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PG&E CORPORATION

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PG&E Submits Chapter 11 Exit Plan -- WSJ

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09/10/2019 | 02:47am EDT

By Peg Brickley and Katherine Blunt

PG&E Corp. on Monday unveiled a plan to settle billions of dollars in wildfire-related claims and exit bankruptcy next year as it seeks to prevent creditors from taking over the embattled company.

The preliminary proposal contemplates raising billions in debt and equity to cover fire damages and emerge from bankruptcy court by June 2020, a California-imposed deadline to qualify for participation in a state wildfire fund. But PG&E's liability burden is still in flux, and the company hasn't decided on exactly how it will raise the money, according to papers filed with the U.S. Bankruptcy Court in San Francisco.

Shareholders could take a hit if PG&E moves ahead on a plan to raise $14 billion in new equity to pay off wildfire damage claims, according to plan documents. The company has already lined up commitments from Abrams Capital Partners and Knighthead Capital Management LLC to participate in the equity fundraising, court papers say. Other shareholders can participate as well, but the more new shares PG&E decides to sell, the more existing stakes will be diluted.

As a result, PG&E shareholders would get a vote on the plan, along with the wildfire victims.

PG&E said last week "that we cannot finalize our plan until the estimation of liabilities is resolved through the courts."

On Monday, PG&E Corp. Chief Executive Bill Johnson said the company was committed to the victims of wildfires. State investigators have tied PG&E equipment to deadly wildfires that killed more than 100 people in 2017 and 2018.

"We will meet our commitment to fairly compensate wildfire victims, and we will emerge from chapter 11 financially sound and able to continue meeting California's clean-energy goals," said Mr. Johnson.

The chapter 11 plan, PG&E's opening gambit in what is expected to be a tough negotiation, offers nearly $18 billion to wildfire victims, insurance companies that have paid fire claims, and cities and other public entities that battled the blazes in 2017 and 2018.

"It's an extremely disappointing development," said Cecily Dumas, one of the lawyers representing fire victims in the bankruptcy case. "We are not surprised that it is not an acceptable plan, but we are disappointed that it's worse than expected."

PG&E sought chapter 11 bankruptcy protection in January, citing more than $30 billion in liability costs tied to a series of deadly and destructive wildfires sparked by its equipment. The total amount has been called into question after the bankruptcy judge last month allowed a trial on whether PG&E's equipment caused the 2017 Tubbs Fire, the second-worst wildfire in California history, a case that could saddle the company with billions of dollars in additional liabilities.

The preliminary restructuring plan sets the stage for a battle between the company's shareholders and creditors. A group of bondholders including Elliott Management Corp. and Pacific Investment Management Co. have floated a different proposal that would give them a majority stake in the company, and separately, a group of insurance claims holders and fire victims have also pushed an alternative plan.

A judge overseeing the bankruptcy case last month allowed PG&E to retain the right to submit its plan without competition from others. The chapter 11 plan outline that PG&E filed is what lawyers for fire victims expected to see, a "placeholder" proposal that will change drastically before California's largest utility gets out of bankruptcy.

A key element of PG&E's financing proposal, legislation that would allow it to raise as much as $20 billion through tax-exempt bonds, fell apart Friday as lawmakers proved unwilling to fast-track a measure widely cast as a bailout despite the company's commitment to paying the debt with shareholder profits. PG&E had spent weeks lobbying lawmakers in Sacramento to support the bill, which it said was critical to its effort to exit bankruptcy in a matter of months.

Lawmakers may take up the measure next year, but that could be too late for a timeline that requires it to clear bankruptcy court in January, to give the California Public Utilities Commission time to review the plan before a June 30 deadline.

In the initial sketch of its chapter 11 plan, PG&E said it was confident it could raise as much as $40 billion in debt and equity financing, which could render the bond measure unnecessary. But that approach would likely come at a higher cost to shareholders.

Wall Street banks, including Goldman Sachs, JPMorgan, Barclays, Citigroup and Morgan Stanley have all told PG&E that they can help it raise the money, according to letters filed with the court.

San Francisco leaders have further complicated the prospective plan by offering $2.5 billion to acquire PG&E's electric lines serving the city in a preliminary move to separate from the utility. The bid, subject to negotiation, could bolster PG&E's financing strategy if it is willing to part with a dense swath of infrastructure and hundreds of thousands of customers in a city home to its headquarters.

PG&E said it is willing to consider the city's offer but doesn't believe such a move would serve its best interests. If a deal is reached, the acquisition would require court and regulatory approval.

It isn't unusual for major corporate chapter 11 plans to undergo multiple revisions as companies negotiate with creditors. PG&E has yet to open talks with the fire victims who will cast the crucial votes on its plan, said Ms. Dumas, lawyer for the tort claims committee, or TCC, in an interview Friday.

"The company is not engaging with the TCC to reach an agreed amount of the allowed claims," Ms. Dumas said. PG&E's lawyers have said the point of bankruptcy is to set up a trust with a fixed amount of value that will be the only pot of funds available to fire victims.

PG&E said Monday it will fund the trust with cash, stock, wildfire victims' recovery bonds or some combination of those sources of value in an amount to be determined by the court-supervised damage estimation proceeding.

Lawyers for the victims say PG&E can't force them to take an amount that it deems appropriate.

"We don't believe that PG&E can confirm a plan that has a capped trust unless we agree to the number," Ms. Dumas said.

PG&E has dug in, admitting its equipment was linked to some of the fires, but denying it is legally liable for any of them. Last week, the company appealed the bankruptcy court ruling that allowed some elderly victims of the Tubbs Fire to put their cases to a state court jury for decision.

The ruling rattled PG&E's shareholders because it opens up the possibility the utility will be held liable for damages stemming from that fire despite findings by state fire investigators that PG&E wasn't to blame. Attorneys representing fire victims have disputed the state's conclusion.

Tubbs could add $18 billion to the tab for fire damages if the jury trial doesn't go PG&E's way.

The California utility said Judge Dennis Montali got it wrong and asked that the ruling allowing jury trials be overturned.

"The appeal is disgraceful," Ms. Dumas, the victims' lawyer, said. "These are elderly plaintiffs who want to get in front of a jury. They want to get their claims liquidated as quickly as possible. California has a whole system to get elderly people justice quickly, and PG&E is trying to disrupt that."

Judge Montali has also asked the federal courts to help with the process of finding a damages number.

Write to Peg Brickley at peg.brickley@wsj.com and Katherine Blunt at Katherine.Blunt@wsj.com

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EBIT 2019 3 437 M
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Yield 2019 -
P/E ratio 2019 -13,1x
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