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PG&E Stock Powers Up on Reorganization Proposal

June 21, 2003|Nancy Rivera Brooks | Times Staff Writer

The proposed settlement of Pacific Gas & Electric Co.'s acrimonious bankruptcy and plans to resume a common stock dividend in late 2005 drew cheers Friday from investors, who sent shares of the San Francisco utility's parent to a 52-week high.

PG&E and the California Public Utilities Commission staff announced late Thursday that they had reached a compromise reorganization plan for the state's largest electricity utility that would allow the company to repay $13 billion in debt from the energy crisis of 2000-2001.

Rates would decline under the proposal but would remain higher than historical pre-crisis rates for at least four years. Gov. Gray Davis and consumer groups said that the rate cut was too small and that PG&E shareholders should contribute more.

The plan still must be approved by the five PUC members, the PG&E board and U.S. Bankruptcy Judge Dennis Montali.

At a hearing Friday, Montali said his review and the PUC's scrutiny would progress on separate but parallel tracks to conserve time.

Because the PUC members are appointed by Davis, the governor's opposition to the terms suggests that more negotiations lie ahead before a final compromise is reached.

Nonetheless, investors apparently are betting that something close to the new agreement will be adopted, which would replace competing reorganization plans proposed by PG&E and the PUC.

Utility parent PG&E Corp.'s shares closed at $21.51, up $2.11, or 11%, on the New York Stock Exchange -- one of the highest percentage gainers Friday on the NYSE.

More than 14.6 million shares changed hands, compared with average daily volume of 1.5 million shares. PG&E's stock price was more than double the trading lows reached in October.

Wall Street analysts said investors were pleased that the proposed bankruptcy plan would not require any new stock to be issued, which would reduce the value of current holdings.

In addition, PG&E would have the ability to resume paying dividends to shareholders as early as July 2004. But in a conference call with analysts and investors, PG&E executives said the company would postpone reinstating the dividend until late in 2005 to build cash and improve earnings.

Lehman Bros. utility analyst Daniel Ford said the proposed settlement after more than two years of wrangling in U.S. Bankruptcy Court was "worth the wait" and raised his stock price target to $26 a share.

"We view the proposed settlement as well-balanced among the competing interests as it should restore the utility to investment-grade status while lowering rates and repaying creditors in full," Ford wrote in a research note to clients. Lehman Bros. is advising PG&E Corp.

The proposed reorganization would restore PG&E's investment-grade credit rating and repay creditors in full, company executives said.

PG&E Chief Executive Robert Glynn said during the conference that the company had talked with Moody's Investors Service, adding that the credit-rating firm's "general reaction was favorable towards the solution."

Times staff writer Tim Reiterman contributed to this report.

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