Despite last week's long-awaited and encouraging settlement between troubled California utility Southern California Edison (SCE) and the California Public Utilities Commission (CPUC), asset-backed investors with a penchant for rate-reduction bonds may still not be adequately convinced that the sector is completely devoid of headline risk, sources say.

Although the two parties hammered out a crucial deal last Tuesday allowing the volatile utility to pay off $3.3 billion of its $3.9 billion debt - setting a favorable tone and giving some confidence to bondholders who were put off by utility-sector headline risk earlier this year - an anticipated improvement in the liquidity of California stranded-cost bonds was not immediately seen by ABS traders.

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