Fitch Rates Sam Rayburn Muni Power Agency's $181MM Bonds 'BBB-'.

Business Editors

NEW YORK--(BUSINESS WIRE)--April 30, 2002

Fitch Ratings assigns a 'BBB-' rating to the Sam Rayburn Municipal Power Agency's (SRMPA), Texas $181 million of power supply system revenue refunding bonds, series 2002. This rating is based on Fitch's review of preliminary documents and assumes no material changes in the final documents. In addition, the rating is dependent upon Vinton Public Power Authority (VPPA) making a severance payment to SRMPA to discharge VPPA of its obligations to SRMPA under the existing power sales agreement. Fitch does not currently have a rating on SRMPA's (the agency) outstanding debt.

Bond proceeds together with available cash, and the VPPA severance payment will refund all of the agency's outstanding series 1993A and series 1993B Bonds, and pay the issuance costs of the series 2002 Bonds. The series 2002 Bonds will be issued under a new indenture with improved security features including a debt service coverage covenant (1.10 times (x)) that does not recognize rate stabilization funds as revenue, a tighter additional bonds test, and a debt service reserve fund equal to maximum annual debt service. At the same time, the financing will allow SRMPA to revise certain bond covenants, including the reduction of required cash holdings (using those funds to pay-down debt), and matching the debt repayment period to that of the power supply agreement. In addition, principal and interest payments under the new debt service schedule will be significantly less than the current schedule. The bonds are scheduled to price in late May or early June, with Banc One Capital Markets, Inc and UBS PaineWebber Inc. as co-senior managers.

The rating takes into account SRMPA's success at lowering and fixing its power costs by negotiating a comprehensive and favorable full requirements power supply agreement (PSA) and guaranty and support agreements with Entergy Power Marketing Co., Entergy Corp., and Entergy Power Inc., respectively (Entergy). Operating costs were further reduced through the sale of its office building and streamlining management. The PSA with Entergy allowed the agency to exchange its (110 megawatt) ownership share of the Nelson 6 coal fired generator for a fixed price PSA through 2021. Under the PSA, Entergy is responsible for all of SRMPA's electricity requirements net of its share of federal hydro. As a result, SRMPA no longer has excess capacity, nor does it have risks associated with plant operations, transmission access, fuel prices, and energy volumes. Previously, wholesale rates were forecast to rise from about 8.0 cents per kWh in 1996 to over 10.5 cents per kWh after 2001, but are now projected to remain at a level averaging just over 7.0 cents per kWh through 2021.

In addition, under the PSA SRMPA's energy rate is very competitive and provides the members with the flexibility to offer incentive rates for economic development. While the member systems have historically exhibited below average wealth indicators and modest energy sales growth (about 1.2% annually over the last 10 years), over the last couple of years there have been noticeable efforts by each cities to enhance economic development and attract new customers. Fitch believes that with this financing the platform will be in place for each of the member systems to better contribute to future economic growth of their respective cities. The rating also reflects reasonable financial projections that do not assume increased energy sales resulting from economic development rates, and the members' commitment to the agency over its 23 years of operations.

Credit risks center on the SRMPA's high debt burden accounting for about 3.9 cents of the 7 cents per kWh wholesale rate, a slightly rising debt service requirement for the life of the bonds (increasing by about 1.2% annually), as well as the member systems above average retail rates (averaging 9.3 cents per kWh). Additional concerns include the members' small customer base with historically slow growth, and uncertainties associated with a changing electric industry and a more competitive Texas power market. While the PSA between SRMPA and Entergy is backed up by a purchase money security interest in Entergy Power Inc. and a guaranty by Energy Corp., counterparty risk associated with the contracts exists.

SRMPA is a municipal corporation organized under the laws of the State of Texas. It was created in 1979 by concurrent ordinances adopted by the governing bodies of the Cities of Jasper, Liberty, and Livingston, Texas. SRMPA was formed to undertake the planning, financing, development, acquisition and operation of projects for the generation and transmission of electric power and energy to supply the present and future needs of its three members and the Town of Vinton, Louisiana through VPPA. Concurrent with this financing VPPA will no longer be member of SRMPA.