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Spread Tripled Today: FirstEnergy

22 July 2020 by jbchevrel

The CDS of the US electric utility FirstEnergy (FE) tripled. The 5y CDS widened around +40bp to about 60bp. FE posted 3 press releases yesterday. The 1st one was about preparing customers for summer heat, the 2nd was about the company maintaining its dividend, the 3rd one said: "This afternoon, FE received subpoenas in connection with the investigation surrounding Ohio House Bill 6. We are reviewing the details of the investigation and we intend to fully cooperate." There are accusations of bribery involved in the passage of the bill, with some suggesting illicit payments may have gone as high as $60M. Some Ohio politicians have already been arrested, the main one being Larry Householder, a powerful figure of the Republican Party and Ohio’s House Speaker. The actual risks for FE are uncertain at this point, despite this being surely serious. In parallel, the Market Cap lost about a fifth. FE enters this new episode of its corporate story as a very tight credit. In 2019, FE increased its cash reserves by c60%, or $250M. They operationally generated +$2.47B, generated +$656M from financing, and invested -$2.87B. Over the 5y period ending 2019, FE added an average +$120M cash per year. Cash reserves ended 2019 roughly $630M.