Fitch Affirms System Energy Resources' IDR at 'BBB-'; Outlook Stable

Business Wire, Sept 30, 2008

NEW YORK -- Fitch Ratings has affirmed the Issuer Default Rating and outstanding debt ratings of System Energy Resources, Inc. (SERI) as follows:

--Long-term IDR 'BBB-';

--Secured and first mortgage bonds 'BBB-';

--Pollution control revenue bonds 'BBB-'.

The Rating Outlook is Stable. Approximately $840 million of debt, including capital lease obligations, is affected by today's rating action. The full list of ratings is shown below.

SERI's ratings are supported principally by the contractual cash flows of affiliated utilities under various agreements to pay the operating and capital costs associated with SERI's sole asset, its 90% ownership and leasehold interest in the Grand Gulf Unit No. 1. Contracted power-off takers, which include affiliates: Entergy Arkansas (EAI); Entergy Mississippi (EMI); Entergy Louisiana LLC (ELL); and Entergy New Orleans (ENOI), are required to pay for energy and capacity on a full cost-of service basis regardless of the quantity of energy delivered under the FERC approved Unit Power Sales Agreement (UPSA). The UPSA is SERI's primary source of cash flow and payments under this agreement have been sufficient to pay operating costs and debt service.

In addition, SERI's bondholders benefit from an assignment of the rights to receive payments under the Availability Agreement from EAI (17.1%), EMI (31.3%), ELL (26.9%), and ENOI (24.7%). SERI's parent, Entergy Corp. (ETR; IDR rated 'BBB-' with an Evolving Outlook by Fitch), also has committed to provide support, if support became necessary, through an agreement under which it is required to supply sufficient funds to maintain SERI's equity capital at 35% of capitalization, continue the commercial operation of Grand Gulf 1, and pay its debt when due. UPSA payments from the utilities have always been adequate to cover debt service and operating costs of SERI, even during times of stress, such as post-hurricane Katrina.

SERI's 'BBB-' IDR reflects rating linkage resulting from the contracts with similarly rated affiliates and the parent and SERI's participation in the ETR system money pool. The ratings also consider Grand Gulf's successful nuclear operating history and SERI's balanced capital structure and stable credit ratios.

Rating concerns include asset concentration and rating linkage which exposes SERI to risk of any material deterioration in the credit quality of counterparties and the parent company.

Recent financial performance is strong relative to 'BBB-'rating category guidelines with the ratio of EBITDA-to-interest and funds flow coverage of 5.7 times (x) and 5.2x respectively, for the 12-month period ended June 30, 2008. Excluding capital lease obligations for nuclear fuel additions, long-term debt is forecasted to decline assuming that the costs associated with the new nuclear option are passed through to utility counterparties and recovered in rates. As such, credit metrics are expected to remain robust for the ratings category through out the forecast period. Leverage, as measured by the ratio of debt to EBITDA, is expected to approximate 2.8, while EBITDA to interest is forecasted to approximate 6.0x.

SERI is a wholly owned subsidiary of Entergy Corporation.

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.