Fitch: EME's Bankruptcy Positive for Edison International
NEW YORK -- March 18, 2014
Bankruptcy court approval of the plan of reorganization (POR) moves Edison
International (EIX) closer to a final resolution of its exposure to Edison
Mission Energy's (EME) insolvency and, in Fitch Ratings' opinion, represents a
positive development for EIX's creditworthiness. On March 11, 2014, the U.S.
Bankruptcy Court for the Northern District of Illinois, Eastern Division,
approved EME's POR, positioning EME to emerge free of liabilities.
From a broader industry perspective, EME's insolvency underscores the
challenges facing merchant generators. Among these challenges are Fitch's
expectations for a continuation of relatively low power and gas prices, as
well as rising costs related to environmental regulations and modest
prospective sales growth due to competitive pressures from both energy-use
efficiency and renewable generation.
The approved POR incorporates the settlement agreement reached between EME,
EIX and certain EME creditors in February 2014. Fitch upgraded EIX's ratings
and placed them on Rating Watch Positive on Feb. 21, 2014, in anticipation of
bankruptcy court approval of the POR. Fitch expects to resolve the Rating
Watch Positive upon closing of the pending sale of certain EME assets to NRG
Energy, Inc. and the formation of the new trust contemplated by the settlement
Under the terms of the POR, EME will remain a subsidiary of EIX, while EIX
will assume certain income tax and pension liabilities approximating $350
million and retain certain tax attributes totaling an estimated $1.191
billion. All assets and liabilities of EME that are not assumed by EIX,
discharged in bankruptcy or transferred to NRG Energy, Inc. (NRG) under the
POR will be transferred to a newly formed trust to be controlled by EME
The closing of the sale of EME assets to NRG and the settlement transaction is
expected to occur around late March or early April 2014. Upon closing, EIX
will pay $225 million to the trust. EIX will make two additional payments in
September 2015 and 2016 following the final determination of tax attributes to
be shared between both EIX and EME's creditors under the terms of the POR.
Total payments from EIX to the trust are expected to approximate $635 million,
approximately one-half of the value of the tax attributes.
The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article can be accessed at
www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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