PG&E Bankruptcy Sets up $17B Investment-Grade Bond Default, 3rd-Largest Since 1998

via MarketWatch:

PG&E’s bankruptcy would result in a default of $17 billion of its bonds

 

If Pacific Gas & Electric Co. follows through with its bankruptcy announcement, the country’s largest utility would record the third largest default in the U.S. investment-grade corporate bond market since 1998.

PG&E announced it would file for bankruptcy by Jan. 29 after devastating California wildfires in 2017 and 2018 left it facing billions in potential liabilities. The company also said it would not pay an interest payment due on bonds maturing in 2040 on Wednesday, which would also trigger a default.

Shares of PG&E PCG   are down 72% year-to-date, FactSet data shows.

PG&E’s bankruptcy would mark a dramatic collapse for a company that was once seen as an attractive bet among hedge funds. More than $17 billion of its bonds would be facing default, according to analysts at Bank of America Merrill Lynch.

Defining an investment-grade default as when one that has taken place within a year since the issuer held its high-grade credit rating, the BAML analysts tracked all such defaults from firms included in the U.S. investment-grade corporate bond index since 1998, a year after the credit benchmark was born.

In terms of sheer scale of a default from an investment-grade issuer, BAML found only Lehman Bros. and WorldCom would rank above the PG&E. The last investment-grade firm to default on their bonds was derivatives trader MF Global Holdings back in 2011.

 

Investment-grade defaults are few and far between as the slide to a default is usually drawn out over months, if not years, with companies first dropping out of high-grade bond indexes into sub-investment grade, or junk, before eventually risking nonpayment of their debt obligations.

 

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