Moody's downgraded PG&E Corp. and utility subsidiary Pacific Gas and Electric Co.'s credit ratings to junk status, citing mounting liabilities from recent California wildfires.
The rating agency lowered the utility company's senior unsecured credit rating from Baa2 to Ba3 on Jan. 10, two notches below investment-grade, and lowered PG&E Corp.'s senior unsecured rating to B2 from Baa3.
"We see a much more challenging environment for PG&E, as potential liabilities grow, liquidity reserves decline and access to capital becomes more uncertain," Moody's Senior Credit Officer Jeff Cassella said in a statement. "The company is increasingly reliant on extraordinary intervention by legislators and regulators, which may not occur soon enough or be of sufficient magnitude to address these adverse developments."
Facing an estimated $30 billion in liabilities for 2017 and 2018 wildfires, not including penalties, fines or punitive damages, PG&E Corp. may be considering either filing for bankruptcy protection or selling its gas utility, though the analysts said the latter would do little to offset those liabilities. Moody's noted that PG&E Corp. could incur additional financial penalties after a California Public Utilities Commission report found that the company falsified pipeline data from 2012 to 2017, potentially indicating "a systemic weakness ... with respect to corporate governance and oversight policy."
Moody's also assigned a Ba3 corporate family rating to the companies and said further downgrades may be required, depending on whether the state Assembly takes action. Legislators in 2018 passed a law obliging regulators to apply a "stress test" that would cap utility liabilities and pass costs to ratepayers to ensure reliable electricity services, but it only enables PG&E Corp. to seek approval from the California Public Utilities Commission to issue bonds secured with revenues from customer rates to pay wildfire liabilities from the 2017 wildfires.
The move comes after S&P Global Ratings downgraded PG&E Corp. and Pacific Gas and Electric from an investment-grade credit rating of BBB- to a speculative rating of B, equivalent to B2 on Moody's scale.