PG&E Corp. and utility Pacific Gas and Electric Co. saw their credit ratings cut by all three major rating agencies on Jan. 14 after they announced plans to seek Chapter 11 bankruptcy protection related to billions of dollars of potential liabilities from devastating 2017 and 2018 wildfires in Northern California.
S&P Global Ratings downgraded the issuer credit ratings on PG&E Corp. and Pacific Gas & Electric, or PG&E, to CC from B, and lowered the short-term rating on both entities to C from B. The rating agency cut PG&E's unsecured debt to CC from BB-.
The agency kept the ratings on CreditWatch with negative implications, based on the parent company's Jan. 14 disclosure that it and its utility subsidiary are preparing to file for bankruptcy protection on or about Jan. 29 and that it is unlikely to make a near-term $21.6 million interest payment due on its 5.4% senior notes due Jan. 15, 2040.
PG&E Corp. made the announcement one day after the departure of CEO Geisha Williams and amid heightened alarm over intensifying wildfires caused by climate change and, in some cases, electricity infrastructure. In the wake of the announcement, Gov. Gavin Newsom, along with state lawmakers and regulators, vowed to keep the lights on while protecting ratepayers and fire victims.
The recovery rating on the unsecured debt remained unchanged at 1, reflecting the agency's expectation of a "very high recovery" of 90% or greater. "At this time, [PG&E]'s debt is all unsecured and totals nearly $22 billion. We note that litigation exposure could be quite substantial, but the amount of excess value of nearly $30 billion provides substantial cushion to absorb uncertainties, while still providing full coverage to [PG&E]'s unsecured debt claims," said S&P Global Ratings in a Jan. 14 report.
Moody's lowered the ratings of PG&E Corp. and PG&E, including the corporate family rating to Caa3 from Ba3 and probability of default rating to Ca-PD from B1-PD. The rating agency also cut the holding company's senior unsecured rating to C from B2, its speculative grade liquidity rating to SGL-4 from SGL-3, and utility PG&E's senior unsecured rating to Caa3 from Ba3.
Moody's changed its rating outlooks on both entities to negative from rating under review, concluding the review for downgrade that the agency initiated in November 2018.
"The ratings consider that ultimate recovery for the company's unsecured creditors is highly uncertain, owing to the unknown and potentially significant liabilities the company may potentially be held accountable for because of its role in the wildfires," Moody's said in a report. "In addition, there is a lack of clarity on the actual size of the total claims for property damages, legal fees and any other punitive damages. The company's total wildfire exposure may take several years to determine and may impact recovery for debtholders."
The rating agency said it expects to withdraw all debt ratings immediately following any bankruptcy filing.
Fitch Ratings downgraded the long-term issuer default ratings of PG&E Corp. and PG&E to C from BBB-. The rating agency also lowered the parent company's senior unsecured debt to C/RR6 from BBB-, and PG&E's senior unsecured debt to CC/RR3 from BBB and its preferred stock to C/RR6 from BBB-.
Fitch warned that it would downgrade the entities to D if an event of default is not cured with a 30-day period with respect to the 2040 senior notes or if the company files for bankruptcy protection ahead of the event of default.
"The imminent bankruptcy filing reflects the culmination of a crisis of confidence driven by potential wildfire-related liabilities in the tens of billions of dollars related to the Tubbs and Camp Fires without a clear path to timely recovery of such costs under California law," Fitch said in a Jan. 14 report.
PG&E Corp.'s financial woes in the wake of 2017 and 2018 wildfires prompted multinotch downgrades from credit rating agencies, and stock prices tanked. The company's shares plummeted by nearly half in early morning trading Jan. 14 after the company filed the notice. The shares, which traded near $50 as recently as November 2018, closed at $8.38 on Jan. 14, losing 52% on the day.
This S&P Global Market Intelligence news article contains information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. The original S&P Global Ratings documents referred to in this news article can be found here.