bonds, Placed on Review for Possible Upgrade, currently Baa1

Outlook Actions:

..Issuer: CenterPoint Energy Houston Electric, LLC

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

..Issuer: CenterPoint Energy Resources Corp.

....Outlook, Changed To Positive From Stable

..Issuer: CenterPoint Energy, Inc.

....Outlook, Changed To Positive From Stable

..Issuer: Reliant Energy HL&P

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

Moody's last rating action for the CenterPoint companies occurred on June 30, 2009, when their ratings were affirmed and CEHE's rating outlook was changed to positive from stable.

The principal methodology used in rating CenterPoint was Moody's Regulated Electric and Gas Utilities Rating Methodology, published in August 2009 and available on 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 this issue can also be found in the Rating Methodologies sub-directory on Moody's website.

Headquartered in Houston, Texas, CenterPoint Energy, Inc., is engaged in electric and natural gas transmission and distribution, field services, and competitive gas sales and services.

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 takes positive rating actions on CenterPoint Energy
No Related Data.
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