MIAMI – Stocks of bankruptcy California tools
PG & E
(PCG) has gone up, but this investor says it's based on false hope.
George Schultze, founder of worried investor Schultze Asset Management, who has around $ 200 million under management, says he is already profiting from cutting the shares in the tool filed for Chapter 11 bankruptcy protection on Tuesday.
It would make sense: PG & E's shares are down 40% this year and have fallen almost 70% since the fire birds began. And shareholders are being repaid last in bankruptcy, behind bondholders, lawyers, and in this case, victims of fire victims. But PG & Es's stock rose after the filing, based on what Schultze says, is a misguided effort on a bailout. (The shares go down 4% on Thursday.)
"99.75% of the time, shareholders will get nothing when a company goes bankrupt," says Schultze Barrons at the Context Summits Miami conference. "But there is false hope that will not be the case this time. An important part of that speculation is that you have to assume that the California legislature and the California Public Utility Commission will bail you out. And here is such a reluctance to such a deal."
The destruction that was done by the recent Camp Fire is too great, and for political – 86 people died, thousands of acres broke, thousands of structures were destroyed. So politically, it is much more challenging than most cases to give some dividends to the shareholders, he says.
Of the stock, "our thesis is that it will go to zero," he says.
A spokeswoman for PG & E said the company did not comment on the market rumor or speculation.
Schultze says that his justification is supported for a few moments by a recent hearing before the CPUC, where members of the Democratic Socialists for America suggested that the government take over the tool.
California's "inverse condemnation" rule means the state can hold investor-owned tools responsible for fires that their equipment helped to start, even if the company was not negligent. This is partially reduced by a state law passed last year, making it easier for the tools to pass the fire costs to assess payers, and in some cases, tools allow issuance of bonds to cover the costs. That means there is a chance that interest payers, not shareholders, will end up paying for commitments related to last year's Camp Fire.
And Judge William Alsup, who presided over the criminal conviction against PG & E from a pipeline explosion in 2010, emphasized that the company had paid out $ 4.5 billion in dividends to shareholders over the past five years. The money could have been used to cut down trees, which could have helped to limit or prevent fires, the judge said.
Write to Mary Childs at email@example.com