CHICAGO, May 19 /PRNewswire/ -- Duff & Phelps Credit Rating Co. (DCR) has
assigned a rating of 'BBB+' (Triple-B-Plus) to Entergy Louisiana, Inc.'s (ELI)
$150 million issuance of 8.50 percent first mortgage bonds due June 1, 2003.
Net proceeds will be used to repay outstanding short-term debt incurred for
working capital needs, for capital expenditures and for general corporate
purposes.
The credit rating assigned incorporates the focused strategy of the new
management team at Entergy Corporation, which favorably supports the credit
fundamentals and credit quality of the operating utilities, including ELI.
Management has implemented a 'back to the basics' approach that focuses on the
core competencies of the company, which include being a prominent, integrated
utility operator in its designated service territory and providing top-quality
service to its customers. The rating assigned also reflects ELI's solid
credit protection measures, successful implementation of cost control
measures, management's intention to maintain a 50 percent debt-to-capital
ratio at ELI going forward, Entergy's status as a premier nuclear operator,
and also incorporates nuclear asset concentration and the Unit Power Sales
Agreement with System Energy Resources.
ELI has reported consistent and stable credit protection measures over the
last several years, which is expected to continue. The company should offset
the recent rate decrease imposed ($15 million effective August 1, 1999) with
lower interest expense resulting from the retirement and refinancing of
higher-cost debt as well as successful implementation of cost control
measures. ELI has reduced debt levels by more than $250 million over the last
five years, which has attributed to interest expense declining by more than
$25 million during this period. The reduced financing costs along with the
implementation of cost reduction measures have allowed ELI to maintain
EBITDA/Interest coverage ratios in the 5 times range (5.3 times in 1999).
Even after adjusting for the purchased power obligations associated with Grand
Gulf and Vidalia, ELI's financial measures are solid within the current rating
category.
Going forward, ELI will continue with the execution of Entergy's
commitment to improve the reliability of its delivery system, which could
pressure credit protection measures near term. DCR's rating incorporates that
these construction expenditures at ELI are recoverable through rates and the
regulatory lag period is relatively short. Favorably, Entergy's (parent
company) current dividend policy (50 percent range), coupled with its healthy
cash position, provides financial flexibility in managing annual cash flows
and ultimately the financial profile of the operating companies.
ELI's solid quantitative profile and overall competitive rates offset
certain negative qualitative factors, which include threats of
cogeneration/self-generation resulting from the company's high industrial load
and uncertainty related to stranded cost recovery (ELI has the highest
stranded cost exposure of Entergy's operating utilities). Based on yearend
1999 balance, ELI's stranded cost exposure is estimated at $3.2 billion, and
is predominantly derived from two sources -- the Waterford 3 Nuclear Plant
($1.7 billion) and the Vidalia PPA ($1 billion).
The Louisiana Public Service Commission (LPSC), which has the authority to
implement electric industry restructuring, has taken a cautious approach. The
LPSC has established certain parameters and a timetable to follow as part of a
transitioning process; however, it has yet decided if a deregulated
environment is beneficial to the public. This uncertainty of the LPSC
executing its transition process according to plan and the current 'quiet'
stance of the Louisiana legislature, creates concern to the eventual outcome
of public policy. Constructive legislation enacted in neighboring states could
influence the timing and ultimate decision in Louisiana. Favorably, the
Waterford 3 plant has been operated prudently by ELI, with an historical
capacity factor above industry average, which supports the company's cause for
full recovery. The signing of the Vidalia PPA was encouraged by public
policy, which DCR believes reduces the likelihood of underrecovery.
Additionally, ELI continues to explore opportunities to mitigate stranded
costs including implementation of an accelerated depreciation plan and
restructuring of the Vidalia contract. Nonetheless, the exposure in Louisiana
remains significant, and ELI's future financial profile and credit quality
rely heavily on the final outcome of public policy.
Recent developments at the parent company should not materially affect the
credit quality of the operating utilities. Entergy was recently the
successful bidder for the New York Power Authority's (NYPA) nuclear plants,
and also announced the formation of a marketing and trading joint venture
(with Koch Industries). The NYPA transaction is consistent with the company's
existing strategy of acquiring five to eight nuclear plants over the next five
years and falls within the parameters of Entergy's capital investment program.
Positively, the annual cash outlays associated with the acquisition price are
mostly covered by medium-term purchase power agreements in place, assuming
operating performance measures are satisfied. Entergy's status as a premier
nuclear operator should help mitigate the inherent operating and
decommissioning risk burden. Meanwhile, the marketing and trading joint
venture (stand-alone company) effectively reduces the overall risk profile by
removing this 'higher risk' operation from the Entergy umbrella.
DCR currently rates ELI as follows: first mortgage bonds and
collateralized PCRBs 'BBB+' (Triple-B-Plus), non-collateralized PCRBs and
Waterford 3 SLOBS 'BBB' (Triple-B) and trust preferred and preferred stock
'BBB-' (Triple-B-Minus).
ELI, a wholly owned subsidiary of Entergy Corporation, is a vertically
integrated electric utility serving approximately 631,000 customers in
portions of Louisiana. Entergy Corporation is a U.S.-based global integrated
energy company with power production, distribution operations and related
diversified services on five continents. Entergy provides retail electric
service to approximately 2.5 million customers in portions of Arkansas,
Louisiana, Mississippi and Texas, and natural gas service to 240,000 customers
in Louisiana and Texas. Entergy also owns, manages or invests in power plants
generating nearly 30,000 mw of electricity, provides power marketing services
and sells electricity wholesale.
SOURCE Duff & Phelps Credit Rating Co.
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Related links:
http://www.dcrco.com
CONTACT:
Douglas J. Laskowski, CFA, 312-368-2053, or
Robert Hornick, 212-908-0523, both of Duff & Phelps Credit Rating
Co.
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