The latest news from PG&E is that the company is willing to negotiate with California wildfire victims after the governor appointed a mediator to aid in the process.
In September, PG&E bondholders proposed a plan for the company to fund two liability trusts with $25.5 billion split evenly between cash and equity.
“Mgmt. stressed that the $25.5bn offer from Creditors should be viewed with a closer lens, as the $12.5bn deal with victims (all equity) should be adjusted for the multiple at which the bondholders are investing, implying ~$11-11.5bn on an economic value that could be further adjusted downward assuming an illiquidity discount,” Dumoulin-Smith said Friday.
He said it's unclear at this point whether or not a settlement deal is imminent, but management seems to be highly motivated to move the process forward.
Management was reportedly confident the company’s $900 million charge for government fire costs would hold, despite $8.6 billion in government fire claims. Dumoulin-Smith said Cal Fire, which has $2.8 billion in claims, can only recover claims in which they can prove negligence on behalf of PG&E. At the same time, FEMA, which has $3.9 billion in claims, has no precedent for recovering claims against a public company.
Dumoulin-Smith said this potentially limited government liability is good news for investors and victims.
“Lastly, mgmt. remains assured in its equity backstop commitments, although it did acknowledge risks that if admin claims from the Kincade fire exceeded $250mn, the agreement could be terminated,” Doumolin-Smith said.
He said management sticking to those backstop commitments will be a critical part of maintaining confidence in PG&E’s reorganization plan.
While some analysts have argued that a best-case scenario outcome for PG&E could take the stock to as high as $40 per share, others have argued that the stock will ultimately be left worthless following its reorganization. At this point, investors almost need a law degree to follow along in the PG&E drama, and even Bank of America has removed its coverage of the stock given the high degree of uncertainty.
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