Morningstar | Competing PG&E Bankruptcy Exit Plans Frame Lost Equity Value Range; Still-Bearish Outlook
We are raising our PG&E fair value estimate to $14.50 per share from $12.50 after analyzing reported bankruptcy exit plans from the company and its creditors. Both plans would preserve more postbankruptcy equity value than we had estimated.PG&E's stock still trades near a 50% premium to our new fair value estimate, and we remain more bearish than other analysts. We are reaffirming our no moat, stable moat trend, and very high uncertainty ratings.
We estimate the creditors' reported plan would cut $13 billion of equity value. It would create an $18 billion trust for fire victims comprising about $9 billion from shareholders and $9 billion from bondholders. Shareholders also would contribute $4 billion to a proposed state wildfire insurance fund.
A creditor-led group would take control of the company, keep insurance proceeds, and overhaul PG&E's management and board, according to reports. This comes shortly after shareholders voted to expand the board to 15 directors, including new CEO Bill Johnson.
We estimate PG&E's plan would eliminate about $11 billion of equity value. The company would create a $14 billion trust for fire victims and contribute $3 billion to the proposed insurance fund, all in equity through securitization and $2.2 billion of insurance proceeds. Bondholders would take a $7 billion cut, or about 30% of debt outstanding.
We had assumed shareholders would fund a $13.5 billion trust for fire victims, resulting in $11.3 billion of lost equity value net insurance proceeds. We are raising our trust estimate to $15 billion and assume shareholders contribute $4 billion to the proposed state wildfire insurance fund. This results in $9.8 billion of lost equity value after insurance proceeds and $7 billion debt reduction.
Creditors appear to be lobbying for public support ahead of PG&E's Sept. 26 plan filing deadline. California Gov. Gavin Newsom has asked the state legislature to approve the insurance fund by July 12. Inverse condemnation changes are probably more than a year away.
PG&E is a holding company that conducts its business through Pacific Gas and Electric Company (Utility), a public utility engaged in the sale and delivery of electricity and natural gas to customers. The Utility generates electricity and provides electric transmission and distribution services throughout its service territory in northern and central California to residential, commercial, industrial, and agricultural customers. The Utility provides natural gas transportation services to small commercial and residential customers and to industrial, commercial, and natural gas-fired electric generation facilities that are connected to the Utility's gas system in its service territory.
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