MIAMI – Shares of the bankrupt California utility
PG & E
(PCG) has risen, but this investor says he's based on false hopes.
George Schultze, founder of troubled investor Schultze Asset Management, which manages around $ 200 million, says he has already benefited from short selling of shares the utility that filed Tuesday for Chapter 11 bankruptcy protection.
That would make sense: The shares of PG & E have fallen by 40% this year and have fallen by almost 70% since the beginning of the forest fires. And the shareholders are the last to be repaid in bankruptcy, behind bondholders, lawyers and, in this case, forest fire victims. However, PG & E's shares rose after submission, based on what Schultze called a misguided bet on a bailout. (Stocks fell 4% on Thursday.) "99.75% of the time, shareholders do not get anything if a company goes bankrupt," says Schultze Barrons at the Context Summits conference in Miami. "But there is a false hope that will not be the case this time. An essential part of this speculation is that you must assume that the California Legislature and the California Public Utility Commission will save you. And here is such a dislike of such a deal. "
The recent destruction of the campfire is too great and too political – 86 people died, thousands of hectares were burned, thousands of buildings destroyed. "So it's politically more difficult than most cases to give shareholders a rest," he says.
From the stock, "our thesis is that it will go to zero," he says.
A spokeswoman for PG & E said the company does not comment on market rumors or speculation.
Schultze says his reasons are based on a few moments ago at a recent hearing before the CPUC, in which members of the Democratic Socialists of America suggested that the government take advantage of it.
The Californian Rule of Inversion Conviction rule means that the state can hold the investor-owned suppliers responsible for the fire that the equipment was used to trigger, even if the company was not negligent. This is partly mitigated by a state law passed last year that makes it easier for utility companies to pass on the cost of running the fire to tariff payers, and in some cases utilities can issue bonds to cover the costs. This means that there is a likelihood that interest payers, and not shareholders, will ultimately pay for the liabilities from last year's Camp Fire.
And Judge William Alsup, who presided over the criminal conviction against PG & E from a pipeline explosion in 2010, highlighted this. The company has paid $ 4.5 billion in dividends over the last five years Shareholders paid. The money could have been used to cut down trees, which could have helped limit or prevent fires, the judge said.
Write to Mary Childs at [email protected]