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The bankruptcy filing by PG&E Corp. is the latest stumble by a company rated highly by environmentally focused investors, further exposing a weakness in a scoring system meant to measure risk for shareholders, the Wall Street Journal reported. The California utility’s moves over the past 10 years to rely more on renewable sources such as wind and solar resulted in high scores on environmental, social and governance metrics, which are considered by many investors to be a positive factor in choosing a stock and used by others as a way of managing risk. What the ratings couldn’t predict is that the stock would lose nearly 70 percent of its market value since early November, as investors worried about potential liabilities for the role PG&E’s equipment may have played in multiple wildfires. PG&E Corp. filed for bankruptcy protection on Jan. 29. Even as the world’s biggest asset managers pile into ESG investing strategies — an estimated $22.89 trillion invested with ESG in mind, according to industry group the Global Sustainable Investment Alliance — the ratings and analysis that underpin sustainable investment scores remain more art than a science. The data is often self-reported, and there can be blind spots, like those revealed when companies such as PG&E, Volkswagen AG and Facebook Inc. ran into trouble. “These data providers almost have an impossible task in front of them” because it isn’t standardized, said George Serafeim, a professor at the Harvard Business School. “The whole field is very messy.”

Detroit moved one step closer to seeing its bond rating emerge from junk, in a sign of its recovery more than five years after becoming the biggest U.S. city ever to go bankrupt, Bloomberg News reported. S&P Global Ratings yesterday raised its ranking of the city one notch to BB-, three steps below investment grade, because the government’s finances have been on the mend since coming out of bankruptcy in late 2014. The company said that the change reflects Detroit’s ability to cover rising pension and debt costs in the years ahead without running budget shortfalls, a benefit of the court proceedings that allowed it to cut obligations it couldn’t afford after decades of population and economic decline.

In the fourth quarter, investors trimmed the amount of margin debt they used to buy stocks at the fastest pace since the financial crisis. But some Wall Street and brokerage executives say those loan levels stabilized or moved higher last month as the S&P 500 rebounded, posting its best January performance since 1987, the Wall Street Journal reported. Margin debt, which is generally considered a gauge of investor confidence, tumbled more than $90 billion in the fourth quarter to $554.3 billion, the lowest tally since December 2017, according to the Financial Industry Regulatory Authority. Although the pace of the decline was jarring, analysts at Bank of America Merrill Lynch and other firms say that the pullback supports the case that the stock market has bottomed and is poised for a rebound — albeit with ongoing spikes in volatility — similar to other recoveries following drawdowns in February 2016 and September 2011.

More than 50 investment advisers are under pressure to settle federal claims they steered customers to mutual funds that charged excessive fees, the Wall Street Journal reported. The Securities and Exchange Commission’s civil enforcement campaign to limit the fee-steering practice has unnerved Wall Street firms and smaller financial advisers, the people said. Money managers have been caught off guard by the extent of the investigations, initially announced in February 2018. The SEC at the time asked investment advisers to voluntarily report cases in which they may have overcharged clients, in exchange for paying lower fines. The initiative followed about a dozen enforcement actions since late 2017 targeting excessive fees, including ones against SunTrust Investments Services Inc. and PNC Investments LLC. The companies didn’t admit or deny the claims but agreed to pay back over $16 million in fees to clients or the government. In the new investigations, the SEC is pushing numerous firms to settle civil-fraud charges by Friday. The cases involve ongoing fees, known as 12b-1 charges, that are levied against investor assets and used to reward financial advisers who sell mutual funds. The fees sometimes are shared with investment advisers who manage portfolios for clients. Investment advisers are supposed to disclose if there are versions of the same fund that don’t impose those fees, according to the SEC. The fees have become unpopular in recent years, with more investors choosing cheaper index funds and others opting for accounts that can avoid the fees.

Sinking oil prices are turning distressed U.S. energy companies into takeover targets for opportunistic private investors who are prepared to offer expensive debt in return for ownership stakes, as the sector struggles to access traditional forms of bank financing, Reuters reported. A slowing global economy and fears of excess oil supply sent the benchmark crude oil index spiraling to as low as US$53 in October from a 14-year high of $86 earlier that month. Brent Crude was $58.18 yesterday. High operating costs have also reduced oil and gas companies’ margins and free cash flow, which is restricting access to loan financing as banks’ credit committees are wary of increasing their exposure to the volatile sector. “Oil and gas needs other sources of capital because traditional providers are less interested,” according to Reid Morrison, a partner and global energy advisor at financial services firm PwC. “But these other sources, like private equity, come at higher terms.” Read more. 

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Once the Marsh Supermarkets chain began to falter a few years ago, its owner, a private-equity firm, began selling off the vast retail empire, piece by piece, according to a Washington Post analysis. The company sold more than 100 convenience stores, then pharmacies, and closed some of the 115 grocery stores, having previously auctioned off their real estate. Then, in May 2017, the company announced the closure of the remaining 44 stores and filed for bankruptcy. While the sell-off allowed Sun Capital and its investors to recover their money and then some, the company entered bankruptcy leaving unpaid more than $80 million in debts to workers’ severance and pensions. For Sun Capital, this process of buying companies, seeking profits and leaving pensions unpaid is a familiar one. Over the past 10 years, it has taken five companies into bankruptcy while leaving behind debts of about $280 million owed to employee pensions.