US power giant in debt default

Storms have contributed to the utility's problems

Crisis-hit US utility Southern California Edison has temporarily suspended at least $596m of debt payments, and confirmed it is in default to some of its bondholders.

SoCal Edison is one of two Californian utilities caught up in the state's power crisis, which has brought the state to the brink of an electricity blackout.

The default move has been taken so the company can continue trading, and has sent jitters through US financial and stock markets, fueling fears that the firm is on the brink of bankruptcy.

The default will also slash SoCal's credit rating, and will make it much more expensive for the firm to raise new funds in the future.

Moody's Investor Services immediately cut SoCal and its parent company Edison International's debt and credit ratings to junk status, increasing their borrowing costs.

SoCal Edison's latest move is a stop-gap measure while attempts continue to rescue the company.

By 1700GMT, Edison International's share price fallen 11%, as the state's power supplies dwindled to red-alert levels.

Continuing service

In a submission to the US Securities and Exchange Commission, SoCal said it took the action to "conserve cash... so it can continue to provide services to its customers."

The company, which is part of Edison International, said it had "temporarily suspended" payment due on Tuesday of $230m on principal and interest on 5.875% notes, $215m to the California Power Exchange, and $151m to qualifying facilities, as well as "certain other obligations".

Failure to make the note payment constitutes a default under the notes, as well as a default on SoCal Edison's and Edison International's credit facilities, SoCal Edison said.

Separately, SoCal Edison said it and Edison International plan to postpone release of their fourth quarter and year-end 2000 fiscal results pending further developments.

SoCal Edison and Pacific Gas and Electric, a division of San Francisco-based PG&E, have run up billions of dollars of debt this year because they are subject to a rate freeze and have been unable to pass on their escalating wholesale power costs to consumers.

Bank of America

The companies' creditors include Bank of America, which has been rocked by rumours that it is in financial difficulties.

Bank of America, one of the top US banks, said on Tuesday that quarterly profits dropped 27%, as it warned they would in December, because of loan and investment losses.

The bank's shares were hit earlier this month due to speculation that a leading California utility teetering on the edge of bankruptcy had drawn down a line of credit at Bank of America and that the bank had large trading losses.

Bank of America has denied having any significant losses, and has said its bad loans shouldn't be any worse that it had previously forecast.

Emergency declared

SoCal Edison's move came as California declared a Stage Three power emergency, the highest level alert, for only the third time ever.

The state cited a severe shortage of power and natural gas needed to generate electricity.

Rolling power blackouts to ease the heavy load on the system were unlikely, although the possibility always existed in a stage three alert is called, a spokesman for the Californian Independent Operator System (ISO), the agency that oversees the operation of most of the state's power grid.