PG&E Corp. and its utility subsidiary Pacific Gas and Electric Co. reached an agreement with additional backstop parties to issue up to $14 billion of new PG&E common shares to help the companies emerge from bankruptcy by June 30, 2020.
The debtors entered into Chapter 11 backstop commitment letters with several investment funds including GoldenTree Asset Management LP, Appaloosa LP, Soros Fund Management LLC and Pentwater Capital Management LP, according to an Oct. 1 filing.
The backstop commitments were in line with the joint plan of reorganization that the companies filed with a federal court in San Francisco on Sept. 9. The additional backstop letters build on commitments PG&E Corp. secured through Sept. 13 letters with Knighthead Capital Management LLC, Abrams Capital Partners I LP, Abrams Capital Partners II LP, Whitecrest Partners LP and Riva Capital Partners V LP, which are included in the $14 billion total.
Pursuant to the commitment letters, the new shares will be issued at a price equal to 10x PG&E Corp.'s consolidated normalized estimated net income for the estimated year 2021, divided by the fully diluted shares of the parent company that will be outstanding June 30, 2020.
The common shares may be issued through one or more equity offerings which must include a rights offering. If the equity offerings do not raise at least $14 billion in proceeds or if the offerings are not consummated, the companies may draw on the backstop commitments for equity funding.
The commitment letters are subject to numerous conditions including the approval of the bankruptcy court. The companies must also have a weighted average earning rate base of no less than 95% of $48 billion for 2021.
Among other conditions, the backstop parties may terminate the commitment letters if the pre-petition wildfire claims exceed $18.9 billion, if asserted administrative expense claims in the Chapter 11 cases exceed $250 million, or if wildfires occur in PG&E's service area in 2019 and 2020 that each damage or destroy more than 500 structures in total.
The initial premium is 0.75% of the backstop commitments and the initial term expires on Jan. 20, 2020. It may be extended to April 30, 2020 for an additional commitment premium of 1.25% of the amount of the backstop commitments, to June 30, 2020 for an additional commitment premium of 2.5%, and to Aug. 29, 2020 for an additional commitment premium of 0.5%.
On Sept. 22, the companies
The companies must abide by a state-imposed June 30, 2020, deadline to exit bankruptcy protection in order to participate in a $21 billion wildfire fund to cover claims from future fires.
