I have two bond positions in Edison Mission Energy (EME) in my Etrade account. It's rated B- by S&P and Caa1 by Moody's. According to the bond entry for EME in Etrade, EME's parent company is Edison International which trades under EIX on the stock exchange. Looking at the S&P report for EIX, however, S&P rates them BBB- versus B- for the Edison Mission Energy bond. Why the difference? Does that mean that if Edison Mission Energy has problems, EIX won't pay off bondholders? I didn't think that was possible.
Get hold of the prospectus for the EME bond issue and read it carefully. You will probably find that the EME bond is supported by specific assets, and not by the full faith and credit of EIX. Or at least that other liabilities have higher claim on whatever assets.Bond rating agencies are experts at creating the ratings. A rating of less than investment grade indicates they could not find assets to refund the bond. Getting repaid at maturity depends either on the success of the business venture the funds were invested in or the ability of the company to get new financing when the bond comes due.Most would trust the rating agencies.
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