Vanguard holds half of $920 million municipal bonds issued by Calif. utility close to bankruptcy

(Bloomberg) — The Vanguard Group holds about $415 million of municipal bonds issued on behalf of PG&E Corp., about half of the $920 million state and local debt sold for the California utility that’s edging toward bankruptcy because of the fallout from devastating wildfires.

But all but $2 million of the bonds held by Vanguard are backed by banks that act as buyers of last resort for the securities, insulating the money manager from risk, said Freddy Martino, a spokesman. Martino declined to comment on PG&E’s impending bankruptcy, though he said the firm’s holdings have declined about $15 million since its filings at the end of December.

Vanguard held $227.9 million of PG&E debt in its $5.6 billion California Municipal Money Market fund as of Dec. 31, according to data compiled by Bloomberg. It held another $110 million of PG&E’s debt in its California intermediate and long-term funds and $94.5 million in its $18.3 billion national money market fund.

Yields on PG&E floating-rate rate bonds issued by California’s Pollution Control Finance Authority rose to 3.5 percent Monday from 2.5 percent Friday, reflecting a rash of selling that made the utility’s debt the most actively traded in the municipal market Monday, according to data compiled by Bloomberg. Such bonds trade at par because banks agree to buy the debt periodically if other investors won’t.

USAA was the second-biggest holder of PG&E municipal debt with $86.6 million, according to data compiled by Bloomberg.