Edison Delays Sale of $1.2 Billion in Bonds
A financial rescue plan for Edison International was placed in doubt Tuesday when the company delayed a bond offering intended to pay off $618 million in bank loans that come due Saturday.
The delay of the $1.2-billion note sale indicated investors were reluctant to lend more money to the corporate parent of Southern California Edison, fearful that Edison and its utility could be forced to file for bankruptcy in the coming weeks, said Jon Cartwright, a bond analyst at Raymond James & Associates in St. Petersburg, Fla.
“This is a disaster waiting to happen,” Cartwright said.
Last week, a spokesman for Edison’s investment bank Goldman Sachs Group said the note offering was expected to be completed Monday. Goldman Sachs then moved the sale to Tuesday. But by the time U.S. markets closed Tuesday, the seven-year notes still were not sold.
Goldman Sachs officials did not return calls. In a conference call with SCE creditors, Edison officials would not talk about the bond offering or its status.
Analysts said Edison and Goldman Sachs officials are searching for ways to get the sale completed before Saturday’s deadline. Their choices range from restructuring the deal to make it more attractive to investors, to simply continuing to raise the interest rate on the notes.
The note sale, which would be secured by Edison’s profitable Edison Mission Energy subsidiary, would have paid off the company’s outstanding bank debt on the notes due Saturday, $250 million in notes due July 18 and $350 million due Nov. 1.
To lure investors, the Rosemead-based company has repeatedly boosted the interest rate it’s willing to pay.
When Edison first talked about the offering several weeks ago, analysts said it could carry an interest rate of about 10%. But that figure has increased to 12% and then 13% in recent days, and now Wall Street sources say the latest talk has the interest rate set at 13.5%.
Carrying a Standard & Poor’s credit rating of BB-minus, the proposed seven-year notes would have an interest rate double what a credit-worthy company would pay for a similar issue. Indeed, Sempra Energy, owner of San Diego Gas & Electric and the Southern California Gas Co., sold $500 million in three-year notes Tuesday at 6.8%. Edison’s rumored rate is 2 percentage points higher than the average rate for other “junk,” or speculative, bonds.
“Every day they don’t price suggests they can’t get the orders,” Cartwright said. He said it may take a 14% or 15% rate to get potential buyers interested.
Meanwhile on Tuesday, investors bid up the price of bonds for Edison Mission Energy in the belief that its parent won’t be able to pull off the note sale, and thus not encumber the profitable subsidiary with new debt. That was viewed as a positive development for Edison Mission Energy, said Douglas Christopher, a utility analyst at Crowell, Weedon & Co. in Los Angeles.
If the proposed bond offering fails, Edison might have to deplete most of its cash reserves, Christopher said.
The company had about $3 billion in cash at the end of March, according to Securities and Exchange Commission documents. But about $1.5 billion is tied up at SCE. SCE holds another $500 million that is committed to the California Department of Water Resources.
SCE creditors, who hold $931 million in defaulted utility bonds and debt, probably would block any attempt by Edison to tap into the utility’s funds, even if they had to file an involuntary bankruptcy petition against the utility, said Nellwyn Voorhies, a San Diego lawyer who represents SCE bondholders.
Edison also could go back to its bankers and request continued forbearance. That would buy time until the $250 million in notes come due in July.
Edison shares, which trade on the New York Stock Exchange, fell 33 cents to close at $11.24 Tuesday.
The notes are being offered by Mission Energy Holding Co., a company created by Edison for the purpose of issuing the notes. The assets of Edison Mission Energy, which 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 Edison in the form of dividends.
Edison’s financial troubles developed over the last year as SCE lost billions of dollars on electricity sales when energy prices peaked.
