Mission Energy’s Debt Rating Is Cut to ‘Junk’

Edison Mission Energy’s credit rating on $5.3 billion of its debt was slashed to “junk” status Tuesday by Moody’s Investors Service, which cited concern over weak power markets.

Moody’s said Mission Energy’s efforts to reduce its debt are being hampered by low power prices and a slumping market for surplus power plants and generating capacity.

Irvine-based Mission Energy is an independent power producer and energy trader that is a subsidiary of Rosemead-based Edison International, which also owns Southern California Edison, the state’s second-largest power utility.

Moody’s cut Mission Energy’s senior unsecured debt to Ba3, three notches below what is generally considered investment-grade debt.

The rating firm said it was concerned that revenue from the company’s power generation in the Midwest, which represents a sizable portion of its cash flow, will decline beginning in 2003 because of the expiration of contracts.

Mission Energy spokesman Kevin Kelly said the company is confident it will be able to sell the output from those plants.

Kelly said the company’s credit rating had been under review since July and considering the tough environment for power producers, the downgrade did not come as a surprise. The ratings cut included a number of Mission Energy-affiliated companies.

“EME believes it has ample liquidity to meet its needs and has more than $500 million of undrawn credit lines and available cash,” Kelly said.

Moody’s concurred in its report, noting that Mission Energy has only $173 million in debt coming due in 2004, and then nothing more until 2008.

Meanwhile, Mission Energy has taken steps to conserve cash and improve its operations, Kelly said. It suspended development of new power plants last year, trimmed its debt by $700 million over the last year and is selling minority interests in its power plants.

Shares of Edison International rose 21 cents to close at $10.21 on the New York Stock Exchange.