EXHIBIT J

Case: 19-30088 Doc# 4486-10 Filed: 10/25/19 Entered: 10/25/19 20:22:43 Page 1

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Markets

By Molly Smith and Natalya Doris

January 8, 2019, 11:18 AM EST

Updated on January 8, 2019, 12:24 PM EST

PG&E Bonds Reach New Lows as S&P Cuts

Five Notches to Junk

PG&E Corp. shares plunged and bonds dropped to all-time lows on Tuesday after S&P Global

Ratings slashed the electric company’s credit grades to the middle of the junk spectrum from

investment grade, citing its limited options for managing wildfire liabilities.

The company’s shares fell as much as 17 percent to their lowest level since 2003, as investors

worried about the potential for the company to file for bankruptcy. California investigators are

looking into whether the utility’s equipment ignited the deadliest blaze in state history in 2018 as

well as fires in 2017, probes that could leave the company with legal liabilities topping $30

billion.

Company is said to weigh bankruptcy to limit fire liabilities

Fitch said a multiple-notch downgrade “cannot be ruled out”

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S&P cut the company’s rating five levels to B, the fifth-highest junk rating, from BBB-, the lowest

investment-grade level, according to a statement late Monday. More cuts may come, it said.

Fitch and Moody’s Investors Service still rate the company at investment grade. A spokesman for

PG&E said in an email Tuesday the company’s board is “actively assessing” operations, finances,

management, structure and governance while maintaining a commitment to improving safety.

PG&E’s record-low bond prices underscore how much more the company will have to pay to

borrow in the future -- even if California comes up with a legislative bailout. It also highlights

how vulnerable even highly regulated, traditionally dependable stocks like utilities can be to

natural disasters such as wildfires and hurricanes.

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“This will ultimately increase costs to California ratepayers and taxpayers, which already face a

high cost of living,” S&P analyst Gabriel Petek, who rates the state of California, not PG&E, said in

an email Monday. “The important takeaway to me is that these fires and how the ‘fire season’ is

virtually a year-round phenomenon now represent a material consequence of climate change.”

PG&E’s notes due next year with a coupon of 3.5 percent are yielding more than 9.9 percent, a

level far above what most high-yield securities are paying. Debt rated B for example, the mid-tier

of junk bonds, yields on average 7.5 percent as of Monday’s close, according to Bloomberg

Barclays index data.

Bond graders Moody’s and Fitch Ratings have the company under review for further cuts.

The firms started cutting in November as PG&E faced potential liabilities from 2017’s wildfires

that could top $17 billion, according to a JPMorgan Chase & Co. estimate. The company had

about $430 million of cash on its books at the end of September.

If Moody’s follows with a cut to high-yield as well, PG&E may face a cash collateral requirement

of at least $800 million to guarantee power contracts, according to a regulatory filing. No other

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ratings triggers have been disclosed.

PG&E has suspended its dividend and fully drawn its lines of credit. It is considering filing for

bankruptcy as soon as February, people familiar with the situation said Friday. State lawmakers

and regulators are looking at options including allowing the company to issue bonds to pay its

liabilities, or breaking up the utility.

The company’s shares traded at $17.22 at 12:12 p.m. New York time on Tuesday, on track to reach

their lowest closing price since mid-2003.

‘Disastrous Time’

If PG&E is ultimately held responsible for the Camp Fire, it could be on the hook for billions of

dollars of potential liabilities. Because the company has filed for bankruptcy before, it and

lawmakers would probably try to avoid a repeat, said Ryan Brist, head of global investmentgrade credit and portfolio manager at Western Asset Management.

“That was a disastrous time for all participants involved,” Pasadena, California-based Brist said.

“It would be my guess that the same parties would want to pursue a much less volatile solution

this go around when faced with the tough problems of statewide wildfires.”

But PG&E, with about $18.6 billion of long-term debt as of the end of September, could possibly

see good reason to file for bankruptcy, CreditSights analyst Andy DeVries said in a report

Monday. Such a filing would give the company bargaining power with insurance companies as it

tries to settle customer claims at a discount, he said.

Some investors and analysts are bracing for a series of mass downgrades among investmentgrade rated companies once the economic cycle turns, potentially flooding the more than $1.19

trillion high-yield market with new issues. But PG&E’s relatively small debt load on its own

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wouldn’t bring the flood that strategists at Morgan Stanley have warned could exceed $1

trillion. Xerox Corp. was the most recent company to join such ranks.

Regulatory Decision

Fitch analyst Philip Smyth said that a determination by California regulators that PG&E’s

equipment was involved in the Tubbs Fire in 2017 or last year’s Camp Fire would be the strongest

impetus to cut the rating.

“Right now, there is no investigation that says with any clarity that has determined that their

equipment was the catalyst,” Smyth said in an interview Monday. “Since we downgraded in

November, I don’t think things have gotten meaningfully worse since then.”

— With assistance by James Crombie, Joe Mysak, and Brian Eckhouse

(Updates with company comment in the third paragraph, bond prices in sixth and ratings trigger in

eighth.)

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