PG&E Shares Tank After New Bankruptcy Rulings

PG&E Corporation PCG shares plummeted 27% on Monday after two critical courtroom rulings about the California utility’s wildfire liabilities and ongoing bankruptcy proceedings.

What Happened

The major blow for PG&E shareholders came when a judge ruled that a jury should determine whether or not PG&E is on the hook for up to $18 billion in additional wildfire damages. On Friday, U.S. Bankruptcy Judge Dennis Montali lifted a freeze on liability lawsuits tied to the 2017 Tubbs fire, a move which can open the door for further claims against PG&E.

The silver lining for investors is that Montali also said PG&E will have the sole right to propose bankruptcy exit plans, likely a victory for its common shareholders.

Why It’s Important

The Tubbs fire killed 22 people and destroyed 5,600 structures, and the market had not anticipated the judge lifting the freeze. Just prior to PG&E’s bankruptcy filing earlier this year, the state of California ruled that PG&E equipment was not the cause of the Tubbs fire, with investigators concluding it was sparked by a private electrical system.

“It was a little out of left field that the judge allowed the Tubbs fire litigation to go to an outside jury,” Bloomberg Intelligence analyst Kit Konoliges said of the ruling. “That’s a big negative surprise.”

The good news for PG&E investors is that PG&E’s creditors, including insurance companies, hedge funds and bondholders, will not be allowed to submit bankruptcy proposals.

Last month, Robin Deshayes, President and Chief Strategy Officer at Miltonian Capital Management, told Benzinga’s PreMarket Prep that a company-proposed bankruptcy plan would be good news for common stock owners.

“If their version of the plan were to pass, that’s probably the best-case scenario for shareholders, Deshayes said.

"If the creditors’ version of the plan or something more like the creditors’ versions are accepted by the judge, that would be negative for the equity...The main point of the creditors’ plan is that they would exchange their debt for equity,” she said.

A debt-for-equity exchange would have likely significantly diluted common shareholders’ ownership stake in the company.

What’s Next

For now, PG&E investors will be watching to see the details of the company’s bankruptcy plan, which is expected to be filed by Sept. 9. In addition, they will be watching for any updates on lawsuits related to the Tubbs fire and just how much additional unexpected costs and liability the company could now be facing.

The stock traded lower by 27.8% to $10.30 per share at time of publication.

Related Links:

Expert Take On PG&E Equity Offering, Bankruptcy Outlook

Why Bankrupt PG&E Isn't Trading At $0

Photo credit: Frank Deanrdo, Flickr