Fitch Upgrades Edison International & Subsidiaries; Outlook Stable.
Fitch has also issued press releases detailing rating actions taken today on EIX subsidiaries Southern California Edison Co, Mission Energy Holding Co. and certain of its subsidiaries and Homer City Funding LLC (all of which are available on the Fitch Ratings web site at www.fitchratings.com).
Fitch has also upgraded and withdrawn the IDR and senior unsecured ratings of Edison Funding (EF), a subsidiary of Edison Capital (EC) to 'BBB-' from 'BB'. In April 2006, EC's wind investment portfolio was transferred to Edison Mission Energy (EME; IDR rated 'BB-' with a Stable Rating Outlook by Fitch) and EIX plans no further investment in EC expecting its remaining investments to amortize over time.
The ratings upgrade and Stable Rating Outlook reflect EIX's significantly improved liquidity position and credit metrics, driven primarily by the enhanced financial condition of SCE and EMG. EIX is wholly dependent on cash distributions from subsidiaries SCE and Edison Mission Group (EMG) to meet its obligations. The higher ratings are supported by SCE's strong underlying credit metrics and operating fundamentals. For the 12-months ended June 30, 2006, the utility's funds from operations (FFO)-to-interest expense and debt-to-FFO ratios were 7.1 times (x) and 2.4x, respectively, as adjusted by Fitch.
The ratings also reflect more favorable wholesale power price trends and relatively low-cost generating capacity at EME's primarily coal-fired generating facilities, as well as lower financing costs and improved financial flexibility as a result of corporate restructuring activity. Nonetheless, MEHC's debt burden remains high with more than $6.7 billion of total debt outstanding, as adjusted by Fitch Ratings.
For the 12-months ended June 30, 2006, EIX consolidated funds from operations (FFO)-to-interest expense ratio was 3.7x and debt-to-FFO 4.0x, consistent with the higher rating category, as adjusted by Fitch Ratings. At the end of the second quarter-2006, EIX's parent-only liquidity position was strong with a $1 billion parent credit facility fully available and no short or long-term debt outstanding. On a consolidated basis, EIX and its subsidiaries have credit facilities totaling $3.7 billion, $1.86 billion of cash and cash equivalents and $518 million of short-term outstanding (excluding intercompany debt). Total consolidated EIX short- and long-term debt outstanding totaled $11.9 billion as adjusted by Fitch for off-balance sheet obligations and securitized debt. Approximately $5.4 billion or 45% of total consolidated EIX debt is composed of SCE obligations and the remainder unregulated operations.
Primary concerns include unanticipated adverse changes to the currently balanced political/regulatory environment in California and a potential negative outcome in EIX's pending tax dispute regarding accounting for certain leveraged lease transactions at EC. Timing with regard to a resolution of this dispute remains uncertain. A prolonged episode of significantly lower U.S. wholesale power prices is also a concern that would likely result in renewed financial stress for MEHC and its subsidiaries and could result in future negative rating actions at EIX.
EIX is a holding company that, through subsidiaries Southern California Edison (SCE; IDR rated 'A-') and Edison Mission Group (EMG), owns a major electric utility and is active in unregulated power generation markets in the U.S. EIX's core electric utility, SCE, accounted for 80% of EIX 2005 consolidated revenue and more than 90% of consolidated cash flow from operations as calculated by Fitch for the 12 months ended June 30, 2006 and is expected to remain the dominant contributor to consolidated EIX results for the foreseeable future. SCE, one of the largest electric utilities in the U.S., provides integrated electric utility service to approximately 4.7 million customers in parts of southern and central California.
EMG is active in unregulated U.S. power markets through intermediate holding company subsidiaries MEHC and EME (IDR rated 'BB-' with a Stable Rating Outlook). MEHC owns all the shares of EME which, in turn, owns power facilities with generating capacity of more than 9,400 megawatts, primarily located in the U.S., through its various operating subsidiaries. While cross defaults exist between MEHC, EME and certain of its subsidiaries, there are no cross default provisions between MEHC and its ultimate parent, EIX or affiliate SCE.