With the ultimate energy solution dependent on a historic public bond sale targeted for August, the state of California last week got a preview of how Wall Street might view state offerings with the completion of a $1 billion general obligation bond sale. An official close to the State Treasurer Phil Angelides said the state’s banker was generally pleased with the results and optimistic for the $12.4 billion electricity bond sale in August.
“The general reaction was that the bond sale went quite well,” the state Treasurer’s Office official said. The average interest cost to the state was 5.11% and the sale premium was lower than Wall Street predictions of 0.30%, settling in at 0.27%. “That was actually better than some analysts had speculated.”
Yields ranged from 3.4% for notes due in 2003 to 5.45% for 30-year bonds, the state official said, noting the California officials think these results “bode well for energy bonds later this summer.”
The general bond sale was “successful” and completed at a competitive rate, so the Treasurer is generally optimistic, his fellow state official said. No reactions from the traditional rating agencies were published in the immediate aftermath.
Prior to Tuesday’s sale by the state, which has seen its credit ratings lowered as a result of the electricity crisis, traders were reportedly expecting California to pay above-market interest rates (approaching 10%, perhaps) on the bonds to get the investors it was seeking.
Further complicating the financial landscape was the continuing inaction by California state lawmakers in passing new laws to help set up the implementation of the governor’s proposed deal (MOU) with the Edison utility or an alternative that attempts to accomplish the utility bailout.
One question from debt-holders Tuesday was how willing the utility would be to follow a creditors’ committee proposal and sell other generation assets to out-of-state energy companies in the event the utility rescue continues to flounder. Edison officials refused to speculate, noting the sale of the transmission assets in the proposed MOU would be expected to accomplish the same thing.
Regarding the much larger state electricity revenue bond sale that is still slated for August, there were mounting concerns last week about how secure the revenue sources for re-paying the bondholders (principally mutual funds) will be with the involvement of the federal bankruptcy court lurking specifically in the case of Pacific Gas and Electric Co. and potentially for Southern California Edison Co.
Meanwhile, Edison’s parent was working with investment bankers such as the Goldman Sachs Group to raise $1.2 billion to pay off its existing $618 million bank debt that will come due June 30, $250 million of notes due July 18, and $350 million of floating rate debt notes due Nov. 1 — all through a complex refinancing that includes establishing an interim holding company for its power plant developer/operator Edison Mission Energy that would sell exclusively overseas more than $1.2 billion in seven-year, senior secured notes. The holding company will be Edison Mission Energy Holding Co.
Edison Senior Vice President/CFO Ted Craver said last Tuesday in a regular debt-holders’ conference call that marketing of the sale is already under way, and he expects to complete the sale of the new notes by the end of this month.
Moody’s Investors Service Tuesday confirmed a long-term debt rating for Edison Mission Energy of Baa3 in response to the Edison International announced refinancing plans, noting that nothing has changed for the subsidiary that already has “predictable sources of diversified cash flow available” to it. Moody’s said the parent company, Edison International, however, was under review for possible ratings upgrades from its current junk bond status Caa3 because the refinancing plan carries “positive implications” for the beleaguered utility holding company.
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