PG&E reaches agreement with bondholders, but still must contend with governor's objections

Houston — PG&E Corp. and its utility subsidiary Pacific Gas and Electric said in a statement late Wednesday that they have reached an agreement with a group of bondholders that, barring objections from the governor of California, could enable the two bankrupt entities to win confirmation of their Chapter 11 Plan of Reorganization.

The agreement with claimholders who supported an alternative Chapter 11 plan put forward by the Ad Hoc Committee of Senior Unsecured Noteholders led by Pacific Investment Management and Elliott Management, resolved "all issues related to the treatment of pre-petition funded debt of the Utility, including post-petition interest amounts and make-whole premiums," PG&E said.

"Over the last several months, we made significant progress in our Chapter 11 cases. 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. 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," said Bill Johnson, CEO and president of PG&E Corp.

The San Francisco-based utility holding company said US Bankruptcy Court approval of the agreement 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, 2020 deadline to participate in the State of California's go-forward wildfire fund established by Assembly Bill (AB) 1054."

The agreement is essentially a debt restructuring, with $7.95 billion of unsecured short-term and long-term bonds to be refinanced at longer maturities and/or at lower coupons. Said PG&E Corp, "The new notes to be issued under the PG&E Plan will save the company's customers approximately $1 billion."

The agreement is subject to the holders of at least two-thirds of the principal amount of each class of notes being refinanced signing by January 28.

Last week, Dennis Montali, the federal bankruptcy judge overseeing the case, said, "The time has come" to confirm an exit plan, and set January 29 as the end-date of the ongoing "confirmation status hearing," after which a final confirmation hearing will be held.

'NO IDLE THREAT'

However, also on Wednesday, but before the PG&E agreement with bondholders was announced, California Governor Gavin Newsom submitted a filing with the bankruptcy court that urged Judge Montali to reject the PG&E reorganization plan.

"The Governor's expectation is that the Debtors' plan must be materially amended to incorporate necessary changes to the governance and management provisions, enforcement mechanisms and proposed capital structure to allow the necessary transformation of the utility," the filing said.

One of Newsom's complaints voiced in the filing is with PG&E's "exit financing commitments." Newsom noted that the capital structure contemplated in the PG&E Corp.'s exit plan "is exactly the same as the proposed capital structure" that he rejected in a December 13 letter.

At a press briefing in San Francisco at around the time of the filing, Newsom said, "We've got to get [PG&E] out of bankruptcy by June of this year and if they cannot show a detailed pathway to do so, the state of California will assert itself."

Saying that a state takeover of the state's largest electric utility "was not an idle threat," Newsom added that a state takeover is not a preferred strategy, "but it is a strategy we are pursuing. We are working with legislative leaders to codify that in actual legislative strategy."