With PG&E shares plummeting another 30% during Thursday’s session – the most since PG&E filed for bankruptcy in 2001 – and bringing their drop in the past week to an unprecedented 64% while dragging the company’s stock price to levels not seen since its emergence from bankruptcy in 2004, investors have been frantically searching for clues from the state of California whether the company that has been implicated as the cause of California’s devastating Camp Fire will survive or be forced to file for bankruptcy, dragged by the mounting billions in legal .
They finally got it on Thursday afternoon, after a California Public Utilities Commission official told investors on a conference call that the agency doesn’t want PG&E to go into bankruptcy, and in fact “can’t imagine a PG&E bankruptcy now”, Bloomberg reported citing a person familiar with the matter.
The call, which was hosted by Bank of America analysts, included PUC President Michael Picker and other commission officials.
Following Picker’s statement, PG&E shares soared 42% higher after hours, erasing all of the day’s losses.
It wasn’t clear just what the CPUC had in mind in terms of a financial backstop funding to avoid a bankruptcy, but Bloomberg also reported that California policymakers were informally weighing legislation that would let PG&E sell bonds to cover any possible liabilities arising from the deadly Camp Fire, though no formal proposals have been made. It was also not clear just what masochistic investors would purchase bonds that would basically be a stop gap preventing the equity from getting wiped out in a worst case legal scenario.
Because the legislature isn’t in session, the earliest any proposal could be introduced would be Dec. 3, when new members are sworn in. Lawmakers may opt to introduce amendments to a wildfire liability law signed in September, according to a research note Thursday from Bank of America Corp. Provisions of the law designed to help PG&E pay for last year’s wildfires could be extended to 2018 fires.
“Any assembly member or senator would be able to introduce legislation on December 3 but I have not heard of anyone expressing their intent to do so,” said Kevin Liao, a spokesman for the state assembly speaker. Evan Westrup, a spokesman for California Governor Jerry Brown’s, wouldn’t comment on possible state actions to help PG&E.
As reported earlier, the Camp Fire has claimed at least 56 lives so far. As bodies continue to be recovered, lawmakers say they’re focused on responding to the needs of the victims even as anger focused at PG&E builds.
The latest round of devastating wildfires have caused the worst stock rout for PG&E since the California power crisis of 2000-2001, which forced the company to put its utility subsidiary through bankruptcy after talks over a state bailout failed. During that restructuring, power supplies were unaffected but PG&E customers were forced to pay above-market rates for electricity for years.
While there’s a growing consensus that any path for PG&E’s recovery will have to run through Sacramento, state action will be complicated by changes from the recent election, including a new governor, Gavin Newsom. But any action perceived as helping utilities over wildfire survivors would be sure to draw controversy, as it did earlier this year over legislation that provided the companies some relief from their liabilities.
An alternative is quasi takeover of PG&E by the state, wiping out the equity, although it wasn’t immediately clear what the mechanics of such a transaction would be. Still, the following latest headline from Bloomberg suggests that the state is actively looking at some form of intervention, one which might result in the partial or full impairment of the company’s equity.
- CALIFORNIA PUC TO EXAMINE PG&E STRUCTURE, GOVERNANCE AFTER FIRE
Statement this afternoon from CA Public Utilities chairman Michael Picker says #SB901 rulemaking for wildfire/utilities is coming… but don’t miss this big comment about PG&E tucked into the final sentence. pic.twitter.com/WxRdarFDxI
— John Myers (@johnmyers) November 15, 2018
Separately, on Thursday evening Moody’s downgraded PG&E’s long-term credit rating from Baa2 to Baa3, the lowest investment grade rating; Moody’s cited the material exposure to new potential liabilities associated with the Camp fire and the uncertainties associated with how the fire-related liabilities will be recovered.
“The 2018 wildfires are not covered under the recently passed California legislation SB 901, an omission that will now have more serious credit implications for the company,” VP-Senior Credit Officer, Jeff Cassella said.
Moody’s also kept the utility on review for further downgrade to junk, which means that in the great race for who will be the first mega “fallen angel” of the current credit cycle, it is now a three way race between PG&E and its $19.4 billion in debt, General Electric and Ford. Should the CPUC’s hopes to avoid a PG&E default be dashed, PG&E may go from investment grade to default in the shortest period of time since the bankruptcy of Lehman.
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