PCG PG&E Corporation

By Peg Brickley 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 18, 2019).

BlueMountain Capital Management LLC, a hedge fund with a significant stake in PG&E Corp., has challenged the utility's board over a plan to resort to bankruptcy to tackle wildfire damages that PG&E estimates could run as high as $30 billion.

The California utility announced Monday it would file for bankruptcy, jolting BlueMountain and other investors that bought up the stock in 2018 before the state's deadly Camp Fire, which killed 86 people. The utility's equipment is suspected of having triggered some wildfires.

The announcement slammed the already depressed price of PG&E's shares and bonds. The shares, which were selling for $48.80 just before the Camp Fire broke out in November, fell 9.5% to $6.36 on Thursday, marking a three-month drop of 87%.

BlueMountain, which reported owning 4.3 million shares as of Sept. 30, now owns about 11 million shares, according to a person familiar with the firm's holdings. The hedge fund contends the utility's board is moving too quickly toward a chapter 11 bankruptcy, destroying value unnecessarily.

"The company has ample liquidity to operate its business; the amount of liabilities remains uncertain and contestable; there are meaningful probabilities of offsets from settlements and cost recovery; and any potential liabilities are payable in the future," BlueMountain wrote in a letter to PG&E's board of directors on Thursday.

In the wake of California's devastating wildfires, bankruptcy is the only workable option for the utility, said PG&E spokeswoman Lynsey Paulo.

"Following a comprehensive review with the assistance of outside experts and at management's recommendation, the PG&E board unanimously determined that initiating a chapter 11 reorganization for both the utility and the corporation is the only viable option for PG&E and will maximize the value of the enterprise for the benefit of all stakeholders, " Ms. Paulo said Thursday.

It isn't clear what effect BlueMountain's objection might have on the push toward bankruptcy court. Law firm Weil Gotshal & Manges LLP, a chapter 11 heavyweight, is already on board, and the utility said it would be filing before the end of the month.

Shareholders generally fare poorly in bankruptcy, their holdings often wiped out because creditors are paid before equity owners. BlueMountain also cited the likelihood that bankruptcy will boost PG&E's financing costs.

In PG&E's case, creditors will include victims of a series of wildfires that are believed to be linked to the utility's equipment or practices. Without a final court determination that PG&E is to blame for the fires, and with no trial record to establish the range of verdicts the utility could face, the damage estimates are guesses and not a basis for bankruptcy, according to the hedge fund.

BlueMountain urged PG&E's board to take another look at the numbers, weigh other options and draw on its borrowing power and insurance coverage before admitting insolvency. Until recently, PG&E had investment-grade credit ratings, BlueMountain said, and regulators and lawmakers were open to working with the utility to overcome its problems. Bankruptcy will bring hopes of a state rescue to an end, the hedge fund said.

Some lawyers who have sued PG&E for wildfire damages also maintain that bankruptcy isn't the best way out of trouble.

The utility needs to be taken apart and recreated, but regulators, not a bankruptcy court, should be in charge of reform, said Amanda Riddle, one of the plaintiffs' lawyers.

A PG&E bankruptcy would keep most of management in place, delaying a shake-up of the utility by regulators, Ms. Riddle said in an email earlier this month. "It would allow existing management, which has proven beyond all doubt that it is either safety-incompetent or driven entirely by greed, to stay at their current jobs that much longer," she said.

PG&E said Sunday, before announcing its intention to file for bankruptcy, that Chief Executive Geisha Williams was stepping down and John Simon, the company's general counsel since 2017, would serve as interim CEO as the utility's board of directors conducts a search for a new chief.

Write to Peg Brickley at peg.brickley@wsj.com

(END) Dow Jones Newswires

January 18, 2019 02:47 ET (07:47 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.