What happened
Shares of beleaguered Californian utility stock PG&E Corporation (NYSE: PCG) are having a rare good day as the markets reopen for business Tuesday, up 10.7% as of 11:40 a.m. EST. But this is happening for rather a strange reason.
This morning, Reuters reported that PG&E has "secured $5.5 billion in debtor-in-possession (DIP) financing from four banks as it prepares to file for Chapter-11 bankruptcy protection." The funds, coming in the form of a $3.5 billion revolving credit line, a $1.5 billion term loan, and a $500 million delayed-draw term loan, will be used to keep the lights on and the turbines running at PG&E as it heads into what's expected to be about a two-year-long bankruptcy process , beginning on or about Jan. 29.
So what
Here's the thing: PG&E taking on $5.5 billion in additional debt might be a good thing for its customers, who will enjoy light and heat as a result. It may be a good thing for the folks suing PG&E, trying to get money in recompense for damages caused by last year's Camp Fire wildfire and other fires for which PG&E is blamed.
However, it doesn't change the fact that PG&E shareholders will almost certainly be wiped out by the bankruptcy process and the estimated $30 billion in damages that PG&E will be trying to pay out of cash on hand, insurance proceeds, and -- this is key -- a market cap of barely $4 billion.
Now what
If and when that wipeout happens, PG&E stock that sells for $8 a share today could soon be worth $0. The small rise in value PG&E stock has seen today, on the news that the company is taking on $5.5 billion in new debt, isn't likely to last.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
