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PG&E restructuring pivots to parallel plans in 'fair shake' for wildfire victims

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PG&E restructuring pivots to parallel plans in 'fair shake' for wildfire victims

SNL Image

Frank Pitre, an attorney for victims of wildfires linked to Pacific Gas & Electric power lines, speaks with the media outside the U.S. Bankruptcy Court
for the Northern District of California in San Francisco in January. The presiding judge on Oct. 9 allowed a restructuring plan backed
by wildfire victims to proceed in competition with PG&E's own plan.
Source: S&P Global Market Intelligence

On the same day that Pacific Gas and Electric Co. initiated an unprecedented precautionary blackout across Northern and Central California to prevent its power lines from sparking the kind of wildfires that landed the utility and its parent company, PG&E Corp., in Chapter 11 restructuring, a federal bankruptcy judge blew the joint cases wide open.

In an Oct. 9 order, Judge Dennis Montali, presiding over the proceeding in the U.S. Bankruptcy Court for the Northern District of California in San Francisco, ended the debtors' exclusive right to advance their plan of reorganization, filed together with major insurers holding subrogation claims, in favor of allowing an alternative plan proposed by PG&E Corp. bondholders and backed by wildfire victims to proceed in parallel.

While recognizing that PG&E Corp. and its utility, or PG&E, have made "significant progress in these cases," including settlements with local authorities impacted by wildfires and insurers that paid wildfire claims, the individual victims represented by a committee of tort claimants "have spoken loudly and clearly" that they want the alternative plan to proceed, Montali said. A "dual-track plan" may improve the chances for a comprehensive settlement, the judge added.

The decision came after Stephen Karotkin, an attorney for the debtors, cautioned during an Oct. 7 court hearing that opening the proceeding to the alternative plan could also open the door to a "hostile takeover" of the company by the bondholder group, which includes Elliott Management Corp., Deutsche Bank Securities Inc., Oaktree Capital Management LP and Pacific Investment Management Co. LLC.

Attorneys for wildfire victims, on the other hand, said competing proposals were the best way to treat wildfire victims fairly and to achieve compliance with a state law that requires PG&E to emerge from Chapter 11 by June 30, 2020, in order to participate in a $21 billion wildfire fund to cover future fires.

Liability, financing uncertainties underlie both plans

"It's in the best interest of my clients, the victims, to have competing plans so they can get a fair shake," Frank Pitre, an attorney representing victims of wildfires linked to PG&E electric infrastructure, told Montali at the hearing. "They shouldn't be held hostage to the negotiations that have taken place so far ... The only chance and the only hope they have is to have competing plans."

PG&E's proposal has a cap on wildfire claim payments of nearly $19 billion, up by $1 billion from its original proposal, while the alternative bondholders plan would set aside $25.5 billion.

The court will hold a status conference on the two completing plans Oct. 23.

Montali and advocates of the competing plans all agreed that any restructuring deal would have to adjust, perhaps significantly increasing financing requirements, based on the outcome of a wildfire liability estimation proceeding in the U.S. District Court for the Northern District of California. That estimation proceeding also depends on the outcome of a jury trial over a contested wildfire in the San Francisco Superior Court, set to begin in January.

If PG&E's wildfire liabilities reach $30 billion, for instance, "that would mean [PG&E's] plan is DOA," Montali said.

"If we get to that position, then we have a completely different plan scenario for everybody," PG&E attorney Karotkin added.