How PG&E's 2001 Bankruptcy Compares To Its Current Situation

Things are coming down to the wire for battered California utility stock PG&E Corporation (NYSE: PCG) after the company indicated earlier this month it faces roughly $30 billion in wildfire liability and is preparing a bankruptcy filing. However, one Wall Street analyst said Monday the stock may still have value if the company can avoid bankruptcy.

The Analyst

Morgan Stanley analyst Stephen Byrd reiterated his Equal-Weight rating and $13 price target for PG&E.

The Thesis

Byrd said there are three key differences between the current potential bankruptcy for PG&E and the previous 2001 bankruptcy of its utility subsidiary:

1. PG&E is in a much better position today than in 2001 from a liquidity standpoint given its positive cash flow. Byrd said a Jan. 29 Chapter 11 filing may even be challenged in court on these grounds, given that bankruptcy law prohibits solvent companies from filing on a tactical financial basis.
2. PG&E’s 2001 problems were discrete in nature, whereas the 2019 problems are related to the potential open-ended liability facing PG&E and other California utilities due to the ongoing California wildfires. Given the wide range of potential solutions and the contentiousness of the issue, Byrd said he doesn’t expect the state of California to resolve the issue anytime soon.
3. The biggest difference between the current potential bankruptcy and the 2001 bankruptcy is that the current bankruptcy filing includes both the utility subsidiary and the public parent company. Byrd said a significant number of institutional investors may be restricted from owning shares of a company.

• Despite the differences between 2001 and 2019, Byrd said there’s one major similarity that could be the best hope for current investors -- PG&E has the legal right to separate its federally regulated assets into separate subsidiaries only subject to limited California liability.

“As part of the settlement agreement reached between PG&E and multiple parties in 2003, PG&E ceased its efforts to separate these business units. We believe PG&E may seek a similar separation if the company files for Chapter 11, and we see significant potential value from such a move,” Byrd wrote in a note.

Price Action

PG&E's stock traded at $7.39 Tuesday morning and is down 85.3 percent overall in the past three months.

Related Links:
Analyst Cuts PG&E Price Target By 82%, But Still Sees Some Value

Analysts Talk Utility Stocks In The Aftermath Of PG&E Bankruptcy News