SAN FRANCISCO (CN) – Pacific Gas and Electric on Tuesday accused a group of fire victims of trying to change the terms of a $13.5 billion settlement that was struck months ago after new concerns were raised about the impact of the company’s stock price on a trust for paying fire survivors.
During a telephonic hearing Tuesday, U.S. Bankruptcy Judge Dennis Montali heard arguments on whether a supplemental notice should be sent to some 78,000 fire victims about issues related to PG&E’s stock price, which will directly affect how much is available to pay fire victims.
In December, PG&E agreed to a $13.5 billion settlement for all outstanding wildfire claims, half of which will be funded PG&E stock.
“We want the truth to be told to the victims,” said Robert Julian, an attorney for the Tort Claimants Committee that represents fire survivors.
Julian filed a motion last week requesting a supplemental notice to tell fire victims that pandemic-related market turmoil presents a “significant risk that the shares of stock will not have the value necessary to match the $13.5 billion that PG&E has stated would be available to pay Fire Victim Claimants.”
The request comes as ballots are mailed to fire survivors so they can vote yay or nay on PG&E’s proposed bankruptcy plan. A majority no vote would jeopardize PG&E’s restructuring plan, but Montali could still use a “cramdown” process to approve it.
The proposed notice recommends that fire victims not vote on the plan until after May 1 to allow more time for negotiations with PG&E.
PG&E attorney Stephen Karotkin vociferously opposed the request, arguing the fire victims’ committee already agreed to a settlement after hard-fought negotiations and accepted a formula in which a potential $6.75 billion in stock could change depending on market conditions.
“This is a blatant attempt to renegotiate the deal they signed,” Karotkin said.
The Tort Claimants Committee also claims PG&E changed its bankruptcy plan in late January by deciding to obtain $9 billion in new cash equity instead of the $12 billion it promised. The company also increased its debt by $3.7 billion, both changes Julian said will lower the share value for fire victims.
Citing a declaration filed in a separate case over wildfire claims estimation, Julian noted one financial restructuring professional has predicted under current market conditions, the value of the stock would be $4.85 billion, far less than the $6.75 billion anticipated when lawyers negotiated the deal.
Karotkin replied that PG&E’s stock price is currently trading close to $9 per share, nearly 12% higher than the average price during the two months before the settlement was reached in December. Based on current market conditions, fire victims would receive a higher percentage of PG&E stock when the plan becomes effective, Karotkin said.
“The formula means more stock, perhaps more percentage of stock, but it doesn’t change the value,” Montali noted.
“That actual value on the effective date could be higher or lower,” Karotkin acknowledged.
An agreement on when the fire victims’ trust can liquidate stock will also affect the value of those shares, Julian added. That issue is currently being negotiated and an agreement is expected by April 25.
Attorney Amanda Riddle, who represents another group of fire victims, objected to part of the proposed notice that would recommend fire survivors hold off on voting until after May 1. It would be inappropriate to offer that legal advice to fire survivors, some of whom have their own attorneys, she said.
Montali asked if excluding that recommendation might cause even more befuddlement for some 12,000 fire survivors who have no lawyer. They may not know what to do with that information, he said.
“What does that do for those 12,000 people other than confuse them further,” Montali asked.
Julian later agreed to remove the recommendation from the proposed notice.
Attorney Gerald Singleton, whose law firm represents about 7,000 fire survivors, also opposed sending a supplemental notice to fire victims. Singleton said lawyers have a duty to inform their clients about risks involved in this deal, but overall he feels “the benefits outweigh the risks.”
Many fire victims have sent Montali angry letters fuming that insurance companies and hedge funds got an $11 billion cash settlement from PG&E with no risks related to the company’s stock price. Singleton noted the insurance claim holders sought $20 billion in damages but accepted 60 cents on the dollar.
“Our clients were not willing to take that discount,” Singleton said. “The only way they could get near full recovery was to take stock. We still believe it will be worth more than $6.5 billion, but I tell my clients there are no guarantees.”
Hours after the hearing, Montali issued a 4-page ruling denying the motion for supplemental notice, finding it would “cause more harm than good” because a massive undertaking to solicit votes for the plan is “well-underway.”
The proposed letter is “not the proper place to debate the terms of the [settlement agreement],” Montali wrote.
Also Tuesday, Montali approved a contingency process as part of a deal that PG&E struck with California Governor Gavin Newsom last month. The contingency plan requires PG&E to sell itself if its bankruptcy plan is not approved by June 30 or if the plan fails to become effective by Sept. 30.