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09 Oct 2001
MOODY'S CONFIRMS THE RATINGS OF PACIFIC GAS AND ELECTRIC COMPANY. RATINGS ARE REMOVED FROM REVIEW FOR POSSIBLE DOWNGRADE.
New York, October 09, 2001 -- Moody's Investors Service has confirmed the ratings of Pacific Gas and
Electric Company (Senior Unsecured Debt at Caa2) and has removed the ratings
from review for possible downgrade. The rating action follows a
review of Pacific Gas and Electric Company's Plan of Reorganization (POR)
under Chapter 11 filed with the Bankruptcy Court on September 20,
2001. The rating outlook is positive.
The rating action confirms the view that fixed income investors of Pacific
Gas and Electric Company are likely to recoup a high recovery rate on
their investment in securities issued by the utility once it emerges from
bankruptcy. This view is based upon the high asset value at Pacific
Gas and Electric Company relative to the amount of debt and claims outstanding
coupled with the underlying need for services provided by the utility.
While the current plan, which contemplates 100% recovery
of principal and interest for all classes of debt, may change or
be altered, Moody's believes that any change or alternate plan would,
in all likelihood, result in a high recovery rate of principal and
interest. For this reason, the ratings are confirmed and
are removed from review for further downgrade.
Ratings confirmed and removed from review for possible downgrade include:
· the first mortgage bonds and the secured pollution control bonds
of Pacific Gas and Electric Company at B3;
· the issuer rating, the senior unsecured notes, the
unsecured debentures, and the unsecured, unenhanced pollution
control bonds of Pacific Gas and Electric Company, at Caa2;
· the preferred stock of PG&E Capital I and the shelf registration
for PG&E Capital I issuance of preferred stock at Caa3 and (P)Caa3,
· the preferred stock of Pacific Gas and Electric Company's at
· a shelf registration for Pacific Gas and Electric Company's issuance
of senior secured debt, senior unsecured debt, and preferred
stock at (P)B3, (P)Caa2, and (P)Ca, respectively.
Pacific Gas and Electric Company's short-term ratings of Not Prime
and Speculative Grade are confirmed.
HIGHLIGHTS OF THE PLAN
Broadly speaking, Pacific Gas and Electric Company's POR pays off
all valid claims owed to creditors and also provides a sound and balanced
framework for the utility to manage the power procurement business in
the future. Under Pacific Gas and Electric Company's POR,
the utility and its parent company, PG&E Corporation,
will be separated into two standalone companies. The reorganized
Pacific Gas and Electric Company will continue to own and operate the
retail electric and gas distribution business. The electric generation,
electric transmission, and gas transmission businesses will become
separate subsidiaries of PG&E Corporation with no affiliation with
Pacific Gas and Electric Company, the regulated distribution company.
The common shares of the reorganized Pacific Gas and Electric Company
will be distributed to PG&E Corporation's shareholders.
After the company emerges from bankruptcy, the plan contemplates
that the reorganized Pacific Gas and Electric Company will continue to
be regulated by the California Public Utility Commission (CPUC).
The plan also contemplates that the electric generation, electric
transmission, and gas transmission subsidiaries will each be regulated
by the Federal Energy Regulatory Commission (FERC).
A key element of the plan includes the establishment of a FERC approved
contract between the newly formed generation company and the reorganized
Pacific Gas and Electric Company. Under the terms of the contemplated
contract, the generation company will sell all of the output generated
from its hydro and nuclear resources (Diablo Canyon) to Pacific Gas and
Electric Company for a twelve year period at an average price of approximately
five cents/kilowatt hour.
Additionally, the plan contemplates Pacific Gas and Electric Company
resuming the power procurement business for its customers based upon certain
conditions, including among other things, an investment grade
rating and the ability to promptly recover procurement related costs.
