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Why Shares of PG&E Are Soaring Higher Today

By Lou Whiteman - Jan 23, 2020 at 1:43PM

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The utility has settled a dispute with a powerful creditor committee, clearing a hurdle in its effort to exit bankruptcy.

What happened

Shares of PG&E (PCG 2.10%) traded up more than 10% on Thursday following the bankrupt utility's announcement that it has settled a dispute with a group of powerful creditors. The settlement clears a key hurdle in the company's effort to reorganize and should help ensure that equity holders get a payout as part of that reorganization.

So what

PG&E filed for bankruptcy in January 2019 to deal with an estimated $30 billion in liabilities stemming from the 2018 Camp Fire in Northern California and other wildfires. The company's initial plan was to reorganize in such a way that its common shares would retain some value upon emergence, but that plan has been challenged at numerous points throughout the last 12 months.

Utility transmission poles in front of a setting sun

Image source: Getty Images.

In October, the judge overseeing the case ruled that creditors could file a rival plan of reorganization, one that would not be so friendly to shareholders. But PG&E in a statement late Wednesday said it had reached an agreement with all claim holders who filed letters in support of that rival plan, including heavyweights Elliott Management and Pacific Investment Management Co., and that the rival plan would be withdrawn.

As part of the agreement, PG&E has agreed to handle the creditor claims via new notes to be issued by the utility, reinstatement of certain senior notes, and the payment of debt placement fees and reimbursement. PG&E said the new notes will save ratepayers about $1 billion.

Now what

With creditors now out of the way, the last remaining major obstacle standing in the way of PG&E is California Governor Gavin Newsom. In December, Newsom voiced concerns related to governance and accountability, and the two sides so far have not been able to come to an agreement.

There's reason to hope the two sides can compromise. PG&E needs state support in order to gain access to state assistance to help deal with future wildfires, and the governor needs to make sure the utility's reorganization isn't thrown into disarray, causing the lights to go out on constituents. But PG&E is still a risky stock to own, and best left to short-term traders until the company is out of bankruptcy.

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