PG&E Corporation Issues Notes - Analyst Blog

On Thursday, Reuters reported that one of the largest combined natural gas and electric utilities in the U.S. PG&E Corporation (PCG) has issued fixed interest notes. This initiative is in line with its debt restructuring strategies. Merrill Lynch, a part of Bank of America Corporation (BAC), UBS AG (UBS) and Wells Fargo & Company (WFC) were the joint book-running managers for the issue.

Accordingly, PG&E reportedly vended off senior unsecured notes worth $500 million in two equal tranches of $250 million. The size of the deal was increased from an originally planned issue size of $400 million.

The first tranche of $250 million worth of notes carried an issue price of $97.264, to mature on October 1, 2020. These non-callable notes are projected to have a spread of 90 basis points over the US Treasuries, bearing a fixed interest rate of 3.5% and yield rate of 3.835%. Interest on the notes will be paid semi-annually, in equal installments, commencing April 1, 2011.

The second tranche of $250 million worth of notes carried an issue price of $97.499, to mature on January 15, 2040. These non-callable notes are projected to have a spread of 118 basis points over the US Treasuries, bearing a fixed interest rate of 5.4% and yield rate of 5.574%. Interest on the notes is payable semi-annually, in equal installments, commencing January 15, 2011.

PG&E's notes carry a rating of “A”, “A3” and “BBB+” from Fitch, Moody's Investor Service of Moody's Corporation (MCO) and Standards & Poor's, respectively.

San Francisco, California-based Pacific Gas & Electric Corporation is the parent holding company of California's largest regulated electric and gas utility, Pacific Gas and Electric Company (Pacific Gas).

Pacific Gas serves approximately 5.1 million electricity and 4.3 million natural gas customers in northern and central California. The Utility is engaged in distribution of electricity and natural gas; electricity generation, procurement and transmission; and natural gas procurement, transportation and storage.

The utility also operates hydroelectric, nuclear and fossil-fueled power plants. As of fiscal-end 2009, Pacific Gas had a total generating capacity of 6,801MW. The Utility is regulated primarily by the California Public Utilities Commission (CPUC) and the Federal Energy Regulatory Commission (FERC).

Pacific Gas Corporation has a solid portfolio of regulated utility assets that offer a stable earnings base and substantial long-term growth potential. The company strives to optimize generation margins by improving cost-structure, performance and reliability of its nuclear as well as fossil units.

Going forward, favorable decisions from the CPUC and FERC (including a CPUC-authorized 11.35% ROE until 2013), long-term supply agreements, diversification into alternative power sources and infrastructure improvement programs (such as Cornerstone and Smart Meter) will drive Pacific Gas' earnings growth. Thus we maintain our Neutral recommendation on the Zacks #3 Rank ('Hold') stock.

 
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