Shares and bonds of Edison International dropped sharply on Wednesday as wildfires swept across the Los Angeles area, nearing regions served by the company’s utility division.
Edison International’s stock plunged by 10%, marking its most significant decline since March 2020. This made the company the worst performer in the S&P 500 Utilities Index for the day, while the broader market remained largely unchanged.
The company’s bond performance also reflected investor concerns, with both Edison International’s and its subsidiary Southern California Edison’s investment-grade bonds experiencing higher risk premiums. These higher premiums, or spreads over U.S. Treasuries, indicate that investors are pricing in a slightly greater risk of the company failing to meet its financial obligations. Just days earlier, Southern California Edison had raised $1.5 billion in bonds, signaling its ongoing need for capital.
As of midday in New York, Edison International’s 5.75% bonds due in 2027 saw their spread widen by 13 basis points to 88 basis points, while Southern California Edison’s newly issued 5.9% bonds, maturing in 2055, saw an increase of 8 basis points, reaching 118 basis points by late afternoon.
Though Southern California Edison does not directly serve the city of Los Angeles, the utility’s service area includes surrounding regions and a large portion of the state. A spokesperson for the company emphasized that it had made significant strides since 2019 to mitigate wildfire risks. These efforts included installing covered conductor systems and trimming trees, along with California’s strengthened firefighting capabilities.
Despite these measures, the decline in Edison International’s stock price—amid ongoing wildfire risks—reflects growing investor concerns over potential catastrophic liabilities, according to Bloomberg Intelligence analyst Nikki Hsu. Notably, there have been no reports linking Edison’s equipment to the fires.
Wildfires in California have emerged as a significant risk for utilities, traditionally viewed as safe investments. These disasters can severely impact profitability, often harming shareholders more than bondholders. Utilities may also face increased borrowing costs to modernize infrastructure and cover potential liabilities from fire-related damages.
David Del Vecchio, co-head of U.S. investment-grade corporate bonds at PGIM Fixed Income, highlighted the need for investors to pay closer attention to climate-related risks, particularly as the frequency and severity of wildfires and other natural disasters grow. He stressed that these risks are often unrelated to other factors typically assessed by credit investors, adding an additional layer of uncertainty.
Meanwhile, Southern California Edison has implemented power shutoffs to prevent wildfires, cutting electricity to around 145,200 homes and businesses. The utility has warned that it may need to extend power outages to hundreds of thousands of additional customers if winds from the Santa Ana conditions intensify.
Across the region, thousands of residents have been ordered to evacuate, as hurricane-force winds propel flames through vulnerable areas. The ongoing crisis continues to underscore the mounting challenges facing both utilities and their investors in the face of increasingly unpredictable climate risks.
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