By Noel Randewich
SAN FRANCISCO (Reuters) – PG&E Corp <PCG.N> shares soared 37 percent in after-hours trade on Thursday after a report that a California regulatory official told investors that the agency does not want the utility to go into bankruptcy.
Bloomberg reported the comment by a California Public Utilities Commission (CPUC) official on a call hosted by Bank of America Corp <BAC.N>, citing a person familiar with the matter. A CPUC spokesman said he could not confirm the remarks and Bank of America declined to comment. PG&E said it would not speculate on stock market moves.
Shares sank 31 percent on Thursday, only to then rise in after-hours trading, as investors speculated over the impact of this month’s deadly wildfire in northern California on the utility’s finances.
PG&E warned this week that it could face liability that exceeds its insurance coverage if its equipment caused the Camp Fire that a week ago destroyed the town of Paradise, sending investors scrambling to ascertain the financial cost.
PG&E currently has no plans to file for bankruptcy, people close to the company said on Thursday.
The wild trading swings on Thursday illustrate the uncertainty investors face in valuing PG&E’s stock. The company’s market value dropped to a low of $ 9.2 billion on Thursday from $ 26 billion just last week.
Citigroup Inc <C.N> analysts on Wednesday estimated the company’s potential exposure from the blaze could exceed $ 15 billion.
The Camp Fire, and a second in Southern California, the Woolsey Fire, are still burning, with 56 people confirmed dead and nearly 300 still missing. The fires destroyed nearly 9,000 homes and threatened 15,500 buildings, according to the California Department of Forestry and Fire Protection (Cal Fire).
The causes of the fires, the deadliest in California’s history, are still under investigation. Pacific Gas and Electric Co, PG&E’s subsidiary, and Edison International’s <EIX.N> Southern California Edison have both told regulators they experienced equipment problems in areas around the times the fires were first reported.
GRAPHIC – PG&E stock slides on fire fear – https://tmsnrt.rs/2QJvpWH
TAPPING CREDIT LINES
In a bid to shore up its finances, PG&E said this week it borrowed more than $ 3 billion under credit lines available to it and Pacific Gas and Electric Co, the maximum available from those sources.
Distressed companies often tap their credit lines to boost cash as they work through their financial troubles. Citigroup analysts said PG&E may use the money to pay near-term maturities and in case credit ratings agencies downgrade the utility.
“As the company’s cash position diminishes, the risk of bankruptcy could increase unless politicians intervene,” Mizuho analyst Paul Fremont wrote in a note to clients on Thursday.
“For now, we look for signs of additional legislative and regulatory support for PG&E as the company works through the various legal processes with the Cal Fire.”
Trading in PG&E bonds was mixed after they fell broadly a day earlier.
Yields on its nearest maturities remained very elevated, however, and its October 2020 $ 800 million note <694308GT8=> shot above a 10 percent yield at one point, the first of PG&E’s bonds to pierce that threshold.
To keep PG&E from going bankrupt, California policymakers will face pressure to extend assistance provided in a bill approved last September allowing utilities to pass on to customers some of the costs related to wildfires, according to Moody’s. The bill mitigates liability from fires in 2017 and others starting in 2019, but made no provision for fires this year.
(Reporting by Noel Randewich; additional reporting by Dan Burns and Jessica DiNapoli in New York; Editing by Lisa Shumaker)