U.S. utility PG&E Corp. (PCG) is said to be preparing a $11 billion debt-financing package as it embarks on a plan to exit from its bankruptcy, an investor involved with the company’s funding plan told Reuters on Friday. Shares jumped 5.5% to close at $12.52.
According to George Schultze, founder of Schultze Asset Management, which invests in distressed securities, the debt financing plan, which will consist of high-yield bonds and term loans, is part of the company’s previously announced plan to raise as much as $27 billion in funding from future public offerings. It includes $4 billion of high-yield bonds and a $750 million term loan led by JPMorgan Chase & Co., Bloomberg said in a separate report.
PG&E’s aims to come out of bankruptcy by June 30 so it will be eligible to receive a state-backed fund that would help utilities cope with the financial fallout suffered from wildfires.
“While the company comes out of this slightly overleveraged, it has a strong business and will be able to pay down the debt,” Schultze said. “The debt market is so hot right now that I’m sure this offering will be oversubscribed.”
PG&E seeks to raise most of the remaining $16 billion in proposed future public offerings from equity - possibly at a discount to where PG&E’s peer group is trading at the time of emergence from bankruptcy, Schultze said.
In January last year, the utility filed for bankruptcy, citing potential liabilities exceeding $30 billion from major wildfires sparked by its equipment in 2017 and 2018.
It looks like some investors are welcoming PG&E’s plan to emerge out of bankruptcy. Since hitting this year’s low in March, shares have surged more than 70%.
Merrill Lynch analyst Julien Dumoulin Smith on Friday reiterated a Buy rating on the company with a $14 price target, saying that with approvals and a reorganization plan in place, the stock offers a “much cleaner story”.
“Under conservative assumptions we calculate shares as offering compelling total return prospects with additional catalyst potential if the backstop agreement were amended to provide better terms,” Dumoulin Smith wrote in a note to investors.
Overall, the Wall Street analyst community is cautiously optimistic on the stock. The Moderate Buy consensus consists of 5 Buy versus 3 Hold ratings. The $14.56 average price target implies shares may gain another 16% in the coming 12 months. (See PG&E stock analysis on TipRanks).
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