Moody's cuts Edison, Midwest

Moody's Investors Service said it downgraded Edison Mission Energy's probability of default rating to B3 from B2, corporate family rating to B3 from B2, senior secured bank credit facility to B3 from B2, senior unsecured regular bond/debenture to Caa1 from B3 and speculative-grade liquidity rating to SGL-4 from SGL-3.

Its subsidiary, Midwest Generation Co., LLC's senior secured bank credit facility also was downgraded to Ba3 (LGD 1, 3%) from Ba2 (LGD 1, 2%) and senior secured pass-through to Ba3 (LGD 2, 13%) from Ba2 (LGD 2, 12%).

The outlook is negative.

The downgrade reflects a belief that Edison Mission's cash flow credit metrics will decline appreciably from recent historical results in 2012 and remain in that range for the foreseeable future due to reduced operating margins driven principally by low energy and capacity prices, Moody's said.

The downgrade also considers the expected drop in operating cash flow over the intermediate term due to the extension of bonus depreciation, which is expected to result in delays in Edison Mission's receipt of future tax-allocation payments from its parent, Edison International, the agency said.

Compounding the problem is the fact that projected drop in credit metrics is expected to occur near the timeframe when the revolving credit facilities expire in June 2012 and when the company's $500 million of senior notes mature in June 2013, Moody's said.

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