SCE’s Creditors Consider Options
Shares of Edison International fell sharply Monday as creditors of the company’s insolvent utility arm considered their options in the wake of the state Legislature’s failure to pass a rescue plan.
Creditor groups huddled Monday to decide whether they should give Southern California Edison more time to figure out how to pay $3.9 billion in energy debts or force the utility into Bankruptcy Court.
Several advisors to creditors said some factions were close to filing petitions to force Rosemead-based SCE into bankruptcy proceedings.
One source said that late last week, large power generators were the group most likely to send the company into bankruptcy, but as of Monday, SCE’s note- and bondholders appeared to be the most skittish.
Some analysts expressed surprise that the company has dodged such a fate since April 6, when Pacific Gas & Electric Co., the San Francisco-based utility, filed for Chapter 11 protection from its creditors after likewise running up billions of dollars in energy debts.
“Edison must have set the record for a company staying out of bankruptcy after defaulting on a mountain of debt,” said Jon Cartwright, an analyst at Raymond James & Associates in St. Petersburg, Fla. “So far, it has convinced creditors that they will be better off in the long run if the company stays out of bankruptcy.”
Indeed, it appeared Monday that many creditors are willing to give the utility more time because it remains unclear whether anyone will be better off in Bankruptcy Court. SCE has said it will not voluntarily file for bankruptcy protection.
Banks last week granted SCE a two-week extension on $200 million in defaulted loans. And Gov. Gray Davis has called a special legislative session to reconsider a utility rescue plan next month.
But the uncertain outlook for SCE, combined with the broad sell-off as trading in New York resumed for the first time since last week’s terrorist attacks, pushed Edison International shares down 10.3% to $12.58 on the New York Stock Exchange. More than 1 million shares changed hands.
By comparison, shares of PG&E; Corp., the parent company of Pacific Gas & Electric, fell by a smaller 7.5% to close at $15.35, also on the NYSE. That suggests to some analysts that many investors see an SCE bankruptcy filing as an inevitable, or at least preferable, path for Edison International.
Losses resulting from a record spike in wholesale energy prices starting in May 2000 have left SCE in default on $931 million in bonds and notes. The utility also owes large power generators about $1 billion, a group of smaller generators $1.2 billion and $400 million in unpaid interest.
State lawmakers adjourned for the year Saturday without agreeing on a proposed rescue plan that would have allowed the utility to sell at least $2.5 billion in bonds to be paid off through the electricity bills of its largest business customers.
Hope that lawmakers eventually could agree on the bond offering may be keeping creditors at bay, said Lynn LoPucki, a UCLA bankruptcy law professor.
“When you give money to a company that is insolvent, it is as if you are giving it to the creditors,” he said.
Any three unsecured creditors with a combined claim against SCE of $10,775 could file a petition in Bankruptcy Court seeking a filing, LoPucki said.
The utility would have 20 days to contest the filing, and if SCE objected during that period, the judge would schedule a hearing. The petitioners would have to prove that they are owed the money and that SCE is failing to pay its debts as they come due--a rather simple test in this case, LoPucki said.
Nevertheless, he believes an involuntary case now might be dismissed or suspended. Federal bankruptcy law would allow the judge to abstain from taking action to see whether a solution could be reached at the Legislature’s special session, LoPucki said, because that could be in the best interest of the creditors and the debtor.
