We expect that we will need to raise additional capital, and raising additional funds by issuing
additional equity securities or with additional debt financing may cause dilution to shareholders or restrict our operations.
We
expect that we will need to raise additional capital in the future. We may raise additional funds through public or private equity or debt offerings or other financings, as well as additional borrowings under our credit facilities. Additional
issuances of equity securities, including additional shares of the Series C Preferred Stock or shares of any new series of parity stock or senior stock, or debt or other securities that are convertible into or exchangeable for, or that represent the
right to receive, Series C Preferred Stock or any new series of parity stock or senior stock, could dilute the economic and other rights and interests of holders of shares of the Series C Preferred Stock and cause the market price of the Series C
Preferred Stock to decline.
Any new debt financing we enter into may involve covenants that restrict our operations more than our current
outstanding debt and credit facilities. These restrictive covenants could include limitations on additional borrowings and specific restrictions on the use of our assets, as well as prohibitions or limitations on our ability to create liens, pay
dividends, receive distributions from our subsidiaries, redeem or repurchase our stock or make investments. These factors could hinder our access to capital markets and limit or delay our ability to carry out our capital expenditure plan or pursue
other opportunities beyond the current capital expenditure plan. Moreover, any incurrence of additional indebtedness could have a variety of other material negative effects, as described under the caption Risk FactorsOur level of
indebtedness may make it more difficult for us to pay or refinance our debts or take other actions, and we may need to divert cash to fund debt service payments or issue additional equity that may materially dilute the voting rights and economic
interest of holders of our common stock in our most recent Annual Report on Form 10-K. Further, we may incur substantial costs in pursuing any capital-raising transactions, including investment banking,
legal and accounting fees. On the other hand, if we are unable to obtain capital when needed, on reasonable terms and in amounts sufficient to fund our obligations, expenses, capital expenditure plan and other strategic initiatives, we could be
forced to suspend, delay or curtail these plans or initiatives or could default on our contractual commitments. Any such outcome could negatively affect our business, performance, liquidity and prospects.
Certain credit rating agencies may downgrade our credit ratings or place those ratings on negative outlook, which may adversely affect the market price
of our Series C Preferred Stock.
Credit rating agencies routinely evaluate Sempra Energy and its subsidiaries, and their ratings
of securities issued by Sempra Energy and its subsidiaries are based on a number of factors, including the increased risk of wildfires in California, perceived supportiveness of the regulatory environment affecting utility operations, including
delays and difficulties in obtaining recovery, or the denial of recovery, for wildfire-related costs, ability to generate cash flows, level of indebtedness, overall financial strength, including credit metrics, diversification beyond the regulated
utility business (in the case of Sempra Energy), and the status of certain capital projects, as well as other factors beyond their control, such as tax reform, the state of the economy and our industry generally. Downgrades and factors causing
downgrades of one or both of SDG&E and Southern California Gas Company (SoCalGas), which are subsidiaries of Sempra Energy, can have a material impact on Sempra Energys credit ratings. Downgrades, as well as the factors causing
such downgrades, of Sempra Energys credit ratings can also have a material impact on the credit ratings of our subsidiaries, including SDG&E and SoCalGas. On May 29, 2020, Moodys Investor Services, Inc.
(Moodys) announced the downgrade of the long-term ratings of SoCalGas, including its senior unsecured rating, from A2 to A1, the downgrade of SoCalGas secured first mortgage bond rating from Aa3 to Aa2, and the assignment of
an A2 rating to SoCalGas bank credit facility.
While the current Moodys, S&P Global Ratings (S&P) and
Fitch Ratings (Fitch) (collectively, the Rating Agencies) issuer credit ratings for Sempra Energy, SDG&E and SoCalGas are investment grade, there is no assurance that these credit ratings will not be downgraded. In that
regard, on June 9, 2020, Moodys downgraded the credit ratings of Sempra Energy, including reducing its senior unsecured debt and issuer ratings from Baa1 to Baa2 and reducing its junior subordinated debt rating from Baa2 to Baa3.
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