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What's Next For PG&E After $13.5B Settlement?

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What's Next For PG&E After $13.5B Settlement?

PG&E Corporation (NYSE: PCG) shares rallied 18% on Monday after the company reached a $13.5 billion settlement with the Official Committee of Tort Claimants (TCC) related to resolve claims related to recent California wildfires. While investors initially cheered the settlement, Bank of America analyst Julien Dumoulin-Smith said bankrupt PG&E isn’t quite out of the woods just yet.

Dumoulin-Smith said the $13.5 billion settlement came as no surprise and brings total settled claims up to $25.5 billion. That total liability is roughly in-line with expectations.

In addition, PG&E said it secured $12 billion in equity backstop commitments to fund the settlements and bankruptcy reorganization. That $12 billion is up from the $7.4 billion the company last reported.

Missing Details

Dumoulin-Smith said these steps are all important in the process of navigating bankruptcy, but several key details remain unclear, including how the settlement proceeds will be paid to the victims. Previous reports have suggested settlements may be paid in 50% cash and 50% equity. The percentage of equity payment and the share price of the stock will go a long way in determining just how much the settlement will dilute current shareholders.

While there are still key details left to be resolved, Dumoulin-Smith said recent developments put PG&E on track to move forward from this extremely difficult period.

“Bottom line, myriad recovery & financing points now fall out of this critical deal & goes a long way towards rapid resolution in 1H20 (forgoing a highly anticipated court process in early ’20),” he wrote in a note.

Benzinga’s Take

Patient PG&E investors willing to stomach the volatility in the stock were rewarded in a big way on Monday. However, the timing and magnitude of further potential upside still hangs on the details mentioned above and the structure of PG&E as it ultimately emerges from bankruptcy.

PG&E's stock traded around $11.35 per share at time of publication.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Related Links:

Analyst Provides PG&E Bankruptcy Update After Meeting With Company Management

Q3 13F Roundup: How Buffett, Einhorn, Ackman And Others Adjusted Their Portfolios

A PG&E yard in San Francisco. Photo by Peter Merholz via Wikimedia.

Latest Ratings for PCG

DateFirmActionFromTo
Jan 2020UpgradesNeutralBuy
Dec 2019UpgradesSellNeutral
Dec 2019MaintainsSell

View More Analyst Ratings for PCG
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Posted-In: Bank of America California wildfires Julien Dumoulin-SmithAnalyst Color News Legal Analyst Ratings Best of Benzinga

 

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