- PG&E, California’s largest utility, said Thursday that despite being cleared of any fault in the 2017 Tubbs Fire, it still faced “significant potential liabilities.”
- A person familiar with the matter told Reuters the utility would still seek bankruptcy protection later this month.
- Shares fell more than 10% early Friday.
- Watch PG&E trade live.
Shares of PG&E, California’s largest utility, were down more than 10% early Friday morning after the company said it still planned to file for bankruptcy protection despite being cleared by the California Department of Forestry and Fire Protection of any wrongdoing related to the 2017 Tubbs Fire, the second-most-destructive fire in the state’s history.
Shares of the company soared 75% Thursday after the fire-protection agency cleared PG&E from fault for the 2017 fire, closing at $US13.95 apiece. But then the company came out with a statement after the closing bell.
“Regardless of today’s announcement, PG&E still faces extensive litigation, significant potential liabilities, and a deteriorating financial situation,” the utility said in a statement Thursday evening, according to Reuters. A person familiar with that matter told the news agency that the utility still planned to seek bankruptcy protection later this month.
Last week, the company said it intended to file bankruptcy petitions at the end of the month to reorganise under Chapter 11 protection, two months after the deadliest and most destructive wildfire in California history broke out. The utility could still face liabilities for that fire, known as the Camp Fire. PG&E has said that it was having trouble with its transmission lines when the blaze erupted and that it may be responsible.
Thursday’s big gain was surely welcomed by hedge funds that had been buying up shares before the Camp Fire broke out. The most recent filings showed Seth Klarman’s Baupost had owned close to 19 million shares, and BlueMountain Capital held 4.3 million. Shortly before PG&E’s announcement, BlueMountain laid out a case arguing that bankruptcy was unnecessary.
“The news from Cal Fire that PG&E did not cause the devastating 2017 Tubbs fire is yet another example of why the company shouldn’t be rushing to file for bankruptcy, which would be totally unnecessary and bad for all stakeholders,” a representative for BlueMountain Capital Management said on Thursday.
But analysts at RBC Capital Markets say that although the board will most likely face pressure to reconsider a filing, bankruptcy remains the most likely course of action.
“Recall that the doctrine of Inverse Condemnation (IC) calls for the utility to pay for all liabilities for fires started by its equipment whether it was negligent or not,” the analysts Shelby Tucker and Wojciech Majerczak wrote. “Even if it is allowed to recover these liabilities, PacGas might find financing these claims too onerous prior to receiving appropriate recovery guarantees by the California commission.”
They think the stock is cheap right now, however, and raised their price target accordingly.
“We discount PCG’s recent peak market cap of $US37 billion (just before the ignition of the 2017 wildfires) by 25% to account for the more severe than previously appreciated implications of IC,” they said. “We then deduct roughly $US19 billion of after-tax liabilities (down from $US24 billion previously) from our adjusted market cap, yielding equity value of ~$US8.5 billion, or $US16 on a per-share basis.”
PG&E shares were down 71% through Thursday since Camp Fire broke out on November 8.
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