PG&E Follows Toys ‘R’ Us and American Tire in Failing Fast

(Bloomberg) -- PG&E Corp. is an unpleasant reminder to the bond market of how quickly things can unravel.

The California utility holding company, which held investment-grade ratings from all three major credit raters just a week ago, is planning to file for bankruptcy by the end of the month, as it faces potential liabilities from wildfires of $30 billion or more. Bonds that traded above face value just two months ago now fetch around 85 cents on the dollar.

PG&E is the latest in a spate of companies that have failed quickly. Toys “R” Us Inc. filed for bankruptcy in September 2017 within weeks of a news report that said the retailer was considering filing for court protection, a possibility that spooked critical vendors and credit insurers. Its bonds fell from around face value to less than 20 cents on the dollar in a matter of weeks.

American Tire Distributors Inc. filed for bankruptcy after losing key suppliers over the course of six months. Its bonds and loans were trading above face value in April, just before major tire companies started leaving the distributor.

PG&E Follows Toys ‘R’ Us and American Tire in Failing Fast

While the collapse of some companies like Sears Holdings Corp. has been well telegraphed for years, others can go under in a matter of months, underscoring the importance for fund managers of understanding the risks of their bonds. “Over the next six to 12 months, what I don’t own is just as important as what I do,” Jennifer Hartviksen, global head of high yield at Atlanta-based Invesco, said in an interview last week.

Sudden collapses are more common among bonds that are junk-rated. Hartviksen mentioned other examples like Monitronics International Inc., whose bonds dropped 50 points on a report that its restructuring attempt wasn’t going to be successful. Diebold Nixdorf Inc. also surprised investors in August with news that it wouldn’t be able to service its debt.

PG&E’s equity market value has plunged since November’s Camp Fire -- the deadliest wildfire in California’s history. The company has also struggled to manage potential liabilities from the 2017 Tubbs Fire, and was weighing earlier this month whether to file for bankruptcy, people familiar with the matter said at the time.

S&P Global Ratings cut the company’s credit rating five levels to junk early last week, and Moody’s Investors Service did the same on Thursday. Fitch Ratings still maintains the lowest investment-grade rating but has said it may cut the company by multiple notches.

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