Faced with losing control of a multibillion-dollar bankruptcy process,PG&E Corp. promised to swiftly file a chapter 11 exit plan with financial backing in a bid to keep the company’s fate in its own hands.
Two contingents of creditors are anxious to propose their own strategy to lift PG&E out of bankruptcy, and they need a judge to clear the way. The utility owner has opposed the request, and asked to hold on to the exclusive right to file a chapter 11 plan. Bondholders and other investors said PG&E’s pledge of a fast chapter 11 exit plan, which came after the company had spent six months under bankruptcy protection, only proves that competition is needed to push the embattled company toward a chapter 11 exit.
Judge Dennis Montali is expected to rule Wednesday in the U.S. Bankruptcy Court in San Francisco on creditors’ requests to present their own restructuring strategies for PG&E, which filed for chapter 11 in January.
The company filed papers on Monday, saying it has ample access to financing to cover the damages from years of wildfires linked to its equipment, and enough to end its costly bankruptcy. PG&E promised to file a chapter 11 exit plan by Sept. 9.
At a court hearing on Tuesday, PG&E lawyer Stephen Karotkin said financing offers continued to roll in as investors line up to support the company.
By Tuesday morning, 33 different Wall Street institutions were offering more than $13 billion in financing commitments to help PG&E pay down the damage caused by its equipment, Mr. Karotkin said.
Under fire from bondholders, PG&E outlined terms of a plan with certain shareholders that values the company’s stock at a minimum price of $17.80 per share. A competing plan from bondholders including Elliott Management Corp. and Pacific Investment Management Co. values the shares at $6 at most, according to a lawyer for shareholders.
Shareholder lawyer Bruce Bennett slammed the bondholders’ plan, saying they would pocket $1.5 billion in unnecessary interest payments, hundreds of millions of dollars in fees and control over PG&E at the expense of its current owners.
Insurance companies that have paid fire damage claims and hedge-fund manager Baupost Group LLC, which bought insurance claims, also have floated a chapter 11 plan, saying it will push progress in the case.
At one point at Tuesday’s hearing, PG&E’s lawyer described the company as an “honest broker” of the interests of its creditors, provoking laughter in the courtroom.
If Judge Montali opens the door to competing chapter 11 plans, PG&E can still propose its own version of a restructuring, and can hope to draw support from those entitled to vote. The crucial votes will come from people with claims for death, injury or damage because of the fires that swept through California in 2017 and 2018.
Bondholders have offered to raise up to $18.4 billion for wildfire damage under their plan, which would hand them majority control of the company. PG&E has refused to talk to the bondholders, according to their lawyer, Abid Qureshi.
PG&E’s lawyer said the company has sound business reasons for ignoring the bondholders. “They are not here as altruistic players. They are here to acquire the company at a discount, at a substantial discount,” Mr. Karotkin said.
Victims of the 2017 and 2018 wildfires linked to PG&E equipment said none of the three plans will pass muster and will be voted down for providing insufficient cash for fire claims.
“There are a lot of hedge funds and private-equity funds that would like to own this company,” said Cecily Dumas, a lawyer for the official committee that speaks for fire victims. “We are far apart from everybody.”
The three proposals are based on estimates of what the fire damages will be and will likely change in the coming months as bankruptcy proceedings produce a final figure PG&E will have to pay.
Estimates run from $18 billion under the bondholder plan, to $30 billion in PG&E’s reports to the Securities and Exchange Commission, to more than $50 billion, according to the computations of fire victims.
On Wednesday, PG&E is scheduled to oppose fire victims clamoring for jury trials to test how much the utility is to blame and set a price on damages.
PG&E is under the gun to get a chapter 11 plan confirmed by January to leave enough time for its regulators to review the terms before a June 30, 2020, deadline set by California lawmakers. If PG&E misses the deadline, it can’t participate in a wildfire fund signed into law by California Gov. Gavin Newsom.
Article Courtesy of The Wall Street Journal