New York, February 24, 2021 -- Moody's Investors Service (Moody's) has assigned definitive ratings to
recovery bonds issued by SCE Recovery Funding LLC (the issuer) and sponsored
by Southern California Edison Company (SCE; Baa2 stable).
The collateral backing the transaction consists of the issuer's irrevocable
right to impose, collect, and receive non-bypassable
consumption-based fixed recovery charges from retail electric customers
that SCE serves in its service territory, which is primarily Southern
California. This transaction is SCE's first of its anticipated
series of securitization debt financings to recover SCE fire risk mitigation
capital expenditures, which were approved by the California Public
Utilities Commission (CPUC). The issuer is wholly-owned
by SCE, a subsidiary of Edison International (Edison; Baa3
stable).
The complete rating actions are as follows:
Issuer: SCE Recovery Funding LLC
SCE Recovery Funding LLC Senior Secured Recovery Bonds, Series 2021-A,
Tranche A-1, Definitive Rating Assigned Aaa (sf)
SCE Recovery Funding LLC Senior Secured Recovery Bonds, Series 2021-A,
Tranche A-2, Definitive Rating Assigned Aaa (sf)
SCE Recovery Funding LLC Senior Secured Recovery Bonds, Series 2021-A,
Tranche A-3, Definitive Rating Assigned Aaa (sf)
RATINGS RATIONALE
The definitive ratings assigned to the recovery bonds are based primarily
on the following:
1) the strength of the State of California securitization law, including
the state's non-impairment pledge, and the irrevocable Financing
Order issued by the CPUC authorizing the creation of the recovery property;
2) credit enhancement consisting of a statutory uncapped true-up
adjustment mechanism that mandatorily adjusts the fixed recovery charges
at least once a year to ensure sufficient collections for timely payments
on the bonds, and a capital subaccount fully funded at closing in
the amount of 0.50% of the initial principal balance of
the bonds;
3) the remote likelihood of a successful legal, political or regulatory
challenge to the recovery property and other rights that SCE will transfer
to the issuer on the closing date for the benefit of the trustee on behalf
of bondholders;
4) the economic stability, diversity and scale of the ratepayer
base in SCE's service area from whom the fixed recovery charge will be
collected;
5) the experience, expertise and financial stability of SCE as servicer
of the recovery property;
6) the low probability that collections arising from the recovery property
could fall short of the scheduled distributions on the bonds; and
7) the initial recovery charge of about 0.16% of the average
residential customer's electricity bill, significantly lower than
the initial charge of all other rated utility cost recovery transactions.
Wildfires, which the state of California believes are partly driven
by climate change, could affect the ability of directly impacted
customers to pay the charge. As a mitigant, the wildfires
have previously impacted a very small portion of the service area and
the true-up mechanism will increase the charge to ensure timely
debt service on the bonds. In addition, the initial charge
for this first transaction is the lowest we've seen in the asset class
at 0.16% of a typical residential customer's bill.
Even if the charge were to increase, it would be over a very large,
diverse ratepayer base.
The coronavirus outbreak, the government measures put in place to
contain it, and the weak global economic outlook continue to disrupt
economies and credit markets across sectors and regions. Our analysis
has considered the effect on the performance of corporate assets from
the current weak US economic activity and a gradual recovery for the coming
months. Although an economic recovery is underway, it is
tenuous and its continuation will be closely tied to containment of the
virus. As a result, the degree of uncertainty around our
forecasts is unusually high.
We regard the coronavirus outbreak as a social risk under our ESG framework,
given the substantial implications for public health and safety.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was "Utility Cost
Recovery Charge Securitizations Methodology" published in June 2020
and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1214099.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors or circumstances that could drive the rating down are a significant
decline in the ratepayer base or consumption in SCE's service territory,
or extreme weather fluctuations and natural disasters affecting the servicer's
ability to accurately forecast electricity usage.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
Moody's did not use any models, or loss or cash flow analysis,
in its analysis.
Moody's did not use any stress scenario simulations in its analysis.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Arti Mattu
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Tracy Rice
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
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JOURNALISTS: 1 212 553 0376
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