PCG PG&E Corporation

By Matt Wirz 

PG&E Corp. bond prices surged in heavy trading Monday even as shares declined, a divergence that some analysts said reflects uncertainty about how much new equity the bankrupt California utility needs to raise in order to address claims tied to past and future wildfires.

About $290 million of the bonds changed hands, making PG&E the most actively traded high-yield corporate, according to MarketAxess. Its bond due 2034 hit 109.25 cents on the dollar, up from 107.5 Friday and 101.38 at the start of last week. The company's stock fell 5.6% to $21.67.

The company's shares and bonds both rallied last week after the company reached its first major settlement with wildfire victims and California Gov. Gavin Newsom proposed a plan for a multibillion-dollar fund to cover fire-related liabilities.

Ultimate recoveries on PG&E shares and bonds will depend on how the company raises capital to offset wildfire liabilities. Some of the funding could come from increasing charges to electricity ratepayers and from issuance of new bonds backed by the utility's future revenues. But the larger the size of the state wildfire fund -- options floated by Mr. Newsom range from $10.5 billion to $21 billion -- the more shareholders or bondholders will have to contribute themselves.

If the fund is on the higher end, "we assume $9 billion of traditional equity would need to be raised to fund PG&E's contribution," Morgan Stanley & Co. analyst Stephen Byrd wrote in a report published Monday.

Bondholders could pay such a sum through a rights offering, but that would dilute existing shareholders, hedge-fund analysts said. If the shareholders foot the bill themselves, the cash they spend would eat into potential profits on the company stock postbankruptcy, they said.

In the Treasury market, the yield on the 10-year note fell to 2.021% from 2.066% after the Federal Reserve Bank of Dallas released a lukewarm reading of manufacturing activity. The WSJ Dollar index lost 0.2%.

Write to Matt Wirz at matthieu.wirz@wsj.com

(END) Dow Jones Newswires

June 24, 2019 17:03 ET (21:03 GMT)

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