Dive Brief:

• As Pacific Gas & Electric (PG&E) nears its deadline to exit bankruptcy, lawyers for victims of the wildfires it caused are raising concerns that the payouts promised to their clients under the utility’s reorganization process could be affected by market turmoil due to the COVID-19 pandemic.
• PG&E has agreed to pay $13.5 billion to resolve claims associated with the fires, through a trust composed of half cash and half company stock. But the novel coronavirus outbreak is causing real-time impacts and "the value of utilities is changing as we speak," Robert Julian, a lawyer with the tort claimants committee, said during a telephonic hearing Wednesday.
• PG&E’s creditors, including the fire victims, are scheduled to vote on the company’s bankruptcy reorganization plan by May 15. PG&E then has until June 30 to have its plan confirmed by the court — failing which, it could have to initiate a sale of the company to the state of California, under an agreement with Democratic Gov. Gavin Newsom.

Dive Insight:

PG&E is in the process of mailing a disclosure statement, a short filing that summarizes the key points of its reorganization plan for the parties who will eventually vote on it, to around 150,000 shareholders and creditors, attorney Stephen Karotkin said during the hearing. In December, the company reached an agreement with the tort claimants committee, which represents fire victims, to pay out $13.5 billion to resolve any claims from the 2015, 2017 and 2018 Northern California wildfires. The payments would be made through a trust, to which PG&E will transfer $6.75 billion in cash, paid out over time, and $6.75 billion in stock. 

But lawyers "are being inundated with questions from victims that this disclosure statement does not answer, because the coronavirus is causing these impacts real time," Julian told U.S. Bankruptcy Judge Dennis Montali at the hearing. The committee is currently in negotiations with PG&E over when the stock will be issued to the victims, how and when they will be able to sell it after the utility exits bankruptcy, and whether "the $6.75 billion of stock [will] have $6.75 billion of value upon issuance under current market conditions that are impacting the value of the utility," Julian said.

The value of utility stock has been changing, he added, and "I hope it comes back so this is not an issue when May 15 — the last day of voting — comes up." PG&E Corp.’s share price has dropped from $15.05 on March 2 to $9.25 on Wednesday. The tort claimants committee plans to ask PG&E to add the result of those negotiations to the disclosure package it mails out. 

Will Abrams, a survivor of the 2017 fires, also voiced concerns over mailing out the disclosure statement before those agreements are finalized.

"Knowing when any payments, stock aside, [are] going to be issued and understanding the priority order associated with the stock … is critically important. So issuing a supplemental later, after votes have already been submitted, is way too late in the process," he said.

Montali, who is supervising PG&E’s reorganization under Chapter 11 bankruptcy, said it would be "destructive" to slow down the process of mailing out the disclosure statement at the moment. Since negotiations are still ongoing, "there’s nothing to disclose," he said.

Bondholders worried about 'final component' of PG&E plan

A committee of PG&E’s bondholders — who had previously attempted to wrest control of the company by filing their own competing reorganization proposal with the bankruptcy court — also voiced complaints about an agreement that the utility has now struck with the California governor’s office. The bondholders and PG&E reached their own deal in January — but new commitments that PG&E has made to Newsom go against the terms of that agreement, a lawyer said.

PG&E announced those commitments last Friday, calling them "the final component" of its restructuring process. Under the deal, PG&E may have to initiate a sale of the company if its bankruptcy plan is not confirmed by the court by June 30, and the state of California could put in a bid for the utility. 

While the bondholders intend to live up to the obligations outlined in their agreement with PG&E, they are concerned that the economic recovery they were promised won’t be guaranteed if PG&E is forced to sell the company, according to Mike Stamer, a lawyer representing the bondholder committee.

"The noteholders are one of the largest economic stakeholders here and if in fact a sale process is triggered, there’s none — or at least insufficient — provisions relating to our involvement in what that sale process is going to look like," he added.

The committee may be able to resolve the issue with PG&E but "if not, we may need to come back to Your Honor," Stamer told Montali during the hearing.

Newsom’s "determination that PG&E’s Plan complies with AB 1054 is an important step toward our emergence from Chapter 11," PG&E spokesperson Ari Vanrenen told Utility Dive in an email, adding that the utility is on track to having its reorganization plan confirmed by June 30.

Judge Montali is scheduled to consider the motion on the sales process on April 7.