California Fires Burn Up $4.1 Billion of Hedge Funds That Own PG&E Stock

Credit: Daria Devyatkyna / CC-BY-SA 2.0/ Flickr

Andrew Wagner

PG&E stock has tumbled since the start of the California wildfires and hedge funds returns have been crushed.

Hedge funds that invest in Pacific Gas & Electric Company (PG&E) have lost about $4.1 billion in the four trading days since fires started in northern California, according to The Wall Street Journal.

The fires started on October 23, and since then PG&E's stock has dropped 39 percent. The company market cap was $2.7 billion on Tuesday, compared to an all time market cap high of $37 billion in 2017. PG&E bond prices fell 18 percent as well.

The selloff in PG&E stock is attributed to uncertainty about how far the fires will reach and forecasts predicting extreme winds. The company filed for Chapter 11 bankruptcy on January 29, 2019, and investors are concern about how the company will respond if it receives a large influx of wildfire claims.

“The number one question for investors is are they on the hook for the Kincade Fire and if so how much will that cost,” said Andrew DeVries, a bond analyst at the research firm CreditSights. “The answer is nobody knows.” The effect of a large number of wildfire claims could wipe out the stock and leave too little for the company to repay bondholders.

PG&E and its investors are feeling the heat from the devastating fires in northern California. The company declared Chapter 11 bankruptcy earlier this year and has been issuing bonds to help pay off wildfire claims from last year.

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Economics, Finance and Investing