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Fitch Upgrades Mission Energy Holding & Subsidiaries; Outlook Stable.

NEW YORK -- Fitch has upgraded and removed from Rating Watch Positive the following ratings for Mission Energy Holding Company (MEHC) and Edison Mission Energy (EME):


--Issuer Default Rating (IDR) to 'BB-' from 'B'.


--Issuer Default Rating (IDR) to 'BB-' from 'B'.

Midwest Generation, LLC (MWG)

--Issuer Default Rating (IDR) to 'BB' from 'B'.

Fitch originally placed MEHC from Rating Watch Positive on March 10, 2006. The Rating Outlook is Stable. Approximately $6.7 billion of debt is affected by the rating action.

As a consequence of the upgrade of MEHC and its subsidiaries' IDRs to the 'BB' category from 'B', Fitch will no longer publish recovery ratings (RRs) for MEHC, EME and MWG. Fitch notes that recovery analysis is implicitly reflected in the issuer's individual obligation ratings.

Fitch has also issued press releases detailing rating actions taken today, Sept. 27, 2006 at MEHC's ultimate parent, Edison International (EIX), affiliate Southern California Edison Company (SCE) and subsidiary Homer City Funding (HC).

The IDR upgrades reflect the beneficial effect of lower financing costs and improved liquidity and financial flexibility as a result of MEHC's corporate restructuring and strong cash flow from MEHC's low cost coal-fired generation fleet. Management, under the restructuring, used proceeds from the sale of EME's international assets in the fourth quarter of 2004 and available cash to repay maturing Edison Mission Midwest Holding debt and bridge loan to EME's international asset sale, terminate the Collins leasehold and facilitate a significant capital injection to MWG. EME recently refinanced $1 billion of notes at favorable terms, extending maturities from 2008 ($400 million) and 2011 ($600 million) to 2013 ($500 million) and 2016 ($500 million), respectively.

Fitch expects that MEHC will utilize a portion of the $1.6 billion of cash and cash equivalents and short-term investments on its consolidated balance sheet as of June 30, 2006 to redeem its $800 million 13.5% notes due November 2008. Additional liquidity is provided by a $500 million secured credit facility at EME, which was upsized from $98 million. MEHC subsidiary MWG also has a $500 million working capital facility in place to provide liquidity to support collateral needs associated with power sales. Nonetheless, MEHC's debt burden remains high and its coverage ratios and debt measures weak.

The increased MEHC, EME and MWG ratings also reflect more favorable post-2004 wholesale power price trends from an investor point-of-view and relatively low-cost, coal-fired generating capacity at MEHC and its indirect operating subsidiaries Midwest Generation LLC (MWG) and HC. The ratings assume power prices will remain in the mid-$40 per megawatt level or higher on an annual basis in the near-to-intermediate term, on average. While lower sustained near-to-intermediate term power prices cannot be ruled out, Fitch believes that recent, higher power prices and resulting improvement to MEHC cash flows are more likely to persist allowing further debt reduction and improving credit metrics over time.

The primary concern for MEHC and its subsidiaries is a sharp and sustained decline in natural gas and wholesale energy prices, which would likely end the companies' financial recovery and lead to future downgrades. In addition to ongoing exposure to commodity price volatility, prospective federal and/or state environmental standards could result in significantly higher capital and operating costs, bringing incremental pressure to bear on MEHC and its subsidiaries' cash flows and creditworthiness.

MEHC participated in the recently completed reverse auction conducted in Illinois for default power supply. While MEHC has been named among the successful bidders in the auction, details regarding the auction to supply power for 17-, 29- and 41-month periods have not been released as of this writing. Fitch notes that the Illinois reverse auction resulted in power prices in excess of $60 per megawatt hour.

Positively, MEHC recently announced that it entered into a 500 megawatt, three-year bilateral contract to supply on-peak power that requires no collateral posting. As of June 26, 2006, MEHC subsidiaries MWG and HC have hedged approximately 62% and 56% of total expected generation for the remainder of 2006 and calendar year-2007, respectively. The average hedged price for MWG was $48 per megawatt hour for MWG for both the remainder of 2006 and full-year 2007 and $54 per megawatt hour for HC for the remainder of 2006 and $64 for calendar year 2007. After the Illinois auction, the hedge ratio and average price is likely to be higher for MWG. In addition, more than 95% of MWG and HC's coal requirements have been hedged through the end of 2007.

MEHC is a wholly-owned intermediate holding company subsidiary of Edison International. Formed in July 2001, MEHC's sole asset is EME common stock. EME, through its operating subsidiaries, leases, owns, develops, acquires, operates and sells the output of independent power facilities located primarily in the U.S. EME's also owns a 144 megawatt (80%) interest in a natural gas-fired plant in Doga, Turkey.

Including certain wind projects currently under construction, EME owns or is developing more than 9,400 megawatts of generating capacity in total. Of that amount 9,295 mWs are currently in commercial operation, of which 7,497 mWs (81%) is coal-fired generation located in Illinois and Pennsylvania. MWG and HC are indirect operating subsidiaries of EME that own and control through leaseholds 5,613 and 1,884 mWs of coal-fired generation, respectively.

Fitch has upgraded and removed the following ratings from Rating Watch Positive:


--Issuer Default Rating (IDR) to 'BB-' from 'B';

--Senior secured notes to 'BB-' from 'B-'.


--Issuer Default Rating (IDR) to 'BB-' from 'B';

--Senior unsecured notes to 'BB-' from 'B';


--Issuer Default Rating (IDR) to BB from B;

--First priority term loan to 'BBB-' from 'BB';

--Second priority secured notes to 'BB+' from 'B+'.

The Outlook is Stable for all ratings.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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Publication:Business Wire
Date:Sep 27, 2006
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