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Analysts play waiting game as PG&E Corp. bankruptcy concerns mount


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Analysts play waiting game as PG&E Corp. bankruptcy concerns mount

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A home burned as the Camp Fire raged through Paradise, Calif., in early November 2018. PG&E Corp. subsidiary Pacific Gas and Electric Co. faces billions of dollars in potential liabilities from California's catastrophic wildfires.
Source: Associated Press

There is no clear sentiment among Wall Street analysts on whether PG&E Corp. will seek bankruptcy protection to offset billions of dollars in potential liabilities from California's catastrophic wildfires.

The financial uncertainty continues to weigh heavily on PG&E Corp.'s stock, which fell more than 22% on Jan. 7 to close at $18.95. The company's stock was trading around $17.77 at 2 p.m. ET on Jan. 11.

On Jan. 10, Moody's became the second major credit agency to downgrade the credit rating of PG&E Corp. and utility subsidiary Pacific Gas and Electric Co., or PG&E, to junk status, following S&P Global Ratings' downgrade to a speculative rating.

Facing an estimated $30 billion in liabilities for 2017 and 2018 wildfires, PG&E Corp. is reportedly considering either filing for bankruptcy protection or selling PG&E's gas utility.

"Unlike the August 2017 threat to file bankruptcy in order to get legislation passed ... we believe these headlines have a lot more merit," CreditSights analyst Andrew DeVries wrote in a Jan. 7 report. "News reports also speculate a bankruptcy filing could come in conjunction with some form of state aid so maybe behind the scenes state lawmakers are (understandably) balking at bailing out equity holders."

The analyst noted that a bankruptcy filing is not seen as a "major negative" for bondholders.

"On a very positive note, when [PG&E] filed for bankruptcy in April 2001 they kept making interest payments while principal maturities were repaid, with interest, when the company emerged from bankruptcy in April 2014," DeVries wrote.

CreditSights said it is "staying on the sidelines" with regard to the utility's bonds "but if these bankruptcy headlines scare the remaining [investment-grade] holders into selling and the bonds drop, as we expect they will, we would start to turn positive on the company's bonds."

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Stock scare

The path ahead is much murkier for PG&E Corp. shareholders, despite signs of support from the California Legislature and the state's new governor.

"The legislature will ultimately need to pass a resolution to the issue, and despite the vocal support from the leadership, there is no clear path at this time," Guggenheim Securities LLC analyst Shahriar Pourreza wrote in a Jan. 9 report.

Mizuho Securities USA LLC said the future of PG&E Corp. likely rests with the Legislature and the California Public Utilities Commission.

"Although we do not view bankruptcy as likely at this point in time, we cannot rule it out given that [PG&E Corp.] drew down all of its bank lines ... signaling it may no longer have access to borrowing," Mizuho analyst Paul Fremont wrote in a Jan. 8 report. "We believe there are other sources for cash the company can rely on to avoid bankruptcy including the sale of its natural gas business segment, sale of other key real estate assets and cutting the current $5.5B capital spend budget."

Mizuho lowered the company's price target to $19 from $27.

Height Securities LLC analysts Clayton Allen and Katie Bays noted the Moody's downgrade and protests against the company overshadowed a Jan. 10 CPUC meeting on developing a financial stress test tied to the 2017 wildfires.

"These protests at a procedural CPUC vote lead us to expect significant lobbying against [PG&E Corp.] in the legislature, in a repeat of the [anti-PG&E Corp.] efforts seen last summer," the analysts wrote in a Jan. 11 report. "This further reduces our expectations that any legislation could move quickly, especially a standalone securitization bill of the type likely to be introduced by Assembly Utilities and Energy Committee Chair Chris Holden."

California Gov. Gavin Newsom announced new executive actions on wildfire preparedness Jan. 8 but declined to speculate on the future of PG&E Corp.

Height Securities analysts said they do not expect the state's new governor to strongly support a stand-alone securitization measure.

"He may indicate support for a comprehensive bill, which we still do not expect can come together in a fast enough timeframe to meet [PG&E Corp.'s] need for near-term support," analysts wrote.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.