PG&E Dives as Utility Giant Plays Dangerous Game With State

January 07, 2019

Bloomberg
By Mark Chediak

In weighing a bankruptcy filing, PG&E Corp. officials -- whether intentionally or not -- are putting the pressure on California legislators to bail them out. It’s a dangerous game, though, as Monday’s market reaction showed.

The utility’s stock fell as much as 26 percent while prices on its 6.05 percent notes due in 2034 fell 2.8 percent. The bonds are now the most active in the investment-grade market.

In weighing a bankruptcy filing, PG&E Corp. officials -- whether intentionally or not -- are putting the pressure on California legislators to bail them out. It’s a dangerous game, though, as Monday’s market reaction showed.

The utility’s stock fell as much as 26 percent while prices on its 6.05 percent notes due in 2034 fell 2.8 percent. The bonds are now the most active in the investment-grade market.

The company is considering whether to file for bankruptcy as soon as February to protect itself over billions of dollars of potential wildfire liabilities, people familiar with the situation said late Friday, asking not to be identified because the information isn’t public. Two analysts called the idea an “exploitive” tactic that won’t help PG&E’s profile.

PG&E declined to comment, saying it doesn’t speak about “market rumor or speculation.”

The San Francisco-based company has lost more than half its market valuesince the deadliest wildfire in California history broke out in early November. The California Department of Forestry and Fire Protection, called Cal Fire, is investigating PG&E wires as a possible source of the blaze. And that’s compounding financial woes the company was already facing after other fires destroyed parts of wine country a year earlier.

Some analysts said the stock reaction may be overblown.

“The market is overreacting to bankruptcy concerns given the public statements we’ve heard from regulators and politicians,” Travis Miller, a Chicago-based analyst at Morningstar Inc., said in an interview Monday. “Bankruptcy has been on the table for many months, if not years.”

And Daniel Ford of UBS Group AG on Monday raised his 12-month price target for PG&E to $29 from $26, based on recent disclosures by the company asserting it is not responsible for the 2017 Tubbs fire, the second-most destructive in state history. The state has yet to issue a report determining the cause of that blaze.

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