Fitch Lowers Entergy New Orleans to 'CCC', Affiliate Ratings Affirmed

Business Wire, Sept 20, 2005

NEW YORK -- Fitch Ratings downgraded the senior secured rating of Entergy New Orleans, Inc. (ENOI) to 'CCC' from 'BBB' and placed the ratings on Rating Watch Negative. The affiliates' ratings are affirmed for Entergy Arkansas, Inc., Entergy Gulf States, Inc., Entergy Mississippi, Inc., and System Energy Resources, Inc. This morning, Entergy Corp. provided information about the estimated costs of storm recovery for all the operating subsidiaries affected by Hurricane Katrina and disclosed that bankruptcy is an option for ENOI given the utility subsidiary's poor liquidity position relative to continued operating costs, including power and gas purchase agreements and the high estimated costs of restoration without certainty of cost recovery. ENOI's prior Outlook was Stable.

The ratings of other Entergy subsidiaries were affirmed in consideration of the substantial resources of the individual operating subsidiaries and on a consolidated basis, the lesser extent of damages to other subsidiaries and the expectation of supportive state regulatory treatment. Approximately $6 billion of rated debt of other Entergy subsidiaries is affected. A list of all ratings affected appears at the end of this comment.

For ENOI, bankruptcy is a possibility as its capacity for meeting financial commitments is severely constrained without substantial support from Entergy Corp. or the government. ENOI, the smallest utility within the Entergy group with equity of $166 million, faces restoration costs estimated at $325 million-$475 million, rendering it technically insolvent. Recovery of such costs from a reduced customer base is unlikely, which leaves Entergy and the government as possible sources of funding.

While Entergy will pursue regulatory, legislative and other special relief, the timing and availability of such funding cannot be predicted nor can the timing and amount of recovery under insurance policies that cover certain assets. ENOI currently has $20.7 million available under the Entergy money pool, which may be used in the next week to pay for fuel, operating, and other ordinary expenses. To fund its ongoing operations and immediate restoration costs, ENOI will need financial support from Entergy, whether the company is or is not under bankruptcy protection. An ENOI bankruptcy filing would allow Entergy to limit the adverse effects on other members of the Entergy group.

Absent a waiver, a bankruptcy filing by ENOI would place Entergy in default of its recently established $2 billion, five-year credit facility, as well as its NYPA agreement currently secured by a letter of credit. Given the strength of the remaining Entergy subsidiaries, which generated more than $2.6 billion in operating cash flow through the last 12 months ending June 30, 2005, the ratings affirmations discussed below assume that if necessary, Entergy will obtain waivers from its lenders.

The affirmation of the ratings of Entergy Louisiana, Inc. is supported by strong credit metrics relative to its 'BBB' rating. Entergy Mississippi Inc.'s ratings reflect a strong regulatory environment and an ability to recover past storm costs of similar magnitude. Entergy Gulf States and Entergy Arkansas were relatively unaffected by storm damage.

Systems Energy Resources, Inc.'s (SERI) ratings of 'BBB-' are affirmed, despite its exposure to ENOI for approximately 24% of its power sales, based on Fitch's expectation that other Entergy affiliates will be able to use or to sell the excess energy at prices comparable to their contractual cost.

Fitch has downgraded the following ratings and placed them on Rating Watch Negative:

Entergy New Orleans, Inc.

-- First mortgage bonds to 'CCC' from 'BBB';

-- Preferred stock to 'CC' from 'BB ';

Fitch also affirms the following:

Entergy Arkansas, Inc.

-- First mortgage bonds at 'BBB ';

-- Pollution control revenue bonds at 'BBB';

-- Preferred stock at 'BBB-';

-- Outlook Stable.

Entergy Gulf States, Inc.

-- First mortgage bonds at 'BBB';

-- Pollution control revenue bonds at 'BBB-';

-- Preferred stock at 'BB ';

-- Outlook Stable.

Entergy Louisiana, Inc.

-- First mortgage bonds at 'BBB ';

-- Pollution control revenue bonds at 'BBB';

-- Preferred stock at'BBB-';

-- Outlook Stable.

Entergy Mississippi, Inc.

-- First mortgage bonds at 'BBB ';

-- Preferred stock at 'BBB-';

-- Outlook Stable.

System Energy Resources, Inc.

-- First mortgage bonds at 'BBB-'

-- Senior unsecured debt at 'BBB-';

-- Outlook Stable.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.