i think credit suisse first boston is thinking bankruptcy, obliquely. your
thoughts, joelinda, greg, et al?
Edison, PG&E Shares Rise on California Power Auction
New York, Jan. 25 <A HREF="aol://4344:30.bloombrg.389091.602536905">
(Bloomberg)</A> -- Shares of Edison International and PG&E Corp. soared after
the completion of a California power auction that analysts said may help the
state's two biggest utility companies avoid bankruptcy.
Edison rose $3.31, or 35 percent, to $12.69, while PG&E rose $3.19, or 31
percent, to $13. The one-day percentage gains were the stocks' biggest in at
least two decades. They had plunged more than 50 percent in the past two
months.
The companies have run up more than $11.5 billion in debt from power-buying
losses and are near bankruptcy. The state has stepped in to buy cheaper power
for the two utilities. Results from this week's auction ``provide the basis
for a workable solution,'' Merrill Lynch & Co. analyst Steven Fleishman said.
``The risk of bankruptcy (while still real) has dropped,'' Fleishman said in
a report. ``We sense that the tide is turning.'' He raised his ratings on
Edison and PG&E to ``accumulate' from ``neutral.'
Lenders will no longer provide money for power purchases to PG&E's Pacific
Gas & Electric Co. and Edison's Southern California Edison. The auction
organized by California Governor Gray Davis brought in 39 bids from power
suppliers at an average price of $69 a megawatt hour for multiyear contracts.
The bids were above Davis's target price of $50 to $55 a megawatt hour,
though below the $76 that many in the generating industry had expected. The
results show the state may be able to provide power to the utilities and
avoid further rate increases for consumers, Davis said yesterday.
The stock increases are ``driven largely by more positive comments and
statements that have been made by politicians,'' Jefferies & Co. analyst Paul
Fremont said.
``If in their view, the numbers (from the auction) looked good, it just means
the sentiment will be more positive that these guys will get done what's
necessary to avert a bankruptcy,'' said Fremont, who has ``hold'' ratings on
both stocks.
The officials ``are under an increasingly bright national spotlight to get
this resolved,'' Fleishman wrote. He couldn't be reached immediately for
comment.
Questions on Finances
Many questions remain on PG&E and Edison's financial problems, analysts and
investors said.
Davis and legislators are showing support for a proposal that calls for the
state to sell bonds to finance future power purchases for the utilities and
allow them to repay past spending, Fleishman said in his report.
``Bankruptcy is still a real possibility if legislative actions fall apart,''
Fleishman wrote.
``Yes, one positive event has occurred, but there is still a long road
ahead,'' said Gregory Phelps, a fund manager with John Hancock Investment
Advisers Inc. who doesn't own shares of either company.
Dividends
Utility investors still will avoid Edison and PG&E shares because the
companies stopped paying dividends, Phelps said. Phelps isn't permitted to
own stocks in his funds unless they pay dividends.
The auction prices ``came in at lower rates than expected and might provide
for as much as $1 billion to each (Edison and PG&E) to repay debts,''
Egan-Jones Ratings Co. said in reports.
``The market needed to see that generators were willing to sell to
California,'' said David Kiefer, manager of Prudential's Jennison Utility
Fund, which owns both stocks. ``It's a huge step in the right direction that
bids came in at the right price.''
The companies, though, ``could easily be pushed into involuntary
bankruptcy,'' Egan-Jones said. The agency said it will maintain its ``D''
rating on the companies ``until a cure to the default is close to
occurring.'' Egan-Jones uses the same rating categories as Standard & Poor's.
Though the auction resulted in a favorable average price, Davis didn't reveal
terms and conditions of the offers. Aside from politicians' positive outlook,
``there's really no hard evidence that'' PG&E and Edison will avert
bankruptcy, Fremont said.
``There are exceedingly important issues that need to be known to adequately
determine the `success' of any auction,'' Credit Suisse First Boston analyst
Paul Patterson said.
``Investors should remain aware of the high risk still associated with the
shares,'' said Patterson, who has ``hold'' ratings on both companies.
The Legislature is expected to meet this week to vote on Davis's request for
$400 million to finance power purchases for the utilities by the state
Department of Water Resources. The money is needed because a $400 million
appropriation approved by the Legislature last week will soon be exhausted.
Jan/25/2001 16:22 ET
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