PG&E Hits Near 16-yr Low On S&P Global’s Rating Downgrade

PG&E Hits Near 16-yr Low On S&P Global’s Rating Downgrade
January 9, 2019


PG&E Corporation (NYSE: PCG) plunged 7.34% yesterday to close at $17.56, which is not far from its 16-year low. The sudden retirement of an executive officer of the utility company increased the fear of potential bankruptcy. The share price is down 64% from $48.80 recorded on November the 7th, the day before the deadly Camp Fire began in Northern California. A rating downgrade by S&P Global Ratings also aided the downtrend. The bonds recorded new historic lows after the utility company was put on a negative watch.


Bankruptcy news rattles PG&E stock

It was reported last weekend that PG&E, based in San Francisco, is looking at the option of filing some or all of its firms for bankruptcy protection as it stares at billions of dollars in fines related to deadly wildfires in the past two years. On the morning of November the 8th, the Camp Fire broke out near the Paradise mountain community, engulfing the town and causing at least 86 fatalities and scorching more than 150,000 acres of land in the most deadly and disastrous wildfire in state history.

PG&E already faces dozens of lawsuits filed by homeowners and businesses after a similar incident in 2017. The utility company, which supplies about 16 million Californians with electricity, is planning to file for bankruptcy protection, reports Reuters. A class-action lawsuit brought forward last month accuses its electrical infrastructure of carelessness and lousy maintenance. Another class-action lawsuit calls the Camp Fire an “inevitable byproduct of PG&E’s willful and conscious disregard of public safety.”

The court documents filed by the California Attorney General reveal that the firm could face manslaughter or murder charges if found responsible for the recent deadly wildfires of the state.

Hugh Wynne, co-head of SSR Power Equipment & Renewable Energy, believes that PG&E’s total liability could be up to $26.5 billion. Wall Street analysts, however, anticipate the company to be accountable for up to $30 billion. The total market value of the utility company is now lower than $15 billion, and PG&E is left with only $3.5 billion in cash after borrowing from a prevailing revolving credit line.

The bankruptcy filing would protect PG&E from payment obligations and give it enough time to work out a strategy to deal with claims. The company regards the move as an emergency, partly because a considerable financial charge could be recorded for wildfire liabilities in the fourth quarter of 2018.

In a statement, the company said: “PG&E’s board and management are working diligently to assess the company’s potential liabilities as a result of the wildfires and the options for addressing those liabilities. We recognize the need to balance the interests of many stakeholders while maintaining safe, reliable and affordable services for our customers, which is always our top priority.”  

Commenting on the bankruptcy filing news, Christopher Muir, an analyst at CFRA, said: “The bankruptcy preparations could be designed to put pressure on the government to find a solution; however, we view the possibility of any legislation becoming law as uncertain.”

PG&E is also exploring the sale of its gas unit, possibly through a court-managed bankruptcy auction. In a filing with the Securities and Exchange Commission, the company has disclosed that Patrick Hogan, Senior Vice President of electric operations at Pacific Gas and Electric Co., will effectively step down on January the 28th. The company further revealed that Michael Lewis had already assumed the position of Hogan yesterday. Hogan joined PG&E in 2013, and Lewis joined the company in August of 2018 as the Vice President of Electrical Distribution.

Yesterday, the stock fell as much as 17% after S&P Global Ratings downgraded the utility’s company long-term credit rating to junk, and put the utility firm on a negative watch. The company’s bonds recorded new historical lows.

S&P slashed its rating on both PG&E and its Pacific Power & Gas Co-operating utility to “B” from its earlier rating of “BBB-,” the lowest level of supposed investment-grade ratings. Credit ratings for PG&E and its Pacific Gas & Electric unit were downwardly revised by the three leading rating agencies in mid-November.

It is worth remembering that Pacific Gas and Electric utility filed for bankruptcy in 2001 when rising wholesale power costs put California into a crisis. PG&E Corp., the holding company, has never filed for bankruptcy. The utility recovered three years later, without any damage to its business. The news is expected to keep the stock bearish in the days to come.

The historical price chart indicates that the stock is trading far below its 50-day moving average. Additionally, the MACD indicator is making new lows. As a result, we can anticipate the stock to remain weak in the short-term.

PG - technical analysis - 9th January 2019

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Richard W

Richard W

Richard is the guy who know everything there is about the financial industry, working in a top firm for over 15 years, he will give the lowdown on some of the biggest companies in the world

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