Hedge Fund Scores on PG&E Settlement -- WSJ
September 14 2019 - 3:02AM
Dow Jones News
Baupost Group got insurance claims at steep discounts; now set
to cash in
By Peg Brickley
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (September 14, 2019).
Seth Klarman's hedge fund Baupost Group LLC is poised to rake in
profits from the bankruptcy of PG&E Corp. under an $11 billion
insurance settlement, the endgame of an investment strategy
launched months in advance of the California utility's
bankruptcy.
Public records reviewed by The Wall Street Journal indicate
Baupost stands to make hundreds of millions of dollars from its
investment in insurance claims tied to the wildfires that pushed
PG&E into chapter 11. Under a proposed settlement unveiled
Friday, those insurance claims will be paid back at roughly 59
cents on the dollar, roughly twice what Baupost paid for some of
them, records show.
A Baupost spokesperson declined to comment.
PG&E filed for chapter 11 protection at the end of January,
struggling under the weight of $30 billion or more in damage claims
from wildfires in 2017 and 2018 that were later linked to its
equipment. Court records show that between $18.6 billion and $20
billion of PG&E's total wildfire bill stem from the insurance
proceeds paid out to cover wildfire-related property damage.
Those insurers, in turn, are some of the largest claimants to be
paid off as a prerequisite to PG&E's exit from bankruptcy.
Uncertainty about PG&E's future has sparked active trading
in the company's stocks and bonds as Wall Street traders staked out
bets on how much the company could pay. But Baupost also spotted an
opportunity in the relatively obscure corner of insurance claims,
according to records maintained by California insurance
regulators.
The exact amount Baupost stands to make couldn't be learned. As
of March it owned $2.5 billion in insurance claims, according to
court documents. It bought the claims at steep discounts as early
as last year from insurers anxious to shift the wildfire losses off
their books, the records show.
Regulatory records from one major insurer, CSAA Insurance
Exchange, say Baupost paid 30 cents on the dollar to 35 cents on
the dollar for a significant number of California wildfire claims
in late 2018 and early 2019, as it rolled up a stake in PG&E
insurance claims.
On Friday, PG&E announced a settlement that puts the
recovery for insurers at closer to 60 cents on the dollar, an
improvement for those claims relative to the utility's initial
offer and a potential windfall for Baupost if the restructuring
proposal is confirmed in court.
Under the placeholder chapter 11 plan PG&E filed earlier
this week, insurers who paid off some of PG&E's fire damages
were being offered $8.5 billion. A PG&E spokesperson said the
new deal was an "agreement in principle" and the company would
announce additional details when a full written settlement is
reached.
Baupost has demonstrated a knack for finding unusual ways to
make money from corporate collapses. When nuclear plant builder
Westinghouse Electric Co. went bankrupt in 2017, Baupost negotiated
a deal to buy claims against the company from its parent Toshiba
Corp., eventually walking away with $400 million or more in
profits.
Write to Peg Brickley at peg.brickley@wsj.com
(END) Dow Jones Newswires
September 14, 2019 02:47 ET (06:47 GMT)
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