The three main credit rating agencies are viewing Southern California Edison Co. more favorably following the latest moves by the company and the California legislature to mitigate wildfire risk.
S&P Global Ratings is no longer reviewing the utility for downgrade and has affirmed its BBB corporate rating, while Fitch Ratings and Moody's Investors Service have changed the outlooks on their BBB- and Baa2 ratings from negative to stable.
Worries about the potential financial impact of wildfire liabilities on Californian utilities since Pacific Gas & Electric filed for bankruptcy in January has made it challenging—if not impossible—to finance power and renewables projects that have power purchase agreements with them.
On July 11, California's state assembly passed AB 1054, a law that, among other things, creates a wildfire insurance fund to soften the financial impact of wildfires on electric utilities. Meanwhile, the California Public Utilities Commission has given SoCalEd a valid safety certificate.
SoCalEd intends to finance its initial $2.4 billion contribution to the insurance fund with about $1.2 billion of equity to be issued by parent company Edison International and about $1.2 billion of debt at the utility company level.
The company duly launched a $1.2 billion first mortgage bond offering on Aug. 1, pricing a $400 million 10-year note at 95 basis points over Treasurys and an $800 million tap of its existing 2047 series at 130 bp.
The final pricing was well inside initial price thoughts, which were in the area of 125 bp for the 10-year and 150 bp for the short 30-year tranche. Pricing guidance was later refined to 105 bp and 135 bp, plus or minus 5 bp, but the margin of error was exceeded on the shorter tranche when the spread landed at its final, even tighter mark.
Bank of America, JP Morgan and MUFG were the bookrunners.
"We expect that Edison and SCE will benefit from the credit-supportive measures within AB 1054, which offset the risks of its increased susceptibility to catastrophic wildfires due to climate change and California's courts' interpretation of inverse condemnation," wrote S&P analysts on July 26. "In our view, credit-supportive measures within AB 1054 include enhanced liquidity through the use of the insurance fund, a liability cap even if the utility is found to be imprudent, and revised standards of a utility's reasonable conduct."
Meanwhile, Moody's has taken an even rosier view of debt issued by San Diego Gas & Electric, revising the outlook from negative to positive. The rating agency puts SDG&E's creditworthiness one notch higher than SoCalEd, at Baa1.