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PG&E Reaches Settlement With Hedge Funds in Bankruptcy Case

Ending a monthslong battle over ownership of a bankrupt monopoly, Pacific Gas and Electric on Wednesday reached a settlement with a group of bondholders that had been pushing a rival bankruptcy plan to take control of the company.

SAN FRANCISCO (CN) – Ending a monthslong battle over ownership of a bankrupt monopoly, Pacific Gas and Electric reached a settlement Wednesday with a group of bondholders that had sought a rival bankruptcy plan to take control of the company.

PG&E owes the bondholders a combined $17.25 billion in debt accumulated over the last decade.

Under the deal announced Wednesday, PG&E will issue new notes for the bondholders, reinstate senior notes and pay customary fees and reimbursements.

In exchange, the bondholders, led by the $38 billion hedge fund Elliot Management, will withdraw their competing restructuring plan, which would have given them a majority of shares in a restructured PG&E and control over its board of directors.

"Reaching a resolution with the bondholder group is a positive development to move forward with our plan of reorganization,” PG&E CEO Bill Johnson said in a statement. “This agreement helps achieve our goals of fairly compensating wildfire victims, protecting customers’ bills and emerging from Chapter 11 as the utility of the future that our customers and communities expect and deserve.”

According to PG&E, the issuance of new notes will save the company and its customers $1 billion by replacing high-coupon, long-term notes with newly issued, lower cost debt. The billions of dollars in bonds were issued to fund infrastructure improvements before the company declared bankruptcy on Jan. 29, 2019.

The agreement will require approval by the bankruptcy court and is conditioned on PG&E emerging from bankruptcy with an investment-grade credit rating.

The bondholders had argued in court briefs that PG&E should be required to pay them optional redemption premiums, which must be paid if a bond issuer voluntarily redeems senior notes before the date specified in contracts.

A hearing on that dispute was scheduled to take place last week but was abruptly postponed pending settlement talks.

This is the fourth major settlement in PG&E’s bankruptcy case, following agreements to pay $11 billion to insurers who covered wildfire losses, $1 billion to 18 public entities and $13.5 billion for all other wildfire claims.

“Over the last several months, we made significant progress in our Chapter 11 cases,” Johnson said.

The CEO said the company would stay focused in the coming months on working with key stakeholders, including elected officials and state regulators, regarding “how PG&E will look, act, and be held accountable as we emerge from Chapter 11.”

Last month, Newsom rejected PG&E’s proposed restructuring plan, finding it did not comply with the requirements of Assembly Bill 1054, a new state law establishing a $21 billion insurance fund for future wildfires, funded by ratepayers and private utilities.

In order to access the new wildfire insurance fund, PG&E must resolve all wildfire claims and emerge from bankruptcy by June 30, 2020.

The governor said in a Dec. 13 letter that he wants a “more qualified and independent” board of directors, more capital to invest in fire prevention and stricter enforcement mechanisms to ensure PG&E meets safety improvement goals.

On Wednesday, Newsom filed an objection against PG&E’s request to advance its bankruptcy plan. The governor argued that despite “clear guidance” from his office on what changes are necessary, the company and its shareholders “have yet to make a single modification to the debtors’ plan as filed with this court to address its many deficiencies.”

Given the company’s failure to amend its plan, Newsom said his office “is pursuing strategies to protect California’s interests through further intervention, including a state takeover of the Utility.”

In a separate criminal case related to the 2010 San Bruno pipeline explosion, a federal judge overseeing PG&E’s probation for Pipeline Safety Act violations said the company must explain why it should not be forced to hire an adequate number of tree workers to comply with state laws and meet targets specified in its wildfire safety plan. A hearing on that issue is scheduled for Feb. 19.

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Categories / Business, Energy, Government, Securities

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