Too soon for PG&E to cave to California wildfire risk, hedge fund claims - Washington Examiner

It's too soon for PG&E, the electrical utility threatened by possible liabilities in one of California's deadliest wildfires, to declare bankruptcy, says a $21 billion hedge fund with a stake in the company.

PG&E, which notified regulators earlier this week that it was planning to seek bankruptcy protection as it grapples with safety improvements and payouts linked to its role in previous blazes, remains solvent and "there is no urgency to an imminent filing," BlueMountain Capital Management argued in an open letter to the company's board,

"The company has ample liquidity to operate its business," added the hedge fund, which holds $30 million of the PG&E shares, and "the amount of liabilities remains uncertain and contestable."

PG&E has said it doesn't yet know whether its equipment was responsible for the November 2018 Camp Fire, which destroyed the Northern California town of Paradise along with nearly 14,000 homes, killed at least 86 people, and heightened tension between the largely Democratic state and the Trump administration.

The company had renewed wildfire insurance coverage for a total of $1.4 billion in mid-2018, but its liability for the Camp Fire might be between $8.7 billion and $13 billion, JPMorgan Chase has estimated. The investment bank Goldman Sachs projected a range of $9.9 billion to $12.5 billion.

PG&E, which expects to file its bankruptcy petition around Jan. 29, was required by California law to notify state officials 15 days in advance. The power company doesn't expect any interruptions in service during its Chapter 11 proceedings and says it will keep helping victims of wildfires in 2017 and 2018 while working to rebuild damaged portions of its network and restoring service.

Under U.S. law, companies can use a Chapter 11 bankruptcy to reorganize and obtain new financing under court oversight; firms planning to go out of business typically opt for a Chapter 7 liquidation.

"It may appear easier for board members to file for Chapter 11 -- shifting the burden of dealing with the myriad issues that will face the board and placing it squarely on the shoulders of the Bankruptcy Court and the company's advisers -- but it will destroy value for the company and in particular its shareholders, the only groups to which you owe a duty," BlueMountain said. "We simply cannot recall a situation where such a valuable company filed for bankruptcy with such blatant questions about the necessity of doing so."

Shareholders, the ultimate owners of corporations, bear the brunt of losses in a bankruptcy, with preferential treatment afforded to creditors. While a state law passed in 2017 creates a mechanism for electrical utilities to pass the costs of wildfire-related damages on to users, it applied to disasters in that year as well as those in 2019 and afterward. No specific provision was made for fires in 2018.

PG&E rose 3.6 percent to $7.28 in New York trading after BlueMountain's letter, paring its decline so far this year to 69 percent.

The company said in a regulatory filing earlier this week that bankruptcy is "appropriate, necessary and in the best interests of all stakeholders, including wildfire claimants," other creditors and investors. It's ultimately "the only viable option to restore PG&E’s financial stability to fund ongoing operations and provide safe service to customers," the firm said.

The White House approved then-California Gov. Jerry Brown's request for a presidential disaster declaration in November, making federal funds available to buoy the state's response to the Camp Fire as well as blazes in Los Angeles and Ventura counties.

President Trump, who initially blamed the wildfires on poor forest management by the state and threatened to withhold "Fed payments" — moves that prompted a furious response from California officials and others — later changed tack, approving government assistance rapidly and posting sympathetic comments on Twitter.

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