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16 Jan 2001
MOODY'S LOWERS THE SENIOR UNSECURED DEBT RATING OF SOUTHERN CALIFORNIA EDISON TO Caa2 AND LOWERS THE SENIOR UNSECURED DEBT OF EDISON INTERNATIONAL TO Caa3. RATINGS REMAIN UNDER REVIEW FOR POSSIBLE DOWNGRADE.
Approximately $9.3 Billion of Debt Securities Affected.
New York, January 16, 2001 -- Moody's Investors Service has lowered the security ratings of Southern
California Edison Company (Senior Unsecured Debt to Caa2 from Baa3/Short
Term Rating lowered to Not Prime from Prime-3) and the security
ratings of Edison International (Senior Unsecured Debt to Caa3 from Baa3/Short
Term Rating lowered to Not Prime from Prime-3).
The rating action follows today's 8-K filings by Southern California
Edison and Edison International that Southern California Edison Company
had temporarily suspended payment on a $200 million principal repayment
of unsecured notes due January 16, 2001 and the payment of approximately
$30 million of associated interest. Additionally,
SCE announced that it was not making its $215 million November
payment for wholesale power costs which is due to the California Power
Exchange (CalP/X) on January 16, 2001 and plans to partially pay
amounts due to the Qualifying Facilities.
SCE's decision to temporarily suspend principal and interest payments
to creditors and payments to wholesale power producers is driven by management's
concerns about their liquidity, particularly given the slow prospect
made by parties to shore-up liquidity at the utility. Although
SCE currently has in excess of $1.2 billion in cash on hand,
the company's cash position would be depleted shortly after month-end
due to required payments to the CalPX, Qualifying Facilities,
and to creditors. Although discussions with the Governor of California,
the legislature, the generators and the utilities seem to be heading
towards legislation which may help address the high wholesale prices in
the intermediate term, little substantive progress has occurred
regarding SCE's liquidity position. In light of this, SCE
has taken the initiative to attempt to protect its liquidity, particularly
if legislative efforts fail. Moody's expects that SCE will not
be making principal payments on maturing commercial paper that is coming
due over the next few weeks. Under the company's unsecured indenture,
a principal payment default gives creditors the right to seek remedies
if they so choose. This payment default constitutes an event of
default under SCE's and Edison International's credit facilities.
Regarding the failure by SCE to make the January 16, 2001 payment
due to the PX, SCE has requested that the PX seek a change in the
Federal Energy Regulatory Commission (FERC) tariff so as to delay the
timing of when the payment is due. Obtaining the PX tariff change
from FERC would enable SCE to continue to purchase electricity from the
Regarding the status of discussions with the Governor, the legislature,
the utilities, and the generators, Moody's expects numerous
pieces of legislation to be introduced beginning as early as today which
could alter the way in which power is bought and sold in the state.
While the legislation is intended to be on a very fast track and the emergency
energy session is scheduled for completion by February 4, 2001,
details remain sketchy as to the make-up of each piece of legislation
and the way in which the entire package will reshape the power markets
While SCE's decision today to default on the repayment of its bond maturity
increases the specter of a bankruptcy filing for SCE, Moody's still
maintains its view that the key constituencies, including the Governor
and the legislature, would not find an SCE bankruptcy as a reasonable
alternative. For one, a SCE bankruptcy would reduce the role
of the Governor, the legislature, and the CPUC as all substantive
actions would be under the direction of the bankruptcy court. Second,
an SCE bankruptcy would do little to fix the underlying problem,
which in Moody's opinion, relates to a dysfunctional market and
a supply/demand imbalance. If anything, an SCE bankruptcy
would greatly complicate the state's power problems. Third,
an SCE bankruptcy would likely cause customer's rates to increase above
the current level and would likely raise reliability issues for the state
making rolling brownouts a common occurrence for some period of time.
Nothwithstanding these compelling reasons, key constituencies,
to date, have responded cautiously and skeptically to SCE's financial
woes. SCE's decision to default on the repayment of its bond maturity
indicates the seriousness of the company's liquidity position, and
accelerates the need for a prompt and constructive response by the all
parties involved in the negotiations, if a bankruptcy of SCE is
to be avoided.
Moody's downgrade of the securities of Edison International (senior unsecured
rating to Caa3 from Baa3) reflects the strong linkage that exists between
the utility and its parent. Under the holding company's credit
credit agreement, a payment default at SCE does result in a cross
default at Edison International. As such, Moody's believes
that there is a high likelihood that a bankruptcy of SCE would result
in a bankruptcy for Edison International.
RATING ACTIONS AT SCE:
Ratings lowered at Southern California Edison Company include the first
mortgage bonds and the secured pollution control bonds of Southern California
Edison Company, lowered to B3 from Baa2; the issuer rating,
the senior unsecured notes, the unsecured debentures, and
the unsecured pollution control bonds of Southern California Edison Company,
lowered to Caa2 from Baa3; the guaranteed notes of SCE Capital lowered
to Caa2 from Baa3; the junior subordinated debt of Southern California
Edison Company, lowered to Caa3 from Ba1; the preferred stock
of SCE lowered to "caa" from "ba1"; and a shelf registration for
SCE's issuance of senior secured debt, senior unsecured debt,
and preferred stock, lowered to (P)B3, (P)Caa2 and (P)"caa"
from (P)Baa2, (P)Baa3, and (P)"ba1", respectively.
The long-term ratings remain under review for further downgrade.
Also, Southern California Edison Company's short-term rating
for commercial paper and extendible commercial notes is lowered to Not
Prime from Prime-3, and its rating for variable rate demand
bonds is lowered to Speculative Grade from VMIG-3.
RATING ACTIONS AT EIX
Ratings lowered at Edison International include its senior unsecured debt
to Caa3 from Baa3, the subordinate debt of Edison International
is lowered to Ca from Ba1, the preferred stock of EIX Trust I and
II is lowered to "ca" from "ba1", the shelf registration for Edison
International's issuance of senior debt and subordinate debt is lowered
to (P)Caa2 and P(Ca) from (P)Baa3 and P(Ba1), respectively,
and shelf registration for Edison International and EIX Trust III's issuance
of preferred stock to (P)"ca" from (P)"ba1". The ratings remain
under review for further downgrade.
Edison International's commercial paper and floating rate notes are lowered
to Not Prime from Prime-3.
Headquartered in Rosemead, California, EIX is the parent holding
company of Southern California Edison Company, an electric utility
serving southern California, EME, an international independent
power developer, and Edison Capital, a capital provider for
the infrastructure and affordable housing industries.
Susan D. Abbott
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
VP - Sr. Credit Officer
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653
No Related Data.
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