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(Reuters) – Shares of embattled utility PG&E Corp (N:) jumped 40 percent on Friday as fears it could be bankrupted by the fallout of California’s deadly wildfires were eased by signs of support for the company from one regulator.
Bloomberg on Thursday reported the head of the California Public Utilities Commission (CPUC) as saying he could not imagine allowing the state’s largest utility to go into bankruptcy.
CPUC issued a statement emphasizing that state law requires it to consider a utility’s financial health when weighing a request to cover costs associated with wildfires.
The regulator also said it would start investigating PG&E’s corporate governance, structure and operation in the light of the fires, pointing to a possible break up of the company.
But the regulator’s statement came after the company’s shares lost more than 60 percent of their value since the wildfires started a week ago.
Citigroup’s reaction on Friday was to upgrade its recommendation for PG&E stock to “buy”.
“Given the reaction in the stock market, we think there was an appropriate level of urgency that something needed to be done,” Citigroup (NYSE:) analysts wrote referring to the regulator’s statement.
After a slow start on Friday, prices of PG&E’s bonds also tracked the gains for the company’s shares.
The company’s debt had come under broad pressure earlier this week after the company borrowed $3.3 billion under its credit lines and warned it could face liabilities in excess of its insurance coverage should its equipment be found to have caused the fire.
On Friday morning, price gains on PG&E’s more than $18 billion of bonds ranged from around 1.5 to 11.25 points, and their yields, which move in the opposite direction to bond prices, fell broadly.
The biggest gain was seen in the company’s bond due in March 2034 694308GE1=RRPS>, which gained more than 11 cents on the dollar to trade back above par value at 103.75. Its yield dropped more than 1 percentage point to 5.68 percent from 6.84 percent late on Thursday.
The gains came even as both Moody’s Investors Service and Standard & Poor’s cut their credit ratings on PG&E late Thursday to just one notch above junk bond territory and said the outlook remained negative.
Peer Fitch Ratings on Friday also downgraded the utility’s long-term issuer default ratings to “BBB-” from “BBB” and placed it on “rating watch negative”.
With the collapse in its bond prices this week, most of PG&E’s bonds had been trading as though they were already speculative-grade securities, although Friday’s recovery brought many of them back in line with comparably low investment-grade rated corporate bonds.
PG&E has about $500 million of floating rate notes maturing in two weeks and does not face another maturing security until October 2020.
That $800 million bond, with a 3.5 percent coupon 694308GT8=RRPS>, had yielded more than 10 percent at one point in trading on Thursday, the first of PG&E’s securities to have breached that threshold. On Friday morning, the October 2020 note was up by more than 3 points to 94.5 cents on the dollar, with the yield dropping to 6.68 percent.
PG&E’s shares were up about 40 percent at $24.73 in early trading.
The wild swings in the shares of PG&E over the past week have drawn a rush of trading in the options contracts and traders are betting the stock is going to remain prone to wild gyrations in the near term.
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Source: Investing.com
