Rosemead, CA-based Edison International’s merchant energy companies under the Edison Mission Energy (EME) family were slammed with credit rating downgrades to BB- from, in some cases, BBB- by Standard & Poor Ratings Services (S&P) reflecting heavy debt payments and restructuring facing it while wholesale power prices remain depressed, further worsening the chances of bringing more order to its chaotic financial house.

Carried along in the negative momentum were: Midwest Generating LLC, Midwest Funding LLC, Edison Mission Midwest Holdings and EME and its affiliates.

“Much depends upon how EME is able to refinance its short-term debt at Midwest Holdings, ” said Peter Rigby, a New York-based S&P analyst. “S&P does not expect power markets to recover any sooner than 2004, a situation that will continue to pressure EME’s credit profile.” He noted that if some long-term restructuring can be accomplished the credit pressure could ease, but further downgrades could come if this doesn’t happen. There are some $1.7 billion in refinancing coming due between December 2003 and early 2004 for Edison Mission Midwest, and all together some $5.7 billion of debt among the EME companies.

Rigby, however, noted strengths as well as weaknesses, including what S&P considers EME’s “diversified portfolio” of power plants, including several low-cost coal-fired units and a pretty good track record of keeping the generating facilities running. “We see very little technology risk, and their performance in terms of outage rates has been extremely good in recent years,” he said, noting that Midwest Generating still has half of its output covered by long-term contracts next year, which should help improve cash flow.

In response to a question during a conference call, S&P analysts downplayed the option of selling of assets in the EME family as a means of raising cash to reduce debt as being impractical in the present depressed wholesale power market.

“Like any energy merchant company right now, there certainly is a ‘right price’ at which they surely would sell any asset,” Rigby said. “So if the right price comes along, they may sell assets, but in this market, we have seen no sales of plants without long-term contracts on their output.”

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