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Edison Devises Complex Debt Restructuring Plan

Energy: New subsidiary created to sell bonds would issue the proceeds as dividends to the parent of utility SCE.

By JERRY HIRSCH, Times Staff Writer

Edison International plans to raise $1.2 billion in a complex transaction that would tap the borrowing capacity of its only significant profit center--a move critical to the firm's financial health.

The financing would pay off $618 million in Edison bank debt that comes due June 30. Additionally, the offering would be used to pay off $600 million of floating rate notes due by year's end.

Mission Energy Holding Co., a company created by Edison International for the sole purpose of issuing these bonds, will offer the notes. The assets of Edison Mission Energy, a subsidiary that owns a network of power plants across the United States and in Asia, Australia and New Zealand, will secure the debt.

Mission Energy Holding plans to issue the proceeds to Rosemead-based Edison International in the form of dividends, giving the parent company funds to pay off a substantial portion of its debt.

Despite the backing of such heavy hitters as Wall Street investment bank Goldman Sachs Group, some analysts question whether there is enough investment interest to make the deal work.

"I am not sure what type of appetite the market will have for this," said Jon Cartwright, a bond analyst with Raymond James & Associates in St. Petersburg, Fla.

The financing plan comes as the firm is struggling to keep its ailing Southern California Edison electric utility out of Bankruptcy Court. Edison International can pursue the deal because of its byzantine corporate structure, designed to reduce the risk that Edison Mission Energy would be dragged into any potential bankruptcy of either the parent company or corporate sibling SCE.

The question, Cartwright said, is whether that separation, erected under a financial legal doctrine called "ring fencing," provides enough protection to make lending money palatable to investors. "What price are you willing to get for a security that looks like it will have to be tested in Bankruptcy Court?" Cartwright asked.

Edison International, which declined to comment about the offering, plans to start pitching it on Wall Street this week. Even if the offering were completed, Edison International probably would pay a high price for its borrowing.

Cartwright said a similarly rated bond at another company would pay an interest rate of about 9.67%, but given the risk he would expect investors to demand a higher yield.

The notes will have a credit rating of BB-minus and come due in 2008, said Standard & Poor's, the bond rating agency. That's slightly higher than the near-default CC rating now carried by Edison International.

Standard & Poor's said the transaction could raise Edison International's credit rating to a CCC-plus grade--better but still considered a junk rating by the investment community.

In issuing its rating for the offering Monday, Standard & Poor's said that "the prospects of a bankruptcy filing by or against SCE remain high."

That reflects the rating agency's assessment that it is increasingly unlikely that the state will complete a rescue plan devised by Edison and Gov. Gray Davis, which calls for the state to purchase SCE's transmission lines for nearly $2.8 billion and issue up to $3.5 billion in ratepayer-secured bonds to pay off debts from purchasing electricity at higher rates than it was allowed to charge customers.

Edison International shares closed unchanged Monday at $11 on the New York Stock Exchange. The stock has fallen 30% this year.

-- PHO (owennos@bigfoot.com), June 12, 2001