S&P Warns of Junk Rating for PacifiCorp Amid Fire Claims

Key Developments

S&P Global has placed PacifiCorp, a utility owned by Berkshire Hathaway, on notice for a potential credit rating downgrade to junk status. The warning follows a significant jury award related to the 2020 Oregon wildfires, intensifying financial pressure on the company. S&P stated it might cut the 'BBB-minus' rating by one or two notches depending on the size of future lawsuit verdicts.

Situational Overview

The catalyst for S&P's review was a February jury verdict awarding $305 million to 16 plaintiffs, averaging about $19 million each. This amount is substantially higher than the approximate $5 million average in previous trials. PacifiCorp now faces total potential wildfire-related liabilities nearing $50 billion from the James class-action lawsuit, with trials scheduled through early 2028.

Economic and Market Impact

Losing its investment-grade status would significantly impact PacifiCorp's financial standing. A junk rating could make it difficult and more expensive for the utility to raise capital needed for ongoing operations, including maintaining power service for its customers. While parent Berkshire Hathaway Energy stated the utility has sufficient liquidity for over a year, a downgrade poses a long-term risk to its financial stability.

Summary

PacifiCorp has announced its intention to appeal the recent verdict. The company's credit rating and financial future now depend heavily on the outcomes of upcoming legal battles. S&P Global will closely monitor the results of future trials in the coming weeks before making a final decision on the downgrade.

FAQ

Q: Why might S&P Global downgrade PacifiCorp?
A: Due to mounting financial liabilities from class-action lawsuits concerning the 2020 Oregon wildfires, with potential payouts estimated near $50 billion.

Q: What is the potential impact of a credit downgrade to junk status?
A: A downgrade would increase borrowing costs and could hinder PacifiCorp's ability to raise money to fund its operations and serve customers.

Q: What is PacifiCorp's response to the situation?
A: The company plans to appeal the latest court verdict and maintains it has enough liquidity to cover its obligations for more than a year.

Source: Investing.com