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Pacific Gas' Filing Hits Other Stocks

Wall St.: Fear of exposure to the utility has investors reacting negatively to the shares of its major lenders, power suppliers and bond insurers.


Pacific Gas & Electric Co.'s bankruptcy filing sparked a sell-off in stocks of the utility's major lenders, power suppliers and bond insurers Friday, as investors feared that the companies' earnings would be hurt by the reorganization and that Southern California Edison might take the same route.

Shares of the utilities' own parent companies, PG&E Corp. and Edison International, respectively, also were hammered, even though PG&E and its other subsidiaries did not join Pacific Gas & Electric in filing under Chapter 11 of the U.S. bankruptcy laws.

PG&E plunged $4.18, or 37%, to $7.20 a share, and Edison tumbled $4.39, or 35%, to $8.25 a share, both on the New York Stock Exchange. Sempra Energy, California's other major investor-owned utility, was off $1.85 to $22.30, also on the NYSE.

Under Chapter 11, Pacific Gas & Electric will keep operating, but its existing debts are frozen while the company works out a plan to pay its creditors. However, financial overhauls under Chapter 11 often result in creditors getting less than full payment.

"There's a fear they will not be paid what they're owed up to this point," said Linda Byus, who follows power-generating companies for the investment firm Dresdner Kleinwort Wasserstein in Chicago. "There is the possibility they won't get 100 cents on the dollar."

Robert Glynn Jr., chairman of San Francisco-based PG&E and Pacific Gas & Electric, said Friday that "our goal is to pay all our bills in full" under the reorganization. The presence of a U.S. bankruptcy judge should help finalize what have been unproductive negotiations between the utilities, state regulators and the companies' creditors, he added.

But Wall Street was skeptical as investors pounded most of the stocks of Pacific Gas & Electric's bank lenders, bond insurers and power suppliers.

Bank of America fell $2.26 to $49.59 a share, and J.P. Morgan Chase lost $2.11 to $40.39, Bank of New York--the utility's biggest creditor with $2.21 billion in outstanding loans--fell 96 cents to $48.34, and Bank One skidded $1.29 to $33.61 a share, all on the NYSE.

"The stocks sold off in part due to the concerns of possible losses stemming from the bankruptcy filing," said Joe Morford, a bank analyst with brokerage firm Dain Rauscher Wessels in Minneapolis. "There could eventually be a hit to their earnings."

Power generators supplying electricity to California also saw their stocks fall sharply. They included Duke Energy Corp., which lost $2.30 to $40.10 a share; Enron Corp, down $2.20 to $53.50; Dynegy Inc., off $3.42 to $47.50; and Calpine Corp., down $3.66 to $47 a share, all on the NYSE. But AES Corp. bucked the trend and rose 97 cents to $43.97 on the NYSE.

Stocks of companies that provide bond insurance for certain of the utilities' credit investors also were hit hard. MBIA Inc. plummeted $7.69 to $75.10 a share on the NYSE, even though the company said, "MBIA-insured bondholders will receive all their principal and interest payments as scheduled." The company said its insurance exposure covers about $590 million of Pacific Gas & Electric bonds.

Another insurer, Ambac Financial Group Inc., dropped $2.98 to $59.97 a share on the NYSE. The company said it's guaranteed $68.7 million of the utility's first mortgage bonds, which are secured by collateral.

Although there's a risk that all of these companies with exposure to Pacific Gas & Electric could suffer some financial damage, Wall Street might have overreacted to the threat Friday, analysts said.

Take the big banks, for instance. "In the grand scheme of things, their exposure is not that big relative to the size of their overall loan portfolios," said Morford of Dain Rauscher.

In the short run, the banks "are likely to record these [debts] as nonperforming assets and their problem-loan numbers will rise," but those sums would not immediately be subtracted from the banks' profits, he added. It's also possible that a plan to repay the banks in full could be worked out in Bankruptcy Court before they have to write off the debts, he said.

Also, several of the power generators already have set aside cash reserves in case Pacific Gas & Electric and Southern California Edison couldn't pay for power they had already purchased, noted Byus of Dresdner Kleinwort.

Still, "there is the risk that the reserves are not sufficient" to cover the utilities' shortfalls, she said. "We will have to see in the companies' first-quarter results."

One company that hasn't set aside reserves yet is Calpine, a San Jose-based power generator that's among Pacific Gas & Electric's largest unsecured creditors. Calpine has yet to be paid for nearly $300 million worth of power it has sold to Pacific Gas & Electric, said Calpine spokesman Bill Highlander.

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