Moody's, S&P lower SoCal, Pacific Gas & Electric credit ratings

Credit-rating agency Moody's Investors Service cut ratings on $9.3 billion of Southern California Edison Co. (SCE) and its parent Edison International debt to noninvestment grade after SCE said it was defaulting on payments due creditors. Meanwhile, Standard & Poor's cut the ratings of Pacific Gas & Electric Co. and its parent company PG&E Corp. to junk grades, potentially triggering default provisions on various credit lines and bank loans for the utility and the parent.


Credit-rating agency Moody's Investors Service cut ratings on $9.3 billion of Southern California Edison Co. (SCE) and its parent Edison International's debt to noninvestment grade, after SCE said it was defaulting on payments due creditors Tuesday.

Moody's said SCE's action "increases the specter" of its filing for bankruptcy and said there is a "high likelihood" such a bankruptcy would lead to a bankruptcy for parent company Edison International.

Meanwhile, Standard & Poor's cut the ratings of Pacific Gas & Electric Co. and its parent company PG&E Corp. to junk grades, potentially triggering default provisions on various credit lines and bank loans for the utility and the parent. The rating service said SCE's decision to default "diminishes the prospects" for PG&E Corp. to tap the capital markets for cash.

"Neither legislative nor negotiated solutions to the state's utilities' financial meltdown appear to be forthcoming in a timely manner, which continues to impede access to financial markets for the working capital needed to avoid insolvency," S&P said.

Moody's rating action follows 8-K filings by SCE and Edison International reporting SCE was temporarily suspending payment on a $200 million principal repayment of unsecured notes due Jan. 16 and payment of $30 million of associated interest.

Additionally, SCE said it is not making its $215 million November payment for wholesale power costs which is due to the California Power Exchange (PX) Tuesday and plans to partially pay amounts due to the nonutility generators known as "Qualifying Facilities."

Moody's said it expects SCE will not be making principal payments on maturing commercial paper that is coming due over the next few weeks. Under the company's unsecured indenture, a principal payment default gives creditors the right to seek remedies if they so choose.

Regarding the status of discussions with the California Gov. Gray Davis, the legislature, the utilities, and the generators, Moody's said it expects numerous pieces of legislation to be introduced which could alter the way in which power is bought and sold in the state.

Legislation is intended to be on a very fast track and the emergency energy session is scheduled for completion by Feb. 4, but details remain sketchy, Moody's said. While SCE's decision to default on the repayment of its bonds increases the specter of a bankruptcy filing, Moody's still maintains the view that key constituencies, including the governor and the legislature, would not find an SCE bankruptcy a reasonable alternative.

Bankruptcy would reduce the role of the governor, the legislature, and the California Public Utilities Commission and all substantive actions would be under the direction of the bankruptcy court. Second, an SCE bankruptcy would do little to fix the underlying problem.

If anything, Moody's noted an SCE bankruptcy would likely cause customers' rates to rise and result in rolling brownouts for some period of time.

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