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January 8, 2019 | PG&E Careens Towards Bankruptcy, S&P Cuts Bond Rating 5 Notches to Deep Junk

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
California electric company PG&E faces bankruptcy with as much as $17 billion in liabilities due to fires.

PG&E Corp. shares plunged and bonds dropped to all-time lows on Tuesday after S&P Global Ratings slashed the electric company’s credit grades to the middle of the junk spectrum from investment grade, citing its limited options for managing wildfire liabilities. More cuts may come, it said. Fitch and Moody’s Investors Service still rate the company at investment grade.

PG&E’s record-low bond prices underscore how much more the company will have to pay to borrow in the future — even if California comes up with a legislative bailout. It also highlights how vulnerable even highly regulated, traditionally dependable stocks like utilities can be to natural disasters such as wildfires and hurricanes.

Bond graders Moody’s and Fitch Ratings have the company under review for further cuts. The firms started cutting in November as PG&E faced potential liabilities from 2017’s wildfires that could top $17 billion, according to a JPMorgan Chase & Co. estimate. The company had about $430 million of cash on its books at the end of September.

If Moody’s follows with a cut to high-yield as well, PG&E may face a cash collateral requirement of at least $800 million to guarantee power contracts, according to a regulatory filing. No other ratings triggers have been disclosed.

PG&E has suspended its dividend and fully drawn its lines of credit. It is considering filing for bankruptcy as soon as February, people familiar with the situation said Friday. State lawmakers and regulators are looking at options including allowing the company to issue bonds to pay its liabilities, or breaking up the utility.

Bailout Would be Idiotic

This is what bankruptcy is for. The boldholders would get crucified, as it should be.

Note that PG&E has filed for bankruptcy before, and it has racked up another $18, billion in long-term debt.

Coming up with $30 billion in aid to save the company would be on the backs of taxpayers to the benefit of bondholders.

But seriously, who knows what the California clowns will do?

Mike “Mish” Shedlock

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January 8th, 2019

Posted In: Mish Talk

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