Solution may be in sight for power utility bankrupted by fires
Californian utility PG&E is close to a deal with creditors, insiders say
New York/Wilmington/San Francisco — The hard-fought battle that has kept the biggest utility bankruptcy in US history dragging on for almost a year may finally be coming to an end.
PG&E is nearing a deal with a group of noteholders led by bond giant Pacific Investment Management and activist investor Elliott Management, which have repeatedly sought to derail the company’s $46bn restructuring plan. The agreement would entitle them to a mix of equity and new debt in the California power giant if they scrap a rival proposal, people familiar with the matter said, asking not to be identified because the information isn’t public.
A deal would turn some of PG&E’s most formidable adversaries into backers of its plan to emerge from bankruptcy and bring it one major step closer to getting a proposal approved by a state-imposed deadline of June 30. The San Francisco-based utility has spent months in court battling the creditors who’ve been offering to inject as much as $20bn in cash into the company in exchange for virtually all of its equity.
That would leave California governor Gavin Newsom as the last major obstacle for PG&E, which was forced to declare chapter 11 bankruptcy last year after its equipment was blamed for a series of catastrophic wildfires that saddled the company with $30bn in liabilities. Newsom rejected PG&E’s latest plan and has been pushing the utility to include a provision that would allow the state to take it over should it fail to meet future safety standards.
A deal hasn’t yet been struck and the talks may still break off, the people familiar with the situation said. PG&E said that it has been holding discussions with stakeholders on its reorganisation and hopes “to make progress over the next week”. A representative for the bondholders didn’t respond to a request for comment.
During a court hearing on Tuesday, PG&E lawyer Stephen Karotkin told the federal judge overseeing the reorganisation that the company and bondholders were in “constructive negotiations”. He didn’t provide details about what an agreement could include.
Shares of PG&E surged 7.7% to $11.92 on Tuesday. Some of its longer-dated bonds also jumped, including the 5.8% unsecured notes maturing in 2037, which rose 2.5c on the dollar to 112.25, according to Trace data.
The state has set a deadline of June 30 for the utility to win court approval of its reorganisation if it wants to participate in an insurance fund that would shield it from future catastrophic wildfire losses.
Under the deal being negotiated, the bondholders’ investment in the company would replace some of the exit financing that PG&E is proposing as part of its restructuring, the people said. Bonds paying less than 5% interest would be reinstated as part of the agreement being hammered out, and those above 5% would be revised to 4.75% through a mix of 10-year and 30-year bonds, they said.
One of the biggest of PG&E’s bond issues also carries one of the highest interest rates: $3bn of unsecured notes due in 2034 that pay 6.05%.
The creditors would be given the right to participate in the company’s financial backstop commitments, a move that could hand them a part of the equity financing in the deal, the people said.
The two sides were in court to make final arguments about the current bankruptcy exit plan, which would refinance the company’s $17.5bn bond load. Much of that debt carries higher-than-market interest rates.
Bondholders claim the proposal would trigger a customary “make-whole payment” to compensate for the interest income they were promised in future years. PG&E says that being bankrupt voids any such assurances made in its debt contracts.