Lafayette (City of) LA Combined Util. Ent. -- Moody's Assigns A1 to Lafayette, Louisiana Combined Utility Revenue Bonds; Outlook Stable

New York, November 26, 2012 -- Moody's Rating

Issue: Utilities Revenue Bonds, Series 2012; Rating: A1; Sale Amount: $156,555,000; Expected Sale Date: 11-30-2012; Rating Description: Revenue: Other

Opinion

Moody's Investors Service has assigned an A1 to the Lafayette, Louisiana (LUS) $156,555,000 Utilities Revenue Bonds, Series 2012 expected to sell in later November 2012. Moody's has also affirmed the A3 rating on the separately secured Lafayette Communications System Revenue Bonds. These bonds have an effective subordinate lien on LUS revenues. The current offering will refund various series of outstanding combined utility revenue bonds. The outlook is stable.

RATINGS RATIONALE

The A1 credit rating assigned to Lafayette Utilities Revenue Bonds takes into consideration the well managed combined utility's operating record; the consistently sound finances; timely rate changes and flexibility to manage electric system variable costs; and its competitive customer rates. The combined electric, water and wastewater utility serves the City of Lafayette, Louisiana. While LUS manages the utility, the Lafayette City Council governs the combined system. About 83% of utility revenues are derived from the electric system. There has been relatively favorable growth in the local economy with personal incomes, employment and population expanding over the past decade. Unemployment rate was in the 5% range in past several years. LUS has sufficient capacity in all iof ts services to manage the growth projected in the utility's forecast.

Credit risks include the potential financial pressure of the city's start-up of its new communications system which is still not at a level of self-support. Also, further compliance costs related to the Rodemacher No.2 coal-fired generation facility remain a longer term uncertainty.

OUTLOOK:

Moody's has affirmed the stable outlook given management's continued sound approach to ensuring the utility has the required capacity to meet demand growth resulting from the expanding local economy. We expect rates will be established to yield stable financial metrics in the current range of 1.70x debt service coverage particularly should the combined utility have to subsidize the telecommunications system.

What Could Change the Rating UP:

The rating could be upgraded should the utility further improve its competitive position; the telecommunications system financial position improves and is self-supporting and the combined utility improve its financial metrics including moderation of its debt ratio.

What Could Change the Rating DOWN:

The rating could be lowered if the utility failed to maintain its stable cost recovery record and its financial metrics suffered or that the telecommunications system became a significant burden and utilities system had to significantly subsidize the non-core business.

STRENGTHS:

*LUS has had sound fixed charge obligation coverage which includes LPPA debt service as debt service of LUS

*Lafayette's economy has had favorable growth with population, income and employment gains

*Electric, water and wastewater systems have sufficient capacity to manage current level growth for forecast period

*Lafayette Consolidated Government has sales tax revenue debt rated Aa3

CHALLENGES:

*Environmental regulation compliance on Rodemacher Unit No.2 coal-fired generating unit

*Startup risks of city-wide telecommunications system. Including the communications utility debt in calculation of debt ratio increases LUS's debt ratio to 49.4%.

*Ongoing regulatory compliance for water and wastewater systems

The principal methodology used in this rating was U.S. Public Power Electric Utilities With Generation Ownership Exposure published in November 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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