Shares of PG&E Corp. (NYSE: PCG) have shed over 70% of their value this year as the company is considering bankruptcy among facing $30 billion in liabilities from California wildfires for the last 2 years.
PCG stock represented unbelievable swing trading opportunity for the last week judging by up to 15% high/low share price difference during daily trading sessions.
BlueMountain Capital Management LLC, a $5.5 billion asset manager that owned 4.3 million PG&E shares at the end of September, said a Chapter 11 filing would be an “utter abdication” of its duty to act in the best interest of the company and its shareholders.
It may appear easier for board members to file for Chapter 11–shifting the burden of dealing with the myriad issues that will face the Board and placing it squarely on the shoulders of the Bankruptcy Court and the companies’ advisors–but it will destroy value for the company and in particular its shareholders–the only groups to which you owe a duty.
BlueMountain now owns about 11M shares of PCG according to WSJ reports, which is more than 2 fold of their previous holdings from September last year.
Some evidence for PG&E’s solvency from BlueMountain’s analysis:
The evidence for PG&E’s solvency is overwhelming. As of December 31, 2018 – nearly two months after the Camp Fire – 18 separate Wall Street analysts found PG&E solvent, with a consensus equity valuation of $20 billion. Moody’s, S&P, and Fitch all affirmed investment grade ratings.
It is insufficient to merely say “such liability could exceed $30 billion” and conclude that PG&E – whose market capitalization exceeded $35 billion before the wildfires, is therefore insolvent. Courts have held – and good business judgement dictates – that a more nuanced analysis is required.3
When reasonable and informed estimates are incorporated for settlements, causation, cost recovery, tax assets, insurance assets, and return increases, the Board will no doubt realize that PG&E is comfortably solvent, with expected net cash payments for wildfire liability only in the single-digit billions of dollars. These future cash payments can be offset by just
a few years of retained earnings while operating in the ordinary course.