8-KOther Events

EDISON INTERNATIONAL 8-K Report (Oct 3, 2002)

Filed October 3, 2002For Securities:EIX

Summary

This Form 8-K filing by Edison International (EIX) on October 3, 2002, primarily reports significant negative credit rating actions by Moody's Investors Service and a crucial notification from Exelon Generation regarding termination of power purchase agreements. Moody's downgraded the credit ratings of several Edison International subsidiaries, including Mission Energy Holding Company and its affiliates Edison Mission Energy and Edison Mission Midwest Holdings Co. These downgrades, some to "junk" status (B3, Ba3, Ba2), have immediate financial implications. They do not trigger defaults but will increase borrowing costs and restrict distributions from Midwest Holdings. Furthermore, Edison Mission Energy may be required to provide significant collateral for its trading activities and potentially accelerate equity contributions for a project in the Philippines. In parallel, Exelon Generation has exercised its option to terminate power purchase agreements for a substantial portion of capacity (1,614 MW) from Edison International's Midwest Generation subsidiary's Collins Station and a smaller portion (113 MW) from its peaking units, effective January 1, 2003. This means these units will no longer have guaranteed buyers after that date and will be subject to market-based pricing or new contracts, creating significant revenue uncertainty.

Key Highlights

  • 1Moody's Investors Service downgraded the senior secured credit rating of Mission Energy Holding Company to B3 from Ba2, indicating increased financial risk.
  • 2Ratings were also lowered for Edison Mission Energy (senior unsecured debt to Ba3 from Baa3) and Edison Mission Midwest Holdings Co. (syndicated loan facility to Ba2 from Baa2), with several remaining under review for further downgrade.
  • 3The rating downgrades will increase borrowing costs for affected entities and restrict profit distributions from Edison Mission Midwest Holdings.
  • 4Edison Mission Energy may need to provide up to $20 million in collateral for its trading activities and potentially accelerate a $48.5 million equity contribution for a Philippine project.
  • 5Exelon Generation has opted to terminate power purchase agreements for 1,614 MW of capacity at the Collins Station and 113 MW of peaking units, effective January 1, 2003.
  • 6The termination by Exelon means a significant portion of Midwest Generation's capacity will face market-based pricing or the need for new contracts after 2002, introducing considerable revenue uncertainty.
  • 7Edison International anticipates potential working capital support needs between $100 million and $200 million over the next twelve months for certain power sales projects, depending on market conditions.

Frequently Asked Questions

The Moody's downgrades, while not triggering immediate defaults, will lead to increased borrowing costs for the affected subsidiaries. Additionally, cash distributions from Edison Mission Midwest Holdings to Edison Mission Energy will cease, with excess cash being held for creditors. Edison Mission Energy may also be required to post collateral for trading activities and potentially accelerate equity contributions for a project.

This termination means that a substantial amount of capacity from Edison International's Midwest Generation plants (1,614 MW from Collins Station and 113 MW from peaking units) will no longer have a guaranteed buyer after December 31, 2002. These units will then need to secure new contracts or sell power at market prices, creating significant uncertainty regarding future revenue streams and profitability for these assets.

As of September 30, 2002, Edison Mission Energy reported approximately $500 million in cash on hand and undrawn credit lines. They also have revolving credit agreements totaling $487 million, with $70 million in outstanding letters of credit. However, the company anticipates potential working capital support needs between $100 million and $200 million over the next twelve months for certain projects.

The rating actions themselves do not trigger any defaults or prepayment obligations under the credit facilities of the affected entities. However, they will increase the cost of borrowing under certain facilities and restrict cash flows as noted above.