SAN FRANCISCO - Pacific Gas & Electric Co.'s Chapter 11 bankruptcy filing on Friday sent share prices for municipal bond insurers sharply lower and could complicate the state's plans to sell billions in power bonds.
In the wake of the filing, Moody's Investors Service assigned the state's Aa2 bond rating a negative outlook. Standard & Poor's previously had placed California's rating on its CreditWatch list with negative implications.
A PG&E official said the company plans to challenge the state's recently devised formula for how much money PG&E must provide to the state's Department of Water Resources to secure a much anticipated $10 billion state-sponsored power purchase revenue bond deal.
But one analyst said the revenue stream that would secure the bonds -- surcharges on PG&E power bills -- could be isolated from a bankruptcy case.
Utility officials said on Friday they decided to file for bankruptcy protection from creditors because they felt that a federal bankruptcy court would be the fairest venue to resolve the company's dire situation. The company has accumulated about $9 billion in unrecovered costs by buying power at much higher prices than it is allowed to charge customers. Negotiations with California Gov. Gray Davis' office to purchase the utility's transmission lines and provide PG&E with a much needed cash infusion have gone nowhere.
"The political and regulatory process has been able to negotiate but not close the deal," said the utility's chairman, Bob Glynn. Glynn said the company plans to challenge the California Public Utilities Commission's formula for the payment from PG&E customers to DWR to secure revenue bonds. State Treasurer Philip Angelides previously said he hoped such an appeal would not happen so his office could soon sell bonds and reimburse the state for power purchase made so far.
Glynn said he doesn't know how long the bankruptcy proceeding will last. "I expect all creditors will be paid in full at the end of this process," he said.
Analysts, however, speculated that the proceedings could drag on for years. Meanwhile, the impact of the filing on bond insurers was immediately reflected by falling stock prices.
MBIA Insurance Corp. has $590 million in exposure to PG&E. Some $277 million of that is for tax-exempt debt.
"We are disappointed that a legislative solution could not be reached to solve the energy crisis in California," said Neil Budnick, MBIA's chief financial officer, in a statement. "In accordance with our policies, MBIA-insured bondholders will receive all their principal and interest payments as scheduled."
Frank Bivona, executive vice president and chief financial officer of Ambac Assurance Corp., said that the company does not expect to incur any material losses from the bankruptcy. Ambac has $68.7 million of secured net insured exposure to PG&E, which is secured by a first mortgage lien.
In December 2000, Ambac also disclosed that it has $75.1 million in insured net par exposure to Southern California Edison Corp., anther troubled California utility.
Financial Security Assurance Corp. has $8 million in first mortgage exposure to the utility.
FSA president Roger Taylor said the company expects to have no unrecovered losses, but at this point the company cannot be completely sure of this.
Banc of America Securities Inc. equity analyst Robert Ryan called the sell-off in insurers' stocks "a good buying opportunity."
MBIA's parent company, MBIA Inc., saw its stock prices sink $7.56 to end at $75.23 per share by the end of the day and Ambac Financial Group Inc.'s stock ended down $2.94 at $60.01.
The crisis still poses no threat to the bond insurers' ratings, said Standard & Poor's analyst Richard Smith.
Peter Darbee, the utility's chief financial officer, said PG&E intends to pay secured and mortgage-backed debt going forward, which constitutes a "meaningful amount but not a majority of our debt."
The California Pollution Control Financing Authority has sold about $4.05 billion in bonds for the PG&E over the years. Some of that debt is secured by the companies mortgage indenture, whereas other issues are unsecured. Prices for those bonds fell in secondary market trading Friday.
"That debt will probably be treated like any other obligation of PG&E, whether it is unsecured or mortgage-backed," said Dean Weiner of O'Melveny & Myers, a bond lawyer.
Standard & Poor's said Friday that PG&E had made some property tax payments due to various counties this month, but the county auditor for San Luis Obispo County said he had not yet been paid. The utility owes $27.9 million on April 10, according to county auditor Gere Sibbach.
The utility's Diablo Canyon Nuclear Generation plant sits in the county. PG&E is the largest taxpayer in the county. Sibbach was told after Friday's announcement that the company intends to pay its property taxes. Even if PG&E defaults, "we have adequate reserves to take care of our immediate obligations," Sibbach said. "But if it continues until the next fiscal year, we may be looking at some budget cuts."
PG&E has total property tax payments due on April 10 of $157 million, said David Hitchcock, an analyst with Standard & Poor's.
Six California counties have investments in commercial paper issued by PG&E and SCE but those investment represent a small percentage of their portfolios and are not likely to affect their liquidity, analysts said.
Sheri Carpenter-Kasprzak and Alex Maurice contributed to this article.
