PG & E shares up 40% on the regulator's report want to avoid the bankruptcy of forest fires

SAN FRANCISCO / LOS ANGELES (Reuters) – PG & E Corp shares climbed 40 percent on Thursday after regular business hours, after a report said a regulator would have informed investors that the agency did not want the bankruptcy of the public service this month. deadly forest fire in northern California.

Bloomberg has reported the comment of a California Public Utilities Commission (CPUC) official at a call organized by Bank of America Corp., citing a person familiar with the problem.

A spokesman for the CPUC said he was unable to confirm his remarks. Bank of America declined to comment. The CPUC, however, issued a statement in which it stressed that the law of its country required it to consider the financial health of a public service when considering an application to cover the costs of forest fires.

In addition, on Thursday, Moody's lowered the credit rating of parent company PG & E to a notch above the junk, although many of the company's bonds have already traded at non-investment levels grade.

Investors are looking for clues as to whether the California government will step in to save PG & E's he was to be blamed for the campfire, which destroyed the city of Paradise a week ago, and if any eventual liability exceeded the resources of the public service.

"The CPUC is aware that for a public service to operate safely, it must have the financial means to operate and implement new security measures," the commission said in its statement. .

The increase in PG & E shares after hours more than offset the 31% drop recorded during Thursday's trading session.

PG & E warned Tuesday that it could face a liability exceeding its insurance coverage if its equipment caused a campfire.

PG & E is not currently considering filing for bankruptcy, family members said Thursday.

Thursday's stock market fluctuations illustrate the uncertainty investors face in valuing PG & E shares. The company's market value dropped to $ 9 billion on Thursday, up from $ 26 billion last week.

Analysts at Citigroup Inc. on Wednesday estimated that the potential exposure of the company following a fire could exceed $ 15 billion.

The campfire and a second in Southern California, the Woolsey Fire, are still burning, with 56 confirmed dead and nearly 300 missing. The fires destroyed nearly 9,000 homes and threatened 15,500 buildings, according to the California Department of Forestry and Fire Protection (Cal Fire).

The cause of the fires, the deadliest in California's history, is being investigated. PG & E's Pacific Gas and Electric Co, and Edison International, of Southern California Edison, both told regulators that they had encountered equipment problems in areas where the fires were reported.

TAPPING CREDIT LINES

In an effort to consolidate its finances, PG & E announced this week that it has borrowed more than $ 3 billion in credit lines and Pacific Gas and Electric Co, the maximum available from these sources.

Distressed companies often use their lines of credit to increase their liquidity during their financial problems. Citigroup analysts said PG & E could use this money to pay short-term maturities and in case the rating agencies degrade the utility.

"As the company's cash flow decreases, the risk of bankruptcy could increase unless politicians intervene," wrote Paul Fremont, Mizuho analyst in a note to clients.

"At the moment, we are looking for signs of additional legislative and regulatory support for PG & E as the company follows the various legal procedures with Cal Fire."

Transactions on PG & E bonds were mixed after a general drop the day before.

The yields on its closest maturities, however, remained very high, and the $ 800 million note issued in October 2020 exceeded 10% at one point, the first of PG & E's bonds to cross this threshold.

To prevent PG & E from going bankrupt, California policymakers will be under pressure to extend assistance provided under a law approved last September allowing utilities to transfer to customers a portion of fire-related costs, according to Moody & # 39; s. The bill mitigates fire liability in 2017 and others from 2019, but does not provide any provision for fires this year.