Edison Sells $800 Million in Bonds


Edison International sold $800 million in bonds Wednesday in a deal that will allow it to refinance a huge bank loan just days ahead of a Saturday deadline, Wall Street sources said.

Although the offering will keep the Rosemead-based company out of Bankruptcy Court for now, it comes at a huge price. The bonds will yield 14%, about double what a credit-worthy company would pay to raise a similar amount of funds.

Investor anxiety over the company's near-insolvent state forced Edison to slash the deal by a third from $1.2 billion and raise the interest rate several times over the last week.

Both Edison and Goldman Sachs Group, its investment bank, declined to confirm the sale.

Wall Street sources said that, though the seven-year notes officially will carry a 13.5% coupon rate, the price of the securities was discounted to give investors a yield of 14%. Also, interest payments are to be set aside in an escrow account in the first two years.

Additionally, Edison will obtain a $385-million bank loan, giving it close to $1.2 billion in cash to pay its near-term debts.

The funds will refinance $618 million in Edison bank loans due this weekend, $250 million in notes due July 18 and $350 million in notes due in November.

"This is a huge positive development for the company," said Richard Cortright Jr., an analyst with Standard & Poor's credit rating agency. "It removes a tremendous amount of pressure bearing down on the company."

Without the sale, Edison offibcials would have faced tense negotiations this weekend with a consortium of bankers led by JP Morgan Chase & Co. that could have resulted in a bankruptcy filing, Cortright said.

Many analysts thought Edison would not be able to pull off the deal. And they said the fact that it took so many days to put together a package that investors would buy illustrated the reluctance of investors to lend more money to Edison.

Edison's financial troubles developed over the last year as its Southern California Edison subsidiary lost billions of dollars on electricity sales when energy prices were soaring.

The steep yields on the new bonds reflect the uncertainty over the long-term prospects for both Edison and its SCE utility, said Douglas Christopher, an analyst with Crowell, Weedon & Co. in Los Angeles.

"This is only for investors willing to accept a high degree of risk," Christopher said.

Moreover, the deal is far from a solution to Edison's financial woes.

"You can't keep borrowing new money to pay off old money," he said. "At some point, you have to be able to finance the debt from your operations. Otherwise, it is just a pyramid scheme."

The bonds, which carry a Standard & Poor's credit rating of BB-minus, were issued by Mission Energy Holding Co., a company created by Edison International for the sole purpose of raising the funds.

The assets of Edison's profitable Edison Mission Energy subsidiary, which owns a network of power plants across the United States and in Asia, Australia and New Zealand, will secure the new debt.

Proceeds from the sale will go to Edison in the form of dividends, providing cash with which to pay off older debt.

Edison shares, which trade on the New York Stock Exchange, fell 18 cents to close at $11.06.

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