Shares of utility PG&E fell 21 percent on Wednesday after the company said that if its equipment is responsible for the "Camp Fire" burning in Northern California, the cost of the damage would exceed its insurance coverage and harm its financial health.

"While the cause of the Camp Fire is still under investigation, if the Utility's equipment is determined to be the cause, the Utility could be subject to significant liability in excess of insurance coverage," the company said in a document filed with the Securities and Exchange Commission on Tuesday. That would "have a material impact on PG&E Corporation's and the Utility's financial condition, results of operations, liquidity, and cash flows."

The plunge in the company's stock erased $3.7 billion in value as its market cap slid to $13.3 billion from $16.9 billion.

PG&E, owner of Pacific Gas & Electric Co., said its subsidiary has drawn down $3 billion from its credit line in anticipation of a fire-related liability. At least 48 people have died in the fire and a record 7,600 homes and other structures have been destroyed, according to official estimates. Hundreds of people remain missing.

"With these borrowings, the entire credit facility has been drawn and PG&E now has $3.5 billion of cash on its balance sheet," Citi analyst Praful Mehta wrote in a note Wednesday. "We think the primary driver could be a concern around a downgrade to a non-investment grade credit rating and the liquidity requirements as a result of the downgrade."

Mehta later told CNBC in a phone interview that while some have suggested the credit drawdown could hint at forthcoming bankruptcy, he still thinks it's more likely a bid to access cash before a credit downgrade makes borrowing more expensive.

"The way I view it is that it is basically a liquidity need that PG&E has between now and the first quarter of 2019 because the earliest legislative action that can take place will be when the new legislative session comes in California," he said. "Between now and then there could be risk of a credit downgrade, which could trigger both liquidity and working capital needs."