PG&E Becomes Second Calif. Utility to Default
By Jonathan Stempel
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NEW YORK (Reuters) - PG&E Corp. (NYSE:PCG - news) said on Wednesday that it and its Pacific Gas and Electric Co. unit defaulted on $76 million of commercial paper, and that the state's largest utility will be unable to trade with California's major power distributor as of Friday.
PG&E and Pacific Gas and Electric Co. also said they are in default under some of their credit lines, and that their lenders refused to allow them on Tuesday from drawing on two of those lines. The California Power Exchange arranges the distribution of power in that state.
The announcement, in mirror filings with the Securities and Exchange Commission, came on a day the California Independent System Operator, which runs most of the state's transmission grid, enacted rolling blackouts throughout the state in a desperate bid to avoid overloading the grid.
It also came one day after Southern California Edison, the state's No. 2 utility, said it defaulted on $596 million of payments to bondholders and other creditors.
The default by San Francisco-based PG&E and Pacific G&E marks just the third time in the last six years that a U.S. company has defaulted on commercial paper, or short-term debt.
Pacific G&E and SoCal Edison, a unit of Rosemead, Calif.-based Edison International (NYSE:EIX - news), have run up about $12 billion of debt because a rate freeze keeps them from passing on their skyrocketing wholesale power costs to consumers.
Pacific G&E serves about 13 million customers in northern and central California, while SoCal Edison, which is based near Los Angeles, serves about 11 million Californians.
PG&E shares closed Wednesday on the New York Stock Exchange at $9-5/8, down 1-5/16, or 12 percent. Shares of Edison International closed on the Big Board at $8-7/8, down 11/16, or 7.2 percent.
Lenders rarely default on commercial paper because of its short-term nature, and because they often can't issue it in the first place if their credit quality is not high.
A unit of builder Armstrong Holdings Inc. (NYSE:ACK - news) defaulted on commercial paper in November, while Mercury Finance Co. defaulted on some paper in January 1997.
CREDIT LINE DEFAULTS, TRADING PRIVILEGES SUSPENDED
In its filing, PG&E also said it is in default of a $436 million short-term credit line and $500 million long-term credit line. PG&E said its lenders are entitled to accelerate its repayment of about $434 million of outstanding debt under the $500 million credit line.
Pacific G&E, meanwhile, said it is in default of an $850 million credit line.
Many of the defaults were triggered by cuts in the last two days of PG&E's and Pacific G&E's bond ratings to low junk status by credit rating agencies Moody's Investors Service and Standard & Poor's.
Separately, Pacific G&E said the California Power Exchange plans to suspend its trading privileges as of Friday. It said the rating downgrades required it to post collateral, and it cannot. Pacific G&E said it owes $583 million to this entity on February 1.
PG&E said it was not immediately available for comment.
DOWNGRADES
PG&E said it defaulted on $43 million of commercial paper as of Wednesday, while Pacific G&E defaulted on $33 million.
The defaults came after their lenders on Tuesday blocked them from drawing on their credit lines. The parent said it has cash reserves of $347 million, while Pacific G&E has reserves of $700 million.
The parent said Pacific G&E has no borrowings under the defaulted $850 million credit line, which is now being fully used as backup for the unit's commercial paper. It said Pacific G&E has $873 million of commercial paper outstanding, of which $437 million will mature by January 31.
Pacific G&E also has a $1 billion credit line, but as of January 16 has drawn down $938 million under that line to pay commercial paper, PG&E said.
PG&E said its $436 million credit line backs up its own commercial. PG&E said it has $501 million of commercial paper outstanding, of which $263 million will mature by January 31.
Separately, PG&E said Pacific G&E said it owes $420 million to various power generators in early February, and $410 million in early March. The utility is seeking to avoid having to pay for power delivered in January until April 1.
Moody's on Tuesday its bond ratings for Pacific G&E and PG&E on Wednesday to a respective ``Caa2'' and ``Caa3'' on Wednesday, and its ratings for their commercial paper to ``Not Prime.'' S&P on Tuesday cut its equivalent ratings to ``CC'' and ``C.'' |
