PG&E Has Clearer Pathway Out Of Bankruptcy, Says Bullish BofA

The California Public Utilities Commission has approved PG&E Corporation’s PCG plan to emerge from Chapter 11 bankruptcy.

This approval and the formal establishment of the Normalized Estimated Net Income for 2021 have made the company’s path to emerge from bankruptcy increasingly clear, according to BofA Securities.

The PG&E Analyst

Julien Dumoulin-Smith reinstated a Buy on PG&E Corp. and established a $14 price target.

The PG&E Thesis

With approvals and a reorganization plan in place, the main debate is the multiple at which PG&E Corp’s equity offering of $9 billion will be established, Dumoulin-Smith said in a Thursday note. (See his track record here.)

BofA expects the equity offering to be conservatively executed, with $7.5 billion in common shares valued at around $9.50 per share and $1.5 billion in mandatory converts at a 6% coupon rate, the analyst said.

Since the parties to the backstop agreement own a large amount of shares, they may be open to amending the limits of the agreement to allow more favorable terms and garner more interest for the pending issuance, he said.

The stock offers a “much cleaner story” after the capital raise, Dumoulin-Smith said, while adding that “under conservative assumptions we calculate shares as offering compelling total return prospects with additional catalyst potential if the backstop agreement were amended to provide better terms.”