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Rating Action:

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

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 requirements.

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 statement date.

Headquartered in Rosemead, California, SCE is a vertically integrated utility and a wholly-owned subsidiary of Edison International (Baa3 sr. unsecured debt; stable outlook).

New York
Daniel Gates
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
A.J. Sabatelle
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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