FINANCIAL IMPLICATIONS OF THE PLAN
Under the POR, all valid credit claims will be paid in full,
using a combination of cash and long-term notes. In total,
the plan will provide existing creditors with about $9.1
billion in cash and $4.1 billion in notes. Generally
speaking, secured creditors will receive 100% of their allowed
claims in cash. Unsecured creditors, which includes claims
made by the generators, will be paid 60% in cash and 40%
in notes. Subordinated debt, including QUIDS, will
be reissued as subordinated notes equal to 100% of the claim.
Preferred stock arrearages will be paid in cash and the future obligations
will be responsibility of the reorganized utility.
To finance the transaction, approximately $10 billion of
debt securities will be issued which along with approximately $3.4
billion of cash will provide the funds to complete the plan and satisfy
all claims at 100%. Under the proposed structure,
Pacific Gas and Electric intends to repay all of its first mortgage bond
debt and retire the current indenture. Pollution control debt is
expected to remain outstanding due to the attractiveness of the securities'
tax-exempt status. The plan contemplates unsecured debt
being issued at Pacific Gas and Electric Company as well as at each of
the generation, electric transmission and gas transmission subsidiaries.
ASSESSMENT OF THE PLAN
Moody's believes that should the POR be approved as currently outlined,
the ratings of Pacific Gas and Electric Company and the ratings of the
generation, electric transmission, and natural gas transmission
subsidiaries of PG&E Corporation would each, in all likelihood,
be rated investment grade. Moody's further notes that the ability
of the POR to be approved as currently outlined will largely depend upon
the bankruptcy judge's assessment and use of bankruptcy law preempting
existing state law in this instance. While Section 1123 of the
Bankruptcy Code permits bankruptcy law to preempt state law, the
ultimate determination of whether Section 1123 of the Bankruptcy Code
can be applied to the proposed POR rests squarely with the bankruptcy
judge. Two pieces of existing California law that could be preempted
by the bankruptcy court in the proposed POR are the requirement to obtain
state regulatory approval to sell or transfer utility assets and the restriction
to sell or transfer generating assets before 2005.
While it is premature to determine whether the POR will be approved as
outlined, there are a number of elements to the POR that could give
rise to its approval. First, the plan has the support of
the Official Committee of Unsecured Creditors. Second, the
plan does not require any rate increase nor does it require any separate
legislative action. Third, the POR satisfies potential reliability
concerns as customers of Pacific Gas and Electric Company will continue
to have access to key generating resources in Northern California at known
fixed prices for twelve years.
On the other hand, the POR is likely to face opposition from the
CPUC, certain state entities, and certain consumer groups
as the plan has the effect of moving regulatory authority over certain
assets from the CPUC to FERC. While it remains unclear what strategy
the intervening groups might pursue, Moody's remains certain that
aspects of the plan will be challenged, which at a minimum,
may impact the timing for confirmation.
RATIONALE FOR RATING OUTLOOK
The rating outlook for Pacific Gas and Electric Company's securities is
positive reflecting the potential outcome for creditors based upon the
filing of Pacific Gas and Electric Company's POR. The rating outlook
also incorporates Moody's belief that any changes to the POR would need
to provide similar recovery rates as the proposed POR in order to obtain
the support of the unsecured creditors. Future rating actions will
depend upon the timing associated with approval of the POR and whether
any modifications will be made to the plan as various entities,
including the bankruptcy judge, evaluate the plan.
Headquartered in San Francisco, California, Pacific Gas and
Electric Company is an operating public utility engaged principally in
the business of providing electricity and natural gas distribution and
transmission services throughout most of Northern and Central California.
PG&E Corporation is the parent holding company of Pacific Gas and
VP - Sr. Credit Officer
Moody's Investors Service
JOURNALISTS: (215) 967-6233
SUBSCRIBERS: (215) 967-6233
Susan D. Abbott
Moody's Investors Service
JOURNALISTS: (215) 967-6233
SUBSCRIBERS: (215) 967-6233
No Related Data.
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