Fitch Expects to Rate AEP Texas Central Transition Funding II LLC, Series A

Business Wire, Oct 5, 2006

NEW YORK -- Fitch Ratings expects to rate AEP Texas Central Transition Funding II LLC, senior secured transition bonds, series A as follows:

--$217,000,000 4.98% class A1 transition bonds 'AAA';

--$341,000,000 4.98% class A2 transition bonds 'AAA';

--$250,000,000 5.09% class A3 transition bonds 'AAA';

--$437,000,000 5.17% class A4 transition bonds 'AAA';

--$494,700,000 5.3063% class A5 transition bonds 'AAA'.

The collateral securing the bonds consists primarily of transition property, which represents the right to receive a per kilowatt-hour charge (transition charge or TC) to be collected from AEP Texas Central Company's (TCC) retail electric customers.

The expected ratings are based on the strength and stability of the underlying TCs as established by the Public Utility Regulatory Act (the act), which establishes the irrevocable and non-bypassable TC and defines bondholders' property right to the collateral; and the Public Utility Commission of Texas (PUCT) financing order, which authorizes TCC to issue transition bonds and impose the TC in an amount sufficient to recover the principal and interest on the bonds as well as any other costs of issuance such as providing for credit enhancement, servicing fees or other expenses.

The act and financing order provide for a TC adjustment mechanism (true-up) to keep principal amortization in line with expected balances and to fund other amounts required by the transaction. The true-up mechanism will be the primary form of credit enhancement for the transaction. Additional credit enhancement will be provided by a capital subaccount equal to 0.5% of the original principal balance, funded at closing, and an excess funds subaccount, funded with excess spread, if available, throughout the term of the transaction. True-ups will be calculated to utilize and eliminate any deposits in the excess funds subaccount.

The bonds are not direct obligations of the state of Texas and are not guaranteed by the state's full faith and credit. However, the state pledges not to limit, alter, impair or revoke the TCs until the transition bonds are paid in full.

AEP Texas Central Co. (rated 'BBB ', by Fitch with a Stable Rating Outlook as of April 24, 2006) is a regulated utility which offers transmission and distribution services in a roughly 44,000-sqare-mile region in southern and central Texas, with 729,000 retail electric customers.

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.