John Moorlach, chairman of an ad hoc committee of unsecured creditors to Edison International, says he has the votes to force the utility into bankruptcy if warranted but for now is awaiting a key July payment date.
“Edison International has paid its interest in a timely manner and there is no default so far,” said Moorlach, the county’s treasurer and tax collector. “And I don’t fear a default.”
Orange County holds $20 million of the $250 million in outstanding medium-term notes issued by Rosemead-based Edison International, parent of Southern California Edison, which has teetered on the financial brink for the past few months.
The notes mature on July 18, when Edison is scheduled to pay the interest as well as repay the principal.
Late last year, just before the financial crisis at Edison surfaced, the county invested $40 million in Edison International commercial paper and medium term notes for its Educational Investment Pool. In September, Moorlach invested $20 million in medium term notes and another $20 million in commercial paper a week or so before Edison’s bonds were downgraded.
Moorlach, who gained fame for predicting the county’s 1994 bankruptcy, took heat for the moves.
But Moorlach is quick to point out that Edison repaid $20 million in debt in January. Currently, Edison’s holding accounts for about 1% of OC’s total educational investment portfolio, he said.
“When Moorlach bought these notes, Edison’s issue had the highest credit rating,” said Chriss Street, chief executive of Newport Beach-based in vestment firm Street Asset Management LLC, who’s also the financial adviser to the ad hoc unsecured creditors committee.
Like Moorlach, Street said forcing Edison into court isn’t the answer.
“There is no upside to that at this point,” he said “We have the votes to do that, but we have made a commitment to work with the company.”
Edison also is looking at ways to restructure its financing and improve its credit rating. It recently announced plans to raise $1.2 billion for its Mission Energy Holding Co., which is based in Irvine.
The notes issued by Mission Energy are rated double B minus by Standard & Poor’s. The rating is higher than those of Edison, which expects its credit rating to improve once the issue is completed.
A higher credit rating for Edison would mean the company would be able to borrow at a lower cost in the future.
“Mission Energy serves as a strong cash-flow generator,” Moorlach said.
Edison is trying different ways to refinance its debt and restructure its balance sheet, according to Moorlach.
“I think they will be able to restructure their financing and will continue to honor their commitments,” he said.
Still, Moorlach said he hasn’t been sitting tight.
“When our notes were downgraded, we did not sit still and play the blame game,” he said.
Moorlach said he had apprehensions that Edison could file for bankruptcy and default on its interest and principal payments to the county. Immediately after Edison’s notes were downgraded in January, Moorlach made Street the financial advisor to the ad-hoc committee.
Street, a founding partner of Street Asset Management, also was a soothsayer of OC’s bankruptcy. While attending a Newport-Mesa Unified School District board meeting, Street came across the district’s financial statement. The document piqued his interest because at the time his daughter attended one of the district’s schools. What he saw raised his professional ire.
After going through the statement, he saw a potential financial crisis looming for the district and all of OC. Along with Moorlach, Street is among the few financial professionals who warned about the potential disaster that former treasurer Robert Citron’s speculative investments could have on OC.
“Street is among the best people in the country in dealing with bankruptcies,” Moorlach said.
On Street’s advice, Moorlach formed the ad hoc Edison committee.
“By forming the ad hoc committee, we are letting Edison know that we are not going to sit still and that they better honor their commitment,” Street said.
According to Moorlach, what matters is whether Edison meets its commitments in a few weeks.
“If Edison files for bankruptcy after July 18, I am not concerned,” he said. n
