PG&E shares and bonds plunge on bankruptcy worries

(Reuters) - PG&E Corp's PCG.N shares dived more than 22 percent on Monday after sources said the California utility is exploring filing for bankruptcy protection as it fears a massive charge in the fourth quarter related to potential liabilities from wildfires.

The utility is considering the move for some or all of its businesses, Reuters reported on Friday.

PG&E did not respond to a request for comment.

The company’s roughly $18 billion in bonds also fell on Monday, with over 80 percent of the issues trading down.

Its largest bond, a $3 billion note due in March 2034 with a coupon of 6.05 percent 694308GE1=, fell to a record-low bid price of 91.5 cents on the dollar and its yield rose to nearly 7 percent.

Its yield spread over comparable Treasury debt, a measure of the additional compensation investors demand for holding PG&E bonds rather than a safer government bond, widened to a record 4.3 percentage points.

It was the most actively traded corporate debt issue on the day, according to MarketAxess, while a PG&E December 2027 bond was the fourth most active.

FILE PHOTO: PG&E crew work to repair damage caused by the Camp Fire in Paradise, California, U.S. November 21, 2018. REUTERS/Elijah Nouvelage/File Photo

Credit ratings for PG&E and its Pacific Gas & Electric unit were downgraded by the three main ratings agencies in mid-November. They now sit at one notch above junk-bond territory.

Moody’s Investors Service, Standard & Poor’s and Fitch Ratings did not immediately respond to requests for comment on Monday.

A bankruptcy claim, however, may not hurt the bonds in the long term. PG&E’s enterprise value, a measure of the company’s worth that includes debt, is $32 billion, which would cover the $25 billion to $30 billion in claims from fires in the last two years without impairing the bonds.

Sources had told Reuters that a bankruptcy filing is not certain and the company could receive financial help through legislation that would let it pass on to customers costs associated with fire liabilities.

But that is just a possibility, they said.

“Without adequate political and regulatory support, we cannot rule out a Chapter 11 filing,” Christopher Turnure analyst at J.P. Morgan said in a note.

However, Guggenheim Partners analyst Shahriar Pourreza said bankruptcy will not be the best option as PG&E is too big an utility in California.

“Legislation is the way forward as it will allow to keep the utility alive and mitigate any negative impact one can get from the bankruptcy,” Pourreza said.

The utility said on Friday it is also looking for new directors for its holding company and its unit Pacific Gas and Electric Co.

Shares of the company were trading down at $19.01 in early afternoon trading, their lowest since mid-November.

Reporting by Laharee Chatterjee in Bengaluru and Kate Duguid in New York; Editing by Arun Koyyur