Shares of PG&E (PCG - Get Report) fell 9.5% to $6.36 a share at the close of trading on Thursday after shareholder BlueMountain Capital Management LLC on Thursday challenged the power company's decision to declare bankruptcy in response to the deadly California wildfires.
In a letter to the boards of PG&E Corp. and the Pacific Gas and Electric Co., New York-based BlueMountain said "there is overwhelming evidence that PG&E is solvent."
"We simply cannot recall a situation where such a valuable company filed for bankruptcy with such blatant questions about the necessity of doing so," the letter said.
Since PG&E is solvent, the letter said, the board continues to have a duty to act in the best interests of the company and its shareholders, and not in the best interests of "all stakeholders."
"The evidence for PG&E's solvency is overwhelming," the letter said. "As of December 31, 2018 - nearly two months after the Camp Fire - 18 separate Wall Street analysts found PG&E solvent, with a consensus equity valuation of $20 billion. Moody's, S&P, and Fitch all affirmed investment grade ratings."
PG&E said Monday that it plans to file for bankruptcy, seeking Chapter 11 protection in the face of billions of dollars in liability costs related to the company's role in wildfires in 2017 and 2018, including last year's deadly Camp Fire, which killed 86 people.
BlueMountain said filing for Chapter 11 filing while the company is still solvent is "an utter abdication" of the board's duty to act in the best interests of the company and the shareholders. BlueMountain holds a stake of 0.8% in PG&E.
"It may appear easier for Board members to file for Chapter 11 - shifting the burden of dealing with the myriad issues that will face the Board and placing it squarely on the shoulders of the Bankruptcy Court and the companies' advisors," the letter said, "but it will destroy value for the Company and in particular its shareholders - the only groups to which you owe a duty."
BlueMountain encouraged the board to wait until PG&E's annual shareholders meeting, which is scheduled to be held on May 22.
PG&E said in a statement that "following a comprehensive review with the assistance of outside experts and at management's recommendation, the PG&E Board unanimously determined that initiating a Chapter 11 reorganization for both the Utility and the Corporation is the only viable option for PG&E and will maximize the value of the enterprise for the benefit of all stakeholders."
Separately, Fitch Ratings said PG&E Corp's planned bankruptcy will not at this point hurt the credit quality of California. However, the credit ratings agency said the state's wildfires and the inverse condemnation rule will remain a long-term risk for the publicly-owned utilities.