Moody's puts SoCalEd, Edison International on upgrade review

Moody's Investors Service put Southern California Edison Co., Edison International and Edison Funding Co. on upgrade review including Southern California Edison's first mortgage bonds, secured revolving credit, and secured term loan B at Ba2, senior unsecured debt at Ba3, junior subordinated debt at B2 and preferred stock at B3, Edison International's senior unsecured debt at B3 and trust preferreds at Caa2 and Edison Funding's senior unsecured debt at B2.

Moody's said the review for Southern California Edison reflects a number of recent positive developments that have strengthened the company's credit quality, including the Aug. 21 decision by the California Supreme Court that affirmed that the utility's 2001 settlement agreement with the California

Public Utility Commission complied with California law, along with the July 2003 final collection by Southern California Edison of $3.6 billion in procurement-related obligations.

While state and federal regulatory challenges remain, Southern California Edison's financial profile has rebounded from the energy crisis, with no material financial overhang, Moody's said.

The review could result in a multiple-notch upgrade, Moody's said.

For Edison International and its Edison Funding subsidiary, the review is in response to the developments at Southern California Edison.

A significant consideration in Edison International's rating is the structural subordination that exists at the holding company, as Edison International is highly reliant on dividends from its operating subsidiaries to satisfy the holding company's obligations, Moody's said.

With Southern California Edison's full collection of the PROACT balance and the legal challenges to the settlement agreement substantially addressed, Southern California Edison's ability to pay a dividend to Edison International is now substantially improved. Such dividend, if paid, is expected to improve liquidity at the holding company and should enable Edison International to become current on previously deferred interest payments on trust preferred securities, along with meeting a maturing debt obligation in 2004.

Moody's confirms Carrol's

Moody's Investors Service confirmed Carrol's Corp.'s ratings including its $232 senior secured credit facility at Ba3 and $170 million 9½% senior subordinated notes at B3. The outlook remains stable.

Moody's said cConcerns regarding potentially adverse effects from the poorly performing Burger King segment prompted examination of the ratings. However, the confirmation of the ratings and continuation of the stable outlook reflects the company's success at growing Pollo Tropical and Taco Cabana to offset weak Burger King performance, Moody's expectation that average unit volumes and margins in the Burger King segment will begin stabilizing, and Moody's opinion the company will avoid a free cash flow deficit by adjusting the pace of the new store development program.

The ratings recognize the challenges in improving performance at the Burger King segment because of the intense competition within the hamburger quick-service restaurant industry, the company's ambitious intention to rapidly grow the Pollo Tropical and Taco Cabana concepts and the lack of operational synergies between the three concepts, the rating agency noted.

Moody's belief that bank loan covenant compliance could become a concern, unless the Burger King segment soon starts to recover, also impacts its view of the risks facing the company.

However, the ratings recognize that the company's position as the largest Burger King franchisee allows economies of scale unavailable to smaller competitors, its ability to maintain good overall operating and cash flow margins in spite of poor sales at Burger King and the continuing benefits from the fortuitous acquisitions of Taco Cabana and Pollo Tropical.

Moody's expectation that the company will comfortably be able to cover its fixed obligations (cash interest expense and a maintenance capital expenditures) even if customer traffic at Burger King does not rapidly return to prior levels also benefit its opinion of the company.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.