PG&E Warned Investors About Disasters. It Was Mostly Ignored

(Bloomberg) – PG&E Corp. customs investors repeatedly that weather-related disasters were at risk, but not until the company was on the brink of bankruptcy.

The company included warnings in its regulatory filings and offering prospectuses citing how disasters like wildfires, droughts and floods, could weigh on its results or disrupt its operations. But until mid-November, the company's bonds were trading above face value, even those due to now, implying that money managers thought those risks were manageable.

Now investors are paying attention. PG & E's stock market value has plunged to about $ 3.5 billion from almost $ 24 billion at the end of September. Most of the bonds are trading around 70 to 80 cents on the dollar. The sudden drops underscore how difficult it is for investors to analyze risks linked to disasters and potentially even climate change, rather than regular business difficulties.

“A lot of people think climate change is so far in the future that it's not going to affect the bonds, but then you have something like this, ”said Jens Peers, US chief investment officer of Natixis Investment Managers' Mirova sustainable investing division, which oversees about $ 10.7 billion in assets. Mirova was already steering clear of PG&E because of the 2010 San Bruno gas pipeline explosion, where it was found guilty of safety violations.

The California electric and gas utility said it will file for bankruptcy this month after 2017 and 2018 wildfires. left with potential liabilities of $ 30 billion or more. Current market prices for bonds implied by investors expecting to take some kind of hit on the securities. A spokesman for the company declined to comment

PG&E fell as much as 13 percent before the start of regular trading in New York. Shares are down more than 85 percent since the Camp Fire, the deadliest blaze in state history, broke out Nov. 8.

PG&E has not hidden its vulnerability to the effects of climate change. Geisha Williams, who left the chief executive officer over the weekend, had consistently argued that California's companies went well beyond PG&E, describing the blazes as "climate driven extreme weather" in an earnings call last summer. In a prospectus for a bond exchange in April, the company's Pacific Gas and Electric Co. utility unit cautioned that climate change and natural disasters could hurt it.

The company planned for more investment in safety over the last few years, and made it a key element of its board director searches in late 2017. Around the same time, the company formed its Community Wildfire Safety Program and has since expanded the program to expand its network of weather stations and conduct inspections of electrical infrastructure in high fire threat areas.

Disclosures about exposure to disasters are common among US utilities. But money managers and analysts that focus on environment, social and governance issues have been concerned about PG&E in particular for awhile. Research and analytics firm MSCI Inc. first flagged wildfires as a significant risk to PG&E investors in 2016, after the company's equipment was found to have sparked the 2015 Butte wildfire. More recently, environmental, social and government research firm Sustainalytics described wildfires and other environmental risks to the company as "severe."

Of the about 1,200 green and sustainable equity funds tracked by Bloomberg, just 34 held shares of PG&E as of their latest filings. But many conventional money managers were paying less attention to environmental risks.

"People get comfortable with risks that have never been a problem before, then all of a sudden it is," said Henry Peabody, who helps manage $ 460 billion in fixed income assets for Eaton Vance. "Risk creeps into places you least expect it to."

(Updates with share price in 6th paragraph.)

– With assistance from Eliza Ronalds-Hannon, Chaz Weiner and Jim Efstathio Jr.

To contact the reporters on this story: Molly Smith in New York at msmith604@bloomberg.net; Emily Chasan in New York at echasan1@bloomberg.net; Janine Wolf in New York at jwolf71@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Janet Paskin, Dan Wilchins

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