PG&E Stock Hammered by New Stock Offering

PG&E Corp. (NYSE: PCG) announced Monday morning that it has agreed to sell $3.25 billion in common stock to a group of investors in a private placement once the company exits Chapter 11 bankruptcy protection. The company is expected to exit bankruptcy by the end of June.

The private sale investors include affiliates of Appaloosa, Third Point, Zimmer Partners and Fidelity. The investors will pay “up to $10.50” per share for the stock. The shares are subject to a 90-day lockup period (with some exceptions) and the investors may terminate the agreement if backstop commitments are withdrawn or PG&E does not emerge from bankruptcy protection within 45 days.

The share price represents a discount of about 16% to PG&E’s closing price of $12.52 on Friday, and the stock had been taken down by more than 8% at one point in Monday’s premarket session.

In a separate announcement, PG&E said that the company also will issue underwritten public stock offerings to generate up to $5.75 billion in net proceeds. The funds raised from both offerings will be used “to fund distributions under the company’s plan of reorganization.”

The offerings include a reserve allocation of $1.25 billion of common stock for current owners of at least 1 million shares of PG&E common stock and a retail allocation of up to 25% of the offering for individual (retail) investors.

Investors approved for the reserve allocation are prohibited from owning more than 4.75% of PG&E’s common stock, either now or after a purchase from the reserve allocation. The 25% set aside for retail investors will be sold through brokerage firms.

According to a weekend report from Bloomberg, PG&E also is preparing a debt offering of up to $11 billion. The package includes $4 billion in high-yield (junk) bonds and a $750 million term loan from JPMorgan Chase. The remainder of the debt offering is said to consist of investment-grade bonds offered by BofA, JPMorgan and other banks.

The bankruptcy court must still approve the company’s plan, and that could come as soon as this week, according to Bloomberg’s unnamed sources. The court also must approve PG&E’s $59 billion bankruptcy plan that includes payments of $25.5 billion to pay damage claims from California wildfires in 2017 and 2018 caused by faulty equipment.

In order to participate in a state wildfire insurance fund intended to help utilities pay for future claims of fire damage, PG&E must exit bankruptcy by June 30.

Premarket trading in PG&E shares momentarily rose into positive territory but then sunk to a decline of 4.5% to trade at $11.95. The consensus price 12-month target on the stock is $13.72 and the 52-week range is $3.55 to $25.19.