The bank debt of Pacific Gas & Electric and Southern California Edison last week dropped about 10 points in the secondary market as blackouts hit California. The drop brought unsecured debt down to the 50s, while secured debt was quoted in the mid-70s, dealers said.
Opportunistic players were starting play in the companies' bonds last week, but there were no trades in the bank debt. The commercial paper, which is regarded as a tougher sell than the bonds, reportedly traded late last week in the high 70s.
While dealers said no bank debt had traded last week, there was a rumored trade on the commercial paper for Southern California Edison on Thursday in the high 70s. A spokesman for Southern California Edison confirmed that the company has long said it may be forced into bankruptcy, but he declined to comment further. "We won't speculate on a timetable," he said. Calls to Pacific Gas & Electric were not returned.
In the companies'capital structure, the unsecured bank debt sits behind the mortgage bonds. J.P. Morgan Chase leads several facilities totaling around $5 billion for Southern California Edison. A bank spokeswoman declined to comment. Bank of America leads the deal for several facilities totaling more than $3 billion for PG&E. A bank spokeswoman did not return calls.
Dealers have been watching the levels since Southern California Edison reported that it would not be making its next debt payment. Meanwhile, one trader questioned whether that route would be the best one to take in the long run. "Nothing's to be gained by forcing them into bankruptcy. The only thing that makes sense is if they're allowed to get to a state agency to support the rate increase," said a market watcher. Still, no traders guessed that the power would be shut off, which is what happened in Northern California last Wednesday evening.