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The biggest bankruptcy of January is PG&E Corporation and its subsidiary Pacific Gas & Electric Company

February 05, 2019 | Cbonds

On January 29, the American energy holding company PG&E Corporation and its subsidiary Pacific Gas & Electric Company filed a petition to the court of Northern California with a request to declare them bankrupt. The company is engaged in the distribution and transmission of electricity and gas to 5 million of households in California and neighboring states.  

The deterioration of the financial condition of PG&E Corporation is caused by California wildfires. The company is accused of improper operation of the equipment, which could cause a catastrophic scale of fire spread. More than 750 lawsuits were filed to the address of the holding company, both by victims of the disaster in question and by insurance companies that paid for damage and got the subrogation right. 

In early January, PG&E Corporation announced their intention to file a petition with a request to declare them bankrupt. For investors, this was a turning point – the company previously had investment ratings from three major agencies: Baa2 (Moody’s), BBB-(S&P) and BBB-(Fitch). Due to unscheduled reporting, ratings have been lowered and are now at the level of Caa3 (Moody’s), D (S&P) and D (Fitch). 

Most recently, the issuer's securities were a safe investment — many funds held company stocks and bonds. BlueMountain, a shareholder of PG&E Corporation , considered the company solvent to the last and encouraged the board of directors not to file a petition for bankruptcy. The commencement of bankruptcy proceedings triggered a default for covenants of 32 dollar issues worth 17 billion USD. If we estimate the scale of the problem in the Russian real life, the amount of unfulfilled obligations is almost 2 budgets of Saint Petersburg (the city has planned for 2019 643 billion rubles or 9.8 billion USD). 

The scale of bankruptcy threatens investments in alternative energy. Most of California's electricity producers are solar and wind generation companies for which PG&E is the only power buyer. The holding company is asking the court to allow it to terminate long-term contracts for power delivery totaling 42 billion USD; hearings regarding the case have already begun. 

The article was prepared by Nikita Kalinin (kalinin@cbonds.info)

Company: PG&E

Full company namePG&E Corporation
Country of riskUSA
Country of registrationUSA
IndustryPower

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