Fitch Rates Matagorda County, TX Bonds for CPL `BBB+'.

Business Editors

CHICAGO--(BUSINESS WIRE)--Oct. 9, 2001

Fitch assigns a `BBB+' rating for the reoffering of the Matagorda County Navigation District Number One, Texas (MCND and Issuer) pollution control revenue refunding bonds, Central Power and Light Company Project, series 1999A, $111,700,000 and the series 1999B, $50,000,000; and the MCND, TX pollution control revenue refunding bonds, Central Power and Light Company Project, series 2001A, $100,635,000.

The bonds have been placed on Rating Watch Negative.

The MCND bonds' credit rating is largely supported by the financial strength of Central Power and Light Company (CPL), an integrated utility with growth potential from its participation in American Electric Power Company's (AEP) trading and wholesale marketing pool. CPL is the ultimate obligor for debt service under the installment payment agreement between the Issuer and CPL. However, the transfer of the installment payment obligation is permitted in the event of a restructuring event as defined in the transaction documents. Fitch gave strong consideration to the pending restructuring of CPL in rating the reoffered bonds.

The future profile of Central Power and Light Company as it is restructured is still subject to some uncertainty. CPL's assets are largely made up of generating assets. In all likelihood, the generating assets will be transferred into a new generation company and the distribution assets to a new wires company. It is possible that the new obligor under the installment payment agreement could be either a new intermediate holding company that will own the new generating company or the generating company itself. The AEP management will be responsible for the final structure, subject to regulatory approvals as discussed below.

In Fitch's view, the financial risks of these bonds are limited. If a restructuring event occurs, assumption of the payment obligations of CPL by another entity is conditioned upon an investment grade rating from each of the three rating agencies, taking into account the transfer to the new obligor. If the bonds do not receive an investment grade rating from all three, CPL is required to conduct a tender for the bonds at par plus accrued interest.

CPL's restructuring plan will be reviewed by the Federal Energy Regulatory Commission (FERC) on Oct. 29, 2001, along with that of its parent, American Electric Power Company. AEP's management proposes to separate the regulated and non-regulated businesses under two new second tier intermediate holding companies, one to own regulated subsidiaries and the other to own non-regulated and competitive market subsidiaries. The generating assets owned by some of AEP's subsidiaries will be transferred to the non-regulated holding company to facilitate state-mandated restructuring. The regulated utilities will continue to operate as separate legal entities.

Central Power and Light began to share in AEP's marketing and trading transaction pool in June 2000 once the merger of AEP and CSW was consummated. This increased CPL's earnings for the six months year-to-date as well as the last 12 months (LTM) ended 6/30/01. Interest coverage for the LTM ended June 2001 continues to show a steady trend at 3.5 times (x). EBITDA to interest coverage also holds at a robust 5x. Debt to EBITDA for the LTM ended June 2001 was around 2.8x. CPL's dividend payout ratio varies, with a payout of roughly 75% of earnings for the LTM June 2001. Operating EBITDA around $600 million fully covers CPL's modest capital spending needs of $200 million per annum on average.

Central Power and Light Company is engaged in the generation, sale, purchase, transmission and distribution of electric power to roughly 680,000 customers in Texas. It is a wholly owned subsidiary of the American Electric Power group.