PG&E and bondholders debate competing bankruptcy proposals

SAN FRANCISCO -- Two groups, including some unlikely allies, formed Tuesday at a hearing to discuss whether a bankruptcy judge should open the door to competing proposals to reorganize the Pacific Gas & Electric Corp.

One side features a committee of bondholders -- backed by a ratepayer advocacy group, labor unions and other major creditors -- seeking to terminate PG&E's exclusive right to come up with a plan, arguing consideration of its $30 billion proposal will result in a "competitive process."

The other side features PG&E, which has unexpectedly teamed up with the group representing wildfire claimants and shareholders to preserve the utility's window to submit a reorganization proposal, accusing opposing committees of working in "bad faith" to "benefit economically" at the expense of other parties.

"Let's be realistic. They are not here as altruistic players but to acquire the company at a substantial discount and enhance their claims," said PG&E attorney Stephen Karotkin, who said there will be a plan filed by Sept. 9.

U.S. Bankruptcy Judge Dennis Montali of San Francisco did not make a final ruling on the matter.

Expecting a contentious hearing after he rescheduled the issue for three weeks to see if a procedure to submit competing plans could be negotiated, Montali reminded attorneys in the packed courtroom that the only way to "move the ball forward" is to ensure fair process to wildfire claimants. He said the standard to allow for consideration of plans is whether they are "credible and confirmable."

While confirmable is "somewhat precise," credible is a "vague term that you know when you see it," he added.

"The question is will it foster dialogue and move things forward to a resolution," Montali said of terminating PG&E's exclusive right to submit a reorganization.

The judge's primary concern is whether siding with the utility on the issue will make the June 30, 2020 deadline to participate in AB 1054's multi-billion-dollar wildfire mitigation fund more difficult, if not impossible, to meet if the utility's plan is unconfirmable.

Abid Qureshi, representing the bondholders, argued Montali is right to be worried because the "path to confirmation is tight."

"We have no way of knowing [if PG&E] will get the financing they need to get to," he said, referring to the utility's downgraded credit rating.

The Akin Gump Strauss Hauer & Feld LLP partner added that the bondholders submitting their reorganization plan spurred competition.

"Let's look at what's occurred. All of a sudden there's been all sorts of activity," he said. "It's been a galvanizing factor. It's brought people to the table."

Montali asked what to make of what he and some parties consider a "bargain basement deal" to essentially acquire all of PG&E.

Qureshi responded that none of the criticisms are "gating issues" and will be addressed at later hearings.

The bondholders' proposal would inject $30 billion into PG&E in exchange for stock, which critics say would allow the group to own 85% to 95% of PGE at roughly $10 billion less than what it is worth.

Karotkin argued Montali should maintain the "classic and traditional way to get to the point where plan processes should start" because an estimate of the wildfire claims is necessary to come up with a confirmable and credible proposal.

"No plan knows what the funding amount will be required under the statute," he said of AB 1054's requirement that wildfire claims be paid in full, in accordance with a settlement agreement or whatever Montali estimates as the utility's total liability.

Allowing competing plans to proceed will "polarize the parties" because nobody is an "altruistic player" despite what the bondholders say, Karotkin continued. He added that PG&E should retain its exclusivity because it is the only "honest broker," which prompted heavy laughter in the courtroom.

While she ultimately sided with PG&E, Cecily Dumas, representing the committee of wildfire claimants, was hard-pressed to take a position since none of the plans "have set forth proposals that are remotely acceptable."

"Every one is a nonstarter," she said, explaining the committee would prefer to wait until the claims estimation process is complete to take a position on the issue so all parties understand the extent of the utility's liability.

Dumas later clarified that every party has negotiated with the expectation that PG&E will not be found liable for the Tubbs Fire, that there's no value attributed to personal injury and that other uninsured losses have no value.

"For the purposes of other parties coming in to give you choice and competition, they are echoing the debtors' position," she said.

Wildfire claimants are "not optimistic that simply lifting exclusivity will solve the problem of the intractable gulf" between the positions staked out by the negotiating parties, Dumas concluded.

Montali will consider whether to establish a wildfire claims estimation procedure at an Aug. 14 hearing.

A group of insurers also argued to terminate PG&E's exclusivity to allow consideration of its proposal but received less consideration because no party supported its position.