PG&E Falls Further After S&P Downgrades Credit Rating

The rating agency says PG&E may have limited access to capital amid liability claims.
William SprouseJanuary 8, 2019
PG&E Falls Further After S&P Downgrades Credit Rating

S&P Global downgraded California power company PG&E to “B” from “BBB-” amid uncertainty over its potential liabilities stemming from deadly wildfires. S&P’s single-B rating is two notches below investment grade.

Shares fell more than 22% on Monday, and the company’s largest bond fell to a record-low bid price of 91.5 cents on the dollar as it reportedly mulled a bankruptcy filing. The utility has about $18 billion in bonds.

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Last week, California’s insurance commissioner reported $9 billion in insured losses from the 2018 wildfires. The California Public Utilities Commission also accused PG&E of falsifying data related to the safety of its natural gas pipelines.

The company’s share price plummeted by 64% following the massive Camp Fire, but later rallied by about a third.

Earlier Tuesday, PG&E said in a filing that Patrick Hogan, the top executive overseeing the electric division, is set to retire on Jan. 28. He will be immediately replaced by Michael Lewis, another PG&E executive.

S&P Global said it could cut PG&E’s credit rating even further if steps are not taken to improve the regulatory situation.

“We could also lower the ratings by one notch or more if management does not clearly articulate specific steps it will take to preserve credit quality over the long term,” S&P said.

Christopher Muir, an analyst at CFRA, said the bankruptcy preparations could be a way to put pressure on regulators to solve the problem, but uncertainty remained.

A law passed last year in California requires regulators to consider the financial condition of a utility when evaluating damages caused by wildfires to determine the maximum liability that won’t harm customers.

S&P said it expected PG&E’s access to capital be limited to issuing secured debt.

“We expect that negative public sentiment and the increased political pressure will challenge the regulators’ willingness and ability to implement measures to protect credit quality over the near term,” S&P said.