Edison Capital Mounts Comeback of Its Own
By RAJIV VYAS
Edison Capital says its nearing the end of its dark days.
The Irvine-based investor in power plants and other projects is betting on a shift in fortunes with a fledgling rebound at parent Edison International, according to Phillip Dandridge, Edison Capital’s newly appointed chief financial officer.
“We think that light at the end of the tunnel is actually the light at the end of the tunnel,” Dandridge said.
Edison Capital, which counts $3.7 billion in assets, has seen its credit outlook improve as its parent’s credit rating has made its way back from the junk bin to just below investment grade.
Last month, Southern California Edison made a $4.8 billion payment to creditors, paying off the debt the utility amassed during the power crisis. As a result, Fitch Inc. raised its ratings on both the utility and Rosemead-based Edison International.
But Edison Capital isn’t out of the woods yet. Its ratings have held steady since some big downgrades more than a year ago. What has changed is the financier’s credit outlook, a prelude to a ratings change. Standard & Poor’s has switched Edison Capital to credit watch developing from credit watch negative.
Edison Capital’s credit rating plunged early last year as its parent teetered on the edge of bankruptcy. In January 2001, Moody’s Investors Service and S & P; cut Edison Capital from an A- rating to BBB-. Two weeks later, S & P; further lowered it to CC, while Moody’s took it down to B2.
The result: institutional lenders were unwilling to loan to Edison Capital, Dandridge said.
The crisis “had a tremendous impact on us,” he said. “We lost our ability to borrow, which you need to do in order to grow your company.”
Dandridge’s challenge is to boost Edison Capital’s credit rating. Edison Capital has a $150 million loan payment due in June, which Dandridge said he intends to pay off rather than refinance. After the payment, Dandridge said he plans to work with credit rating agencies to improve Edison Capital’s image.
“One of the most important things that we are looking at is obviously rebuilding that credit rating,” he said. “We are going to be spending a lot of time working with the credit rating agencies. With that comes the ability to access the capital markets once again so that you can have normal growth.”
Edison Capital works like a bank. It makes money by borrowing and then lending at higher rates to power plants, telecommunications projects and even affordable housing developments. The company has financed some 350 affordable housing projects in California and another 38 states.
Like the rest of Edison, Edison Capital underwent downsizing last year, both on its balance sheet and in its workforce. It sold about $300 million in assets in 2001 and let go of some 50 employees. By year’s end, the company had about 70 workers.
“We needed to get liquidity,” Dandridge said. “And in order to do that, we had to sell some of our existing assets. The company today is smaller, not only in terms of assets, but also in terms of personnel as a direct result of the undercollections the utility was facing.”
Southern California Edison ran up huge debts when wholesale power prices started surging in 2000 and it couldn’t pass on the cost to customers under the state’s deregulation scheme.
Edison has been able to get through its problems by working with the state. An even bigger factor has been a drop in wholesale power prices.
Southern California Edison now is making money by selling power, thanks to rates that were capped at the high point of the power crisis. In the fourth quarter, Edison earned $1 billion, thanks largely to gains at Southern California Edison.
Before the power crisis, Edison Capital was a fast-growing part of Edison International. Its assets went from $1.4 billion in 1996 to around $4 billion in 2000, an annual growth rate of more than 30%.
Last year, Edison Capital earned $84 million, down from $135 million in 2000.
Edison Capital now is looking at new ways to grow and to boost profitability, Dandridge said.
“We are certainly past any dispositions and any downsizing,” he said. “We are starting to selectively add staff. We have got our business development people starting to look at new transactions that we might be able to participate in before the end of the year.”
This year, Dandridge said he doesn’t expect any asset sales. By the end of next year, he said he could add $200 million to $300 million in assets, taking the total to around $4 billion,back to 2000’s level.
Financing of power plants and other energy projects,about three-fourths of Edison Capital’s portfolio,still will be a big focus, according to Dandridge.
“Being a subsidiary of one of the largest power companies in the U.S., we are going to have knowledge that would allow us to compete more effectively than, say, a bank, which is just bringing money,” he said.
Dandridge, who previously was vice president of finance at Edison Capital, was promoted to financial chief in early March. He took over for Richard Lucey, who retired this year. Dandridge joined Edison Capital in 1998.
From 1981 to 1998, Dandridge worked with McDonnell Douglas Corp. and later with Boeing Capital, the finance arm of Boeing Co. He earned his bachelors from the University of Southern California in 1981 and his business master’s in 1985 from USC.
