PG&E Corporation – Key Stakeholders Bang on Plan Exclusivity Door Again, See Opportunity in Much Derided Plan Filed by Debtors and Offer Up $24bn Alternative

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September 19, 2019 – The Debtors' Official Committee of Tort Claimants (the “TCC”) and the Ad Hoc Committee of Senior Unsecured Noteholders of Pacific Gas and Electric Company (the “Ad Hoc Committee”) filed a motion to terminate the Debtors’ Exclusivity Period [Docket No. 3940]. 

This is the second attempt by these stakeholders to terminate the Debtors' exclusivity periods and get their own Plan in front of creditors; and falls rapidly on the heels of a much derided plan filed by the Debtors on September 9, 2019 [Docket No. 3841].

As to the September 9th Plan, we then wrote "The Debtors had promised Judge Montali that they would file a Plan by September 9th, which they have now done. The Debtors, however, risk the wrath of the Court with what might under other circumstances be a satisfactory 'placeholder' Plan; having committed to demonstrate real progress in progressing the Court's pre-eminent goal of seeing wildfire victims ('victims of enormous and unimaginable tragedies') compensated as rapidly as possible. That wrath perhaps exacerbated by the Debtors' insistence of an absolute cap on wildfire liabilities of $17.9bn; a number far below the Debtors' own $30.0bn (plus) estimate upon filing. Adding to what may already be a risky strategy of capping victims recoveries, is the presence of alternative Plans already drafted and ready to go, the Debtors having only just managed to escape a challenge to their exclusive Plan filing and solicitation rights a month ago."

On August 16, 2019, the Court narrowly rejected motions urging that exclusivity be terminated and allowing the Debtors to maintain control for now. In summing up his approach (and modest change of heart, as he had himself actively encouraged the preparation of alternative Plans), Judge Montali stated, "At the present time there is no purpose in engaging in such an exercise [ie proceeding with multiple, competing Plans]. The Debtors have placed before all a proposal that, if coaxed and guided to maturity should result in a proper outcome for all creditors without needing to deal with all of these other issues."

That, however, was before the Debtors filed their first stab at a Plan just in advance of a September 9th, deadline agreed with the Court. That Plan, largely derided as a "placeholder" Plan when something truly substantive was expected; and roundly criticized for its lowball (nominally take-it-or-leave-it) $17.9bn Plan, has now given Plan antagonists the ammunition they need to get Judge Montali to open up the Plan playing field to competing Plans.

The current motion states, “In its memorandum decision [Docket No. 3568] (the ‘Memorandum Decision’) denying the Ad Hoc Committee’s prior request to terminate exclusivity, the Court made clear that the top priority in this case is ‘compensating victims of enormous and unimaginable tragedies.’ Memorandum Decision at 3. As a result, the Court permitted the Debtors to maintain exclusivity, but warned the Debtors at the status conference held on August 27, 2019, that if the plan filed was ‘bogus’ or not ‘legally permissible or couldn’t be confirmed without’ consent of the objecting parties, the Court ‘probably would be receptive to terminating exclusivity very quickly.’… Despite these clear statements from the Court, on September 9, 2019 [Docket No. 3841] the Debtors filed a plan (the ‘Placeholder Plan’) not supported by any of the wildfire victims and without substantial financing commitments.

During this same period, however, the representatives of the two largest stakeholders in this case — the TCC and the Ad Hoc Committee — have been negotiating an alternative to the Debtors’ Placeholder Plan (the ‘Alternative Plan’) that focuses on resolving and fully funding the payment of the claims held by the victims of these tragic wildfires, rather than returns to equity holders and secondary market buyers of subrogation claims. The TCC and the Ad Hoc Committee are now prepared to present the Alternative Plan that incorporates a comprehensive settlement (the ‘Wildfire Claims Settlement’) of all wildfire claims against the Debtors, including subrogation claims, valued at $24 billion, paid with a mix of cash and equity of the Reorganized PG&E Corp., which both the TCC and the Ad Hoc Committee believe has the best chance to fully and fairly compensate wildfire victims. As important, the payments to victims under the Wildfire Claims Settlement and Alternative Plan will be satisfied from, among other sources, fully committed financing provided by the members of the Ad Hoc Committee—in stark contrast to the highly conditional and illusory ‘financing’ that the Debtors hope will materialize to back the Placeholder Plan. Under the Alternative Plan, wildfire victims will be paid through a trust that will be acceptable to the TCC and overseen by those selected by the TCC to manage the process. By placing the governance of the mechanism by which wildfire victims will be paid in the hands of the representatives of those victims, the Alternative Plan ensures a quick and fair process for victims to receive their recoveries.

Thus, it is clear that while the TCC and the Ad Hoc Committee have been focused on finding a way to compensate fairly wildfire victims and expeditiously moving these cases out of bankruptcy, the Debtors have used their Exclusive Periods to serve only the interests of their equity holders and have done so at the expense of wildfire victims and other stakeholders. The Debtors have used this time (i) negotiating for illusory financing commitments with equity holders, (ii) negotiating with additional equity holders who are now major holders of Subrogation Wildfire Claims to settle those claims, and (iii) unsuccessfully lobbying the California state legislature during August and September to authorize the issuance of equity securitization bonds, and as a result have ended up with only the Placeholder Plan, which provides unacceptable risks and uncertainties to the wildfire victims. Even if this Court believed that the Placeholder Plan satisfied the low ‘bogus’ standard and provides a path, which it does not, the Alternative Plan plainly satisfies the Court’s requirements.

The TCC and the Ad Hoc Committee submit that the Alternative Plan presents the only available path to a fair and equitable outcome for victims and a path to resolution of these cases prior to June 30, 2020. Therefore, we respectfully request that the Court terminate the Exclusive Periods so that they may jointly file and solicit acceptances of the Alternative Plan, for only then is there a backstop, should the Placeholder Plan fail, which the TCC and the Ad Hoc Committee believe is inevitable. The primary consideration for a court in determining whether to maintain or terminate exclusivity is whether termination will ‘move the case forward.’ Allowing the TCC and the Ad Hoc Committee to file and solicit acceptances of the Alternative Plan is the most certain way to move these cases forward and satisfy the claims of all creditors, including, most importantly, the wildfire victims.”

Alternative Plan Term Sheet

According to the Alternative Plan Term Sheet (attached as Exhibit B to motion): “The Plan shall provide for: 

  • $28.4 billion in new money investments in exchange for common stock of Reorganized PG&E Corp. (representing approximately 58.8% of the outstanding common stock of Reorganized PG&E Corp. on a fully diluted basis), new debt of Reorganized