Pacific Gas and Electric Co.'s bid to exit bankruptcy protection together with its parent company, PG&E Corp., by mid-2020 remained on track as the federal judge presiding over the joint Chapter 11 proceeding on Feb. 4 approved another critical agreement underpinning its recently amended restructuring plan.
The restructuring support agreement with a group of Pacific Gas and Electric, or PG&E, bondholders advances the utility's plan of reorganization by helping to reduce debt levels, a key criticism of Gov. Gavin Newsom, who has repeatedly threatened a state takeover of California's largest utility if PG&E cannot align its restructuring proposal with conditions outlined in a 2019 state law. Those include emerging from bankruptcy by June 30 with a plan that secures strong finances, safe operations and consistency with state climate goals.
With Judge Dennis Montali's consent in the U.S. Bankruptcy Court for the Northern District of California in San Francisco, the restructuring support agreement resolves the treatment of the utility's prebankruptcy debt and will save PG&E over $1 billion in long-term borrowing costs. It also facilitates the utility's access to roughly $5.8 billion in new debt under its amended plan of reorganization, compared with more than $27 billion in debt under PG&E's original plan.
Under the agreement, the bondholders will now formally withdraw their alternative plan of reorganization and join most other creditors in backing the companies' restructuring proposal. The agreement also calls for PG&E and its holding company to support certain bondholders' purchase of up to $2 billion of $12 billion in equity backstop financing intended to further underpin PG&E's plan. Among the consenting noteholders seeking to provide financing is hedge fund Elliott Management Corp.
"By resolving all these issues, I believe the [agreement] streamlines the debtors' path toward timely confirmation of the amended plan well within the June 30, 2020, deadline established by [Assembly Bill 1054], expedites distributions to holders of fire victim claims, and allows the debtors to emerge as a stronger, more financially sound utility," PG&E Corp. CFO Jason Wells said in a court filing ahead of the hearing.
As part of its amended reorganization plan, also submitted to the California Public Utilities Commission for approval in a parallel proceeding, PG&E Corp. and its utility subsidiary have agreed to pay $25.5 billion to wildfire victims, insurance companies and public entities for claims related to catastrophic wildfires linked to PG&E.
Only one of the more than 70,000 wildfire victims opposed the restructuring support agreement in court. Saying the agreement garnered consent from many wildfire victims primarily because of its focus on "short-term payouts," William Abrams said the agreement was flawed over the mid- to long term.
"As a wildfire survivor, I am surrounded by burned up homes, by people trying to rebuild. And it is a just and noble cause to be looking to get those folks paid ... I fully support that but this [restructuring support agreement] is not the way to do it," Abrams said. "It points us in the wrong direction."
Stephen Karotkin, an attorney for the debtors, deflected Abrams' criticisms, pointing to the overall support for the restructuring support deal and the momentum toward exiting Chapter 11 before June 2020. Meeting that state-imposed deadline will enable PG&E to participate in a $21 billion wildfire fund to cover the costs of future fires.
Rejecting the support agreement, on the other hand, would send the proceeding "back to a litigation morass," Karotkin said.