Edison Unit Sells Bonds at 10% Yield

Power generator Edison Mission Energy sold $400 million in seven-year notes Tuesday and paid junk-bond-like yields despite investment-grade ratings. Analysts cited the firm’s ties to cash-starved Southern California Edison.

Investor nervousness over California’s power crisis forced Edison Mission to pay a yield of 10%, more than 5 percentage points above the yield on U.S. Treasuries with similar maturities. Edison Mission and Southern California Edison are both subsidiaries of Rosemead-based Edison International.

Similarly rated seven-year notes from other utilities recently yielded 1.85 percentage points more than Treasuries, analysts said.

Southern California Edison, which is technically insolvent, and PG&E; Corp.’s Pacific Gas & Electric Co., which filed for bankruptcy protection on April 6, racked up more than $14 billion of debt because they could not pass their soaring power costs to consumers.

Edison International Chief Financial Officer Theodore Craver Jr. said Tuesday that the company continues to work with state legislators and representatives from Gov. Gray Davis’ office to resolve its piece of the crisis.

The Legislature is slated to return from recess Aug. 20, five days after the expiration of a rescue plan that Edison and Davis agreed to in April. Craver, in a conference call with creditors, repeated the company’s position that the Aug. 15 deadline “is not a hard date” and the company is willing to let it pass as long as progress is being made.

In addition, Craver said, Edison has reached agreements with all but a few small alternative generators to continue to supply the utility in exchange for immediate partial payments of back debts.

The proceeds of Tuesday’s note sale by Edison Mission will be used to pay down bank debt, the company said.

Mission’s debt is rated Baa3 by Moody’s Investors Service and BBB-minus by Standard & Poor’s, the agencies’ lowest investment grades. S&P; affirmed its rating Tuesday, with a stable outlook.

Edison Mission has $224 million of bank debt coming due on Aug. 15, according to CreditSights Inc., a New York-based fixed-income research service. It also is cutting $1.5 billion in bank lines, which will be replaced with a new $750 million line with one- and three-year maturities, according to S&P.;

Edison Mission’s private bond sale was its second this year. On April 2, it sold $600 million of 10-year notes yielding 9.88%.

Edison International shares closed Tuesday on the New York Stock Exchange at $14.20, up 45 cents.