The activist hedge fund BlueMountain Capital Management LLC urged PG&E Corp. and its utility subsidiary Pacific Gas and Electric Co. to shelve plans for Chapter 11 bankruptcy, saying the plan is "damaging, avoidable, and unnecessary" because the companies are solvent.
"There is overwhelming evidence that [PG&E Corp.] is solvent. We simply cannot recall a situation where such a valuable company filed for bankruptcy with such blatant questions about the necessity of doing so," BlueMountain wrote in a Jan. 17 note to the boards of directors of Pacific Gas and Electric and PG&E Corp. BlueMountain owned 4,307,967 units of PG&E Corp., or 0.83% of common shares, as of Sept. 30, 2018, according to S&P Global Market Intelligence data.
Because PG&E Corp. is still viable, the hedge fund added, it is required to act in the interest of all shareholders to maintain what equity value it has left. After PG&E Corp. and the utility on Jan. 14 filed a 15-day notice of intent to seek Chapter 11 reorganization, PG&E Corp. shares plunged 60% to close at $7.03 per unit on Jan. 16. Shares traded close to $50 as late as November 2018.
PG&E Corp. and the utility face billions of dollars in liabilities stemming from California wildfires. "We believe a court-supervised process under Chapter 11 will best enable PG&E to resolve its potential liabilities in an orderly, fair and expeditious fashion," PG&E Corp. interim CEO John Simon said Jan. 14.
BlueMountain said a bankruptcy would also drive down the price of potential asset sales and increase near-term financing costs, and called on the board to present the Chapter 11 option to shareholders at the annual meeting.
BlueMountain also pointed to the bankruptcy advisory firms' potential conflict of interest due to the "extraordinary professional fees at stake" and called on the board to hire outside advisers for a second opinion.
All three major U.S. credit rating agencies have issued multi-notch downgrades for the parent company and the utility subsidiary, pushing them deep into speculative-grade territory.