PG&E Bankruptcy Exit Plan Advances With OK of Bondholder Deal

SAN FRANCISCO (CN) – A federal bankruptcy judge on Tuesday approved Pacific Gas and Electric’s compromise with a group of bondholders, paving the way for PG&E to advance its preferred restructuring plan and exit bankruptcy by the end of June.

The bondholders, consisting of powerful hedge funds that own $17.5 billion in PG&E debt, previously pushed for a rival bankruptcy plan that would give them a controlling stake in a restructured PG&E.

(AP Photo/Ben Margot, File)

A settlement was struck last month that requires PG&E to issue new debt to bondholders, a deal that PG&E says will save its customers $1 billion in reduced interest payments.

“This marks another important milestone in our Chapter 11 proceedings,” PG&E spokesman Paul Doherty said by email. “This is a positive development for moving forward with our amended Plan of Reorganization and emerging from Chapter 11.”

In approving the deal Tuesday, U.S. Bankruptcy Judge Dennis Montali overruled the objections of William Abrams, a Santa Rosa resident and Tubbs Fire survivor who is representing himself in the bankruptcy proceedings.

Applying the rules of the bankruptcy code, Abrams argued the deal is not a sound business judgment and that approving it would be “manifestly unjust.” He said the deal enables PG&E to advance a plan that focuses on short-term financial goals rather than long-term issues like future wildfire risk.

“They need to tie their financials to risk mitigation,” Abrams argued. “Unless their financials are tied to that, we will not be moving forward with a solid PG&E.”

Despite his impassioned plea, Montali said those issues should be taken up with the California Public Utilities Commission, which must also approve PG&E’s restructuring plan, or addressed later in the bankruptcy process – when PG&E seeks to confirm its restructuring plan.

Montali noted he must work within the confines of a June 30, 2020, deadline imposed by the California Legislature. PG&E must exit bankruptcy by that date to access a $21 billion insurance fund for future wildfires that will help ensure the company’s financial stability going forward.

“If I thought that approving this [restructuring support agreement] would slow down or impair the process toward that goal, I would disapprove it in a minute,” Montali said.

Montali’s approval obligates the bondholders to formally withdraw their competing restructuring plan and pledge to support PG&E’s preferred plan.

PG&E has also secured support for its restructuring plan from two other major players in the bankruptcy case – wildfire victims and insurance claimants – under the terms of two prior settlements.

The company has agreed to pay $25.5 billion in settlements, including $1 billion for 18 public entities, $11 billion for insurers who covered wildfire losses and $13.5 billion for all other wildfire claims. PG&E faced a potential $30 billion in liability when it declared bankruptcy on Jan. 29, 2019.

After facing pressure from California Gov. Gavin Newsom, PG&E unveiled an amended bankruptcy plan Friday that seeks to appease the governor’s demands for changes in corporate governance and an increased focus on safety and accountability. The plan includes a partial shakeup of the board of directors, appointment of an independent safety adviser and oversight committee and the establishment of new executive roles focused on risk and safety.

Despite those changes, a lawyer representing the governor’s office said Tuesday that Newsom plans to object to PG&E’s amended motion for exit financing, a key component for its plan to exit bankruptcy.

Also on Tuesday, a federal judge overseeing PG&E’s probation in a criminal case related to the 2010 San Bruno pipeline explosion demanded more answers from PG&E about a broken jumper cable suspected of starting the Kincade Fire on Oct. 23, 2019, which scorched 77,000 acres and burned 374 buildings over 13 days.

Alsup demanded the names and contact information of workers who inspected the jumper cable in February and July 2019.

The judge also voiced dissatisfaction with PG&E’s response to his question on whether the public should be worried about the safety of other previously inspected jumper cables.

“Shouldn’t we be concerned that the inspections conducted by PG&E failed to detect the potential detachment on the tower in question, and shouldn’t we be concerned that other inspections of other towers using the same protocol have also failed to catch jumper cables on the verge of detachment,” Alsup asked. “What good are inspections that don’t find problems?”

A Pacific Gas & Electric photo of the transmission line C-hook which failed and sparked the deadly and destructive Camp Fire in November 2018.

Alsup further demanded PG&E explain if it knew about the dangers of hardware weakening before a C-hook snapped off a tower on the Caribou-Palermo line in Butte County on Nov. 8, 2018, sparking the most destructive wildfire in California history, the Camp Fire.

He asked if the company was aware the Caribou-Palermo line experienced higher than average wind speeds, which are known to cause “hardware fatigue or wear damage over time in towers.”

Additionally, the judge questioned why 32 incidents of “high-priority cold-end hardware wear” were found after the Camp Fire, but no high-priority issues were identified during 18 years of inspections before the Camp Fire.

PG&E has until Feb. 18 to respond.

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