A peace pact of sorts has been reached between PG&E Corp. and some financial adversaries regarding its many layered bankruptcy restructuring plan, but California Gov. Gavin Newsom has taken up the gauntlet to continue battle.
A settlement was reached late Wednesday by PG&E and utility Pacific Gas & Electric Co. with ad hoc noteholders that include Pacific Investment Management Co. and activist investor Elliott Management Corp., which have been opposed to the Chapter 11 turnaround proposal.
The noteholders plan to withdraw an alternative plan of reorganization, which could allow PG&E to hit a state deadline of June 30 and exit bankruptcy, according to the latest filings in U.S. Bankruptcy Court for the Northern Division of California, Case No. 19-30088.
“Reaching a resolution with the bondholder group is a positive development to move forward with our plan of reorganization,” PG&E CEO Bill Johnson said. “This agreement helps achieve our goals of fairly compensating wildfire victims, protecting customers’ bills and emerging from Chapter 11 as the utility of the future that our customers and communities expect and deserve.”
PG&E over the past several months has made “significant progress in our Chapter 11 cases,” he noted.
PG&E initially filed for voluntary bankruptcy one year ago. In September PG&E and its primary utility filed a joint reorganization plan, and in mid-December an amended plan was filed.
“We have settled with all pre-petition wildfire victims’ groups -- individuals, insurance companies and public entities -- and we’ve now reached an agreement with the bondholder group,” Johnson noted. “We remain focused on working with key stakeholders, including elected officials and our state regulator, on how PG&E will look, act, and be held accountable as we emerge from Chapter 11.”
All pre-petition funded debt under the restructuring plan is to be treated through a combination of new notes to be issued, as well as reinstating other senior notes, debt placement fees and reimbursements.
The agreement announced late Wednesday would save customers about $1 billion by refinancing some debt, “consistent with the guidance given to the California Public Utilities Commission,” according to PG&E. “Further, customers will have certainty with respect to financing costs without paying hedging fees. The pre-petition debt addressed by the settlement represents PG&E’s normal course borrowings for infrastructure investments, among other things, financed through the capital markets before it filed for Chapter 11.”
The agreement is subject to conditions, including that the debt to be issued has an investment grade rating once PG&E emerges from Chapter 11. Court approval of the settlement “would be yet another important step to put PG&E on a sustainable path forward to resolve the Chapter 11 cases” by the June 30 deadline.
Newsom in a letter to PG&E in December said the proposed restructuring would not result in a reorganized utility capable of satisfying requirements of the wildfire mitigation legislation, Assembly Bill (AB) 1054. He still thinks the plan is inadequate, according to a filing also made Wednesday.
“PG&E’s historical failures -- including decades of mismanagement and inadequate investments in fire safety and fire prevention -- require that any plan of reorganization must position the reorganized entity for transformation, include stringent governance and management requirements and enforcement mechanisms, and provide for a capital structure that allows the reorganized entity to undertake critical safety investments,” Newsom’s filing stated.
“In fact, absent AB 1054 the debtors appear to lack a path to a feasible plan.” The “debtors and the shareholder proponents have yet to make a single modification to the debtors’ plan as filed with this court to address its many deficiencies.”
The governor’s filing said, “It seems clear that rather than amend the debtors’ plan to incorporate the necessary changes, the debtors instead intend to try to leverage the Chapter 11 process to force the California Public Utilities Commission to approve -- and the state of California to accept -- a sub-optimal plan. Allowing the debtors to enter into the exit financing commitments will only further embolden the debtors’ strategy.”
The plan as drafted does not meet the requirements of AB 1054, “and thus it will not afford the reorganized entity access to the wildfire fund. Without the wildfire fund, the debtors’ plan does not appear to be feasible…”
In response, spokesperson Paul Moreno told NGI on Thursday “PG&E is aware of the governor’s concern that our plan of reorganization needs additional changes to meet the legal requirements for participation in the state’s AB 1054 go-forward wildfire fund.
“While PG&E has made substantial progress in resolving victim claims and restructuring our finances, additional changes to the plan are forthcoming. We will continue to engage with the governor’s office to address his concerns.”
PG&E already has agreements with wildfire victims’ groups, including a settlement valued at $13.5 billion to resolve claims for the 2015 Butte Fire, the 2017 Northern California wildfires including the Tubbs Fire, and the 2018 Camp Fire. In addition, it has a $1 billion settlement with cities, counties and other public entities, and an $11 billion agreement with insurance companies and other entities that had already paid claims relating to the 2017 and 2018 Northern California wildfires.
The proposed plan, said PG&E, would “position the company to attract low cost capital in support of its wildfire mitigation plan” and put it “on a path to help the state meet its clean energy goals and become the company that customers and communities expect and deserve.”
An amended reorganization plan is expected to be filed in the “coming weeks.”