Aug. 2 (Bloomberg) -- Bondholders of Edison International’s generation unit may recover more than 54 cents on the dollar in an increasingly probable bankruptcy scenario for the unprofitable power producer, according to JPMorgan Chase & Co. analysts.
Edison Mission Energy’s bonds are trading at about 54 cents, which JPMorgan high yield utilities analysts Dave Katz and Bayina Bashtaeva estimate to be the recovery rate, excluding net operating losses. Edison Mission may need to cut its $3.7 billion of debt by more than the $1 billion the company has forecast, they wrote in a note today. Chief Executive Officer Ted Craver said the company would have to reduce a “sufficient” amount to be able to achieve credit metrics allowing it to refinance the remainder, according to a July 31 earnings conference call.
“This is an indication Edison would like to pursue a greater than $1 billion reduction,” the analysts wrote. Even in bankruptcy, future payment through the tax allocation agreement “is a positive for the credit” and “increases the risk of a bankruptcy as it increases the implied recovery of the credit with a filing” above 54 cents on the dollar, they wrote.
Edison International, owner of California’s second-largest electric utility, said yesterday in a filing with the U.S. Securities and Exchange Commission that its money-losing, unregulated generation unit may have to file for Chapter 11 bankruptcy protection. The net loss at Edison Mission Group widened to $110 million from $30 million a year ago on lower power prices and higher fuel costs, the Rosemead, California-based company said yesterday.
Edison Mission spokesman Doug McFarlan couldn’t be immediately reached for comment.
Edison Mission’s $500 million of 7.5 percent senior unsecured notes due June 2013 dropped to 54.8 cents on the dollar, from as high as 100.25 cents on Aug. 3, as of 1:26 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Its $500 million of 7.75 percent notes due June 2016 fell to 53.8 cents today, Trace data show.
Edison Mission has been hurt by a slump in power prices and rising environmental-compliance costs for its coal-fired power plants, and is in talks with bondholders to restructure debt and may have to reorganize its generation unit under new ownership if talks are unsuccessful, Craver said on a conference call with investors.
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