Judge Considers $5.5B Loan for Bankrupt Wildfire-Linked Utility

SAN FRANCISCO (CN) – The judge overseeing Pacific Gas & Electric’s bankruptcy case said Wednesday he still hasn’t made up his mind on whether to sign off on a $5.5 billion loan to see the utility through its current financial woes.

Fifty major banks and lenders – including J.P. Morgan – have lined up to bail out the embattled utility, but the deal’s terms had at least one major sticking point for U.S. Bankruptcy Judge Dennis Montali, who said he’s worried the court might be pushed out of controlling the proceedings should an outside event trigger a default.

“There’s an elephant in the room. We all know there is a risk we will have 2019 wildfires. And if there’s a post-petition tragedy, there could be an astronomical claim [that] might indeed trigger a default because of the vast size of it,” Montali said.

Paul Zumbro, an attorney representing PG&E, assured Montali that the possibility of defaulting on the loan, also known as debtor-in-possession financing, had already been considered during negotiations. But the deal was “the best available,” he said, and PG&E is anxious to get the DIP financing part of the case squared away.

“I don’t believe a wildfire event would in and of itself constitute default,” Zumbro said.

“I still have some concerns about some other kinds of defaults,” Montali pressed. He raised the potentiality of U.S. District Judge William Alsup replacing current PG&E management with a trustee, another outside event that could trigger default.

Alsup, who is presiding over PG&E’s criminal case stemming from the fatal 2010 San Bruno pipeline explosion, is currently weighing whether to impose strict wildfire-prevention terms on PG&E as a condition of its probation.

Should a default happen, the agreement says the lenders are entitled to “seek remedies” after a seven-day notice period.

Montali said he was very concerned that the seven days was too little time.

“Upstairs we have a judge that feels very strongly about what this company is up to and has publicly said a lot of things. What if he decides, ‘I don’t like management, I’m going to appoint a trustee.’ What happens then?”

Chris Hanson, an attorney representing J.P. Morgan, said the bank had taken that into consideration.

He added, “There’s some indication that the lenders are going to sprint into court, say, ‘You have no authority,’ take the assets and run off with them.” He assured Montali that this hypothetical scenario wasn’t likely.

Cecily Dumas, a bankruptcy attorney representing a committee of tort claimants, urged Montali not to approve the loan.

“The lenders want to have control over the process. They want to force the debtor to go and talk to them about next steps, not to talk to you,” she told the judge.

Montali said he was also concerned about “potentially upsetting the delicate balance of a negotiation” by not approving the deal.

Zumbro agreed. “I don’t think it’s sufficient reason for the court not to approve this financing, which is essential for this debtor to continue.”

After a recess, Zumbro said the lenders had agreed to extend the seven-day notice provision to 21 business days.

Montali said this seemed more fair, but wanted to give Dumas time to consult her clients.

Zumbro objected. “If the lenders have more time to think about it maybe they’re less inclined to give what they’ve agreed or add more adverse consequences.”

“Well, that wouldn’t be good form,” Montali quipped. He pushed the matter over until March 27, but said he may not need another hearing if the parties can reach an agreement before then.

Montali also said he wouldn’t grant a request from wildfire victims to ban the utility from spending millions on lobbying until it fully compensates those who lost homes, possessions and loved ones in the myriad wildfires that swept the state in 2017 and 2018. Victims of the Butte fire wanted to make approval of the DIP loan contingent on paying settlements that had been in the works prior to PG&E declaring bankruptcy in January.

“It’s an important part of this case that the debtors be allowed to interact with regulators and the legislators. I’m not sure if that’s lobbying or not, but we can’t agree that we can’t talk to government officials because it’s critically important for the people of California that we be allowed to do so,” Zumbro argued at Wednesday’s hearing.

Montali said he was sympathetic to the victims, but he couldn’t tie their terms to the motion to approve the loan. “I don’t know if I have the authority to do that,” he said.

Montali also denied a motion by a slew of public entities asking that he create a committee through which they can represent their interest in the case.

Attorney Sandy Esserman, representing various cities and counties ravaged by the fires, including Butte, Paradise, Yuba, Napa, Santa Rosa, and Sonoma, said these entities should be treated separately from other creditors in the case.

Esserman said the cities and counties are concerned about being paid, but also want to make sure that PG&E rebuilds their devastated communities safely.

“Safety is paramount. Recovery of their claims is paramount. They don’t just have an economic interest in getting claims paid and being done with it. Their interest is in the life of the counties and the life of the cities,” Esserman said.

The U.S. Trustee has already created two committees, one of tort claimants and another consisting of unsecured creditors. PG&E and the trustee have both argued federal bankruptcy code doesn’t allow committees of public entities, only persons – a reality by which Montali said he was forced to abide.

“I’m sorry I can’t afford you and your clients what they want here . . . my job is to interpret the statute. I just can’t read it the way you want me to read it,” Montali said.

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