In recent months, shares of PG&E (NYSE:PCG) have been caught in a tug-of-war between those who believe equity holders will receive some recovery as part of the bankrupt utility's reorganization plan and those who expect the shares to be wiped out as part of the process. The bulls were in the ascendancy on Friday, sending shares up 11% at midday on news that a prominent hedge fund manager had increased his stake in the company.
PG&E filed for bankruptcy in January to deal with an estimated $30 billion in liabilities stemming from the 2018 Camp fire in Northern California. Although equity holders are often wiped out in a bankruptcy reorganization, the utility's original plan called for the shares to retain some value upon its emergence.
That plan has been called into question as the reorganization has dragged on, with new fires adding the risk of increased liabilities and creditors complaining that PG&E's offer of compensation is not adequate. Last month, the court allowed creditors to file competing reorganization plans, raising the risk that a group of creditors led by Pacific Investment Management and Elliott Management would be able to push through their plan that would all but wipe out current stockholders.
Shares of PG&E have lost more than 60% of their value over the past six months as the news flow has worsened for the company. But at least one prominent hedge fund manager, David Tepper, is apparently still a believer. Tepper's Appaloosa Management, according to a regulatory filing late Thursday, upped its stake in PG&E from 16.8 million shares to 18.1 million during the third quarter.
It's worth noting that Tepper's stake in PG&E is a very small part of the overall Appaloosa portfolio, and the manager could have simply determined that the stock had fallen far enough in recent months to justify adding to his bet on PG&E emerging with its stock intact. It's also worth noting that another manager, John Paulson, decreased the size of his PG&E stake in the quarter.
Buying and selling PG&E shares, for now, is speculation and not investing, and it will remain that way until the utility and the state of California come up with a long-term plan to deal with wildfire risk. Until then, expect the extreme volatility to continue.