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(Bloomberg) -- Edison International’s shares and bonds fell on Wednesday as a wildfire raged across the Los Angeles region, close to areas served by the company’s utility unit.
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The shares plunged 10%, the most since March 2020. The company’s stock was the worst performer in the S&P 500 Utilities Index on Wednesday, with the broader gauge ending the session little changed.
Investment-grade bonds sold by Edison International and its Southern California Edison utility unit saw their risk premiums — or the extra yield they pay relative to Treasuries — rise, signaling that investors see a slightly higher chance of the company struggling to meet its obligations. Southern California Edison had tapped the debt markets recently, selling $1.5 billion of bonds on Monday.
Edison International’s 5.75% bonds due 2027 fell, widening spreads by 0.13 percentage point, or 13 basis points to 88 basis points as of 12:50 p.m. in New York. Southern California Edison, a utility unit, saw its newly minted 5.9% bonds maturing in 2055 widen eight basis points to 118 basis points as of 4:29 p.m. in New York.
Edison International’s Southern California Edison unit doesn’t directly serve Los Angeles, but does cater to nearby areas plus large swathes of other parts of the state.
A representative for Southern California Edison said that the company has done “a lot of work since 2019” to mitigate wildfires and wildfire risk, such as carrying out plans to install covered conductor and trimming trees. California’s firefighting capacity has also increased significantly in the same time, the representative added.
Still, the drop in “Edison International’s stock price amid California wildfires — despite no reports so far of utility equipment involvement — reflects concerns over potential catastrophic liabilities,” wrote Bloomberg Intelligence analyst Nikki Hsu.
Wildfires have created new risks for utilities, often considered among the safest bets on Wall Street. The disasters can slash profits, bringing more acute pain to shareholders than bondholders. But they can also force energy companies to borrow more in order to upgrade aging infrastructure and pay off settlement claims.
Investors should put more weight on wildfire and climate-related risks as the severity and frequency of wildfires and storm costs increase, said David Del Vecchio, co-head of US investment-grade corporate bonds at PGIM Fixed Income.