How We View PG&E Amid Bankruptcy

Travis Miller: The Northern California utility PG&E has been on a roller-coaster ride for much of the year. The recent wildfires bring it back into the news, even while it goes through bankruptcy proceedings.

Right now, we have two competing factions in the bankruptcy case. Even if the current wildfires result in no significant liabilities, it still faces substantial liabilities, as much as $30 billion worth, from 2018 and 2017 fires. So right now, you've got two fighting factions. Some bondholders have put forward a plan that would essentially wipe out current shareholders but protect their investment in the bonds. PG&E has put forward an exit plan that would give shareholders about half of the company in the best case and as little as 20% of the company in a worst case. A lot of this will depend on the market share price for PG&E and the sentiment around the future of wildfire policy in California.

We have $11 fair value estimate, which essentially gives shareholders about a 25% stake in the company following bankruptcy. We'll know very soon how the bankruptcy proceedings will go. By the end of the year, we expect a decision out of the bankruptcy court, and regulators will have to sign off by mid-June to protect the insurance policies that PG&E has available to it for future fires.

With the stock trading in the $5 to $6 per share range, we think the market is underestimating the share of the company that shareholders will end up with. Still, we think this is a very high uncertainty type of name and not a name that traditionally utilities investors will want to touch. There are a lot of hedge funds involved, and we think this will continue to be a volatile stock for the next eight to 10 months.