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Rating Action:

MOODY'S PLACES THE DEBT RATINGS OF SOUTHERN CALIFORNIA EDISON COMPANY, EDISON INTERNATIONAL, AND EDISON FUNDING COMPANY UNDER REVIEW FOR POSSIBLE UPGRADE

22 Mar 2004
MOODY'S PLACES THE DEBT RATINGS OF SOUTHERN CALIFORNIA EDISON COMPANY, EDISON INTERNATIONAL, AND EDISON FUNDING COMPANY UNDER REVIEW FOR POSSIBLE UPGRADE

Approximately $6.6 Billion of Debt Securities Affected

New York, March 22, 2004 -- Moody's Investors Service placed the debt ratings of Southern California Edison Company (SCE: Baa2 senior secured), its parent company Edison International (EIX: Ba2 senior unsecured), and EIX subsidiary Edison Funding Company (EFC: Ba1 senior unsecured) under review for possible upgrade.

The rating action for SCE reflects continued evidence of a more constructive regulatory environment in California, the strong financial results posted by the company for 2003, and expectation of performance over the next several years that may be more commensurate with a higher rating. SCE's financial profile has rebounded in the last two years, enabling the utility to retire more than $3.6 billion in power procurement related debt, rebalance its capital structure, and improve its access to the capital markets. The 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.

SCE's regulatory relationships have improved significantly. Most recently, SCE received supportive regulatory treatment from the California Public Utilities Commission and the Federal Energy Regulatory Commission related to the company's investment in the Mountainview generation project. While the regulatory environment has noticeably improved, Moody's notes that regulatory challenges still remain for SCE, including resolution of its general rate case, decisions on long-term power procurement, and the form in which the electric market will operate in California in the future. Moody's expects the general rate case to be resolved sometime during the second quarter.

The rating action incorporates Moody's view that SCE is substantially insulated from the activities of EIX's non-regulated business due to the degree of separateness which has existed through the organization since the formation of the holding company, the strict affiliate rules that remain in place for all California utilities, and the legal ring fencing that exists between EIX, the parent, and the businesses operated under Mission Energy Holdings Co (MEHC: Caa2 senior secured; negative outlook).

The rating action for EIX reflects management's stated plans to de-lever EIX over the next twelve to eighteen months, and considers the significant amount of liquidity that currently exists at the holding company. EIX intends to repay a $618 million senior note obligation due at EIX in September 2004 from internal sources. EIX's adoption of a conservative dividend payout ratio is supportive of credit quality and parent level liquidity. The rating action also considers Moody's view that EIX is significantly insulated from MEHC. EIX does not provide any direct or indirect support for these operations and it has publicly stated that it does not intend to provide any additional capital for these non-regulated businesses.

The rating action for EFC reflects a degree of rating linkage between EIX and SCE due to the operation of the tax allocation agreements between these entities. The action also considers EFC's relatively stable investment portfolio and the substantial collateral protection for several of the largest investments within EFC's portfolio. EFC has operated in a cash conservation mode during the past two years, but the company expects to begin making additional investments during 2004.

The rating review will assess the potential impact on SCE's credit quality of future regulatory developments within California, including the outcome of the company's general rate case, and will examine the company's capital expenditure plans for electric infrastructure over the next several years, including its investment in the Mountainview generating station. The rating review will also consider plans to reduce leverage at EIX and for the consolidated enterprise, the progress being made towards strengthening the company's non-regulated businesses, and EFC's future investment strategies.

Ratings under review for possible upgrade include:

- SCE's first mortgage bonds and secured revolving credit, rated Baa2;

- SCE's senior unsecured debt and Issuer Rating, rated Baa3;

- SCE's preferred stock, rated Ba2;

- Shelf registration for SCE's issuance of first mortgage bonds, senior unsecured debt, junior subordinated debt and preferred stock, rated (P)Baa2, (P)Baa3, (P)Ba1, and (P)Ba2, respectively.

- EIX senior unsecured debt, rated Ba2;

- EIX trust preferred debt, rated Ba3;

- EIX shelf registration for issuance of senior unsecured debt and trust preferred debt, rated (P)Ba2 and (P)Ba3, respectively.

- EFC senior unsecured debt, rated Ba1.

Headquartered in Rosemead, California, SCE is a vertically integrated utility and a wholly-owned subsidiary of EIX. EFC is a wholly-owned subsidiary of Edison Capital, which is itself a wholly-owned subsidiary of EIX.

end

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

A.J. Sabatelle
VP - Senior Credit Officer
Corporate Finance Group

No Related Data.
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