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PG&E : Keeps Control of Exit Plan

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08/17/2019 | 02:48am EDT

By Peg Brickley

PG&E Corp. scored a crucial win Friday, when the judge overseeing its massive bankruptcy allowed it to hold on to sole rights to fashion a chapter 11 exit plan.

Judge Dennis Montali of the U.S. Bankruptcy Court in San Francisco turned down requests from two groups of creditors who have been rounding up billions of dollars in financial commitments to back their versions of a chapter 11 exit proposal for PG&E.

Facing an estimated $30 billion in damage claims from wildfires linked to its equipment, California's largest utility filed for bankruptcy protection in January. This week, PG&E outlined a chapter 11 exit strategy that brings in new money and protects the value of its shares.

The company said it would file that plan by Sept. 9, the first step in a series of bankruptcy court events that are necessary to get it out of chapter 11. Creditors must vote, and PG&E's plan must survive legal challenges.

PG&E argued it needed to hang on to control to head off a bankruptcy court brawl among rival plan proponents, which could delay the proceedings.

Judge Montali sided with PG&E, citing the need to speed the bankruptcy case along, to get money to fire victims.

"Competing plans are tempting, and no doubt produce a feast for lawyers, accountants, investment bankers and others, not to mention the intellectual challenges to the court," Judge Montali wrote. "But the inescapable fact is that the fire victims and their insurers should not need to wait for conclusion of expensive, lengthy and uncertain disputes that only indirectly concern them."

"PG&E has made significant progress in further refining a viable, fair, and comprehensive plan of reorganization," PG&E said in a statement.

In a separate decision on Friday, Judge Montali ruled that the company must face a jury in California in a trial that will test whether it is liable for damage from the Tubbs fire, one of the largest and most lethal of the blazes that swept the state in 2017 and 2018, and sent PG&E to bankruptcy.

California fire investigators concluded PG&E equipment didn't spark the Tubbs fire, but lawyers for insurers and fire victims say they can prove otherwise. PG&E fought demands for a jury trial outside bankruptcy court, but lost.

"This is an important day for the victims in Northern California, victims who have been told by PG&E for two years that PG&E bore no responsibility for the great destruction that took place in Fountain Grove, Coffey Park and the rest of the communities in the Santa Rosa, Calif. area," said Robert Julian, a lawyer for the official fire victims committee.

"Regardless of the next legal steps, Cal Fire has already determined that the cause of the 2017 Tubbs Fire was not related to PG&E equipment, " PG&E said in a statement.

But while PG&E will have to face California jurors, due to Judge Montali's ruling on the Tubbs fire trial, it won't have to battle powerful investors for control of its bankruptcy case, due to the decision to block competition on the shape of a chapter 11 plan.

The no-competition ruling is a defeat for bondholders including Elliott Management Corp. and Pacific Investment Management Co., which wanted to propose an alternative plan, one which would give them majority control of the company.

Also turned down were insurance companies that have paid wildfire damage claims, along with Baupost Group LLC, an investment firm that bought insurance claims. Like the bondholders, they sought court permission to lobby other creditors in favor of their preferred exit terms.

The effect of Friday's ruling is that bondholders and other creditors will have to negotiate with PG&E, which has the exclusive right to determine the shape of the chapter 11 plan that is put to the voting creditors.

The key votes on PG&E's plan will come from thousands of people hurt in the wildfires. At a hearing Tuesday, their lead lawyer said none of the options that have been proposed to date will get a "yes" vote from the fire victims.

California lawmakers have set a June 30, 2020, deadline for PG&E to be out of bankruptcy, if it wants to participate in a statewide risk-sharing fund designed to cushion the state's utilities against escalated wildfire risks due to climate change.

"We intend to cooperate with the state court in order to help achieve the June 30, 2020, deadline to participate in the new state Wildfire Fund," PG&E said in a statement.

Write to Peg Brickley at peg.brickley@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
PG&E CORPORATION 5.29% 11.75 Delayed Quote.-53.01%
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