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17 Sep 2004
MOODY'S ASSIGNS PRIME-2 SHORT TERM RATING TO SOUTHERN CALIFORNIA EDISON COMPANY FOR ITS COMMERCIAL PAPER PROGRAM; ALSO ASSIGNS A3 RATING TO SECURED BANK CREDIT FACILITY
Approximately $1.4 Billion of Debt Securities Affected
New York, September 17, 2004 -- Moody's Investors Service assigned a short term rating of Prime-2
to Southern California Edison Company (SCE) in connection with the utility's
new $700 million Section 4(2) exempt commercial paper program.
The ratings on SCE's other debt securities remain unchanged and the rating
outlook is stable.
Moody's also assigned a rating of A3 to SCE's $700 million senior
secured revolving credit facility that expires on December 18, 2006.
The revolving credit facility is secured by a first lien on the company's
plant through the company's First Mortgage Indenture. The banks'
secured position is shared pari-passu with other First Mortgage
bondholders. The credit agreement has a provision that allows for
the release of the collateral if the company's senior unsecured debt is
rated Baa2 or better by Moody's and BBB or better by Standard and Poor's.
If the collateral were to be released at a future date, the unsecured
bank credit facility would then be rated the same as SCE's unsecured debt,
which is currently rated Baa1.
The Prime-2 rating recognizes SCE's improving financial profile
and strengthened liquidity position reflecting, in large part,
continued evidence of a more constructive regulatory environment in California
as well as the benefits of operating in a large, stable and diverse
service territory. Aided by regulatory decisions, the utility
has now retired more than $3.6 billion in power procurement
related debt over the past 30 months. The company's ratio of funds
from operations to total debt is expected to be about 25% over
the next several years, and SCE's funds from operations coverage
of interest expense is expected to exceed 5 times during that period.
Moody's notes that the existence of California Department of Water Resources
procurement contracts and the passage of Assembly Bill 57 has greatly
reduced SCE's exposure to price and cash flow volatility associated with
securing power to satisfy the utility's net short position. As
such, Moody's expects that commercial paper outstandings will average
not more than $150 million to $200 million over the next
several years and will relate to both working capital and capital expenditure
While the regulatory environment in California has noticeably improved,
regulatory and market-related challenges still remain for SCE and
other constituents operating in the state, including decisions on
long-term power procurement, whether some form of competition
will be reintroduced into the state, and the degree to which utilities
will own and operate new generating resources. While generating
resources have been added in the state and other parts of the Western
US, the regional power market remains somewhat tight. The
state's high reliance on imports, including hydro resources,
exacerbates this challenge. Like other California investor-owned
utilities, SCE continues to have high electric rates, which
could complicate the regulatory environment as the company adds infrastructure
and reliability related resources to its rate base.
The Prime-2 rating also assumes that the amount of commercial paper
and other near term obligations outstanding will be managed within the
limits of SCE's readily available sources of cash, including its
committed bank credit facility. SCE's alternate liquidity sources
include the $700 million revolving credit facility that matures
in December 2006. New borrowings under the revolver require a representation
that there has been no material adverse change in the condition of SCE;
however this representation is not required if the proceeds of the borrowing
are to be used to repay commercial paper. Financial covenants include
the maintenance of a 65% debt-to-capital ratio.
SCE is comfortably within compliance of this test as of the most recent
Headquartered in Rosemead, California, SCE is a vertically
integrated utility and a wholly-owned subsidiary of Edison International
(Baa3 sr. unsecured debt; stable outlook).
Corporate Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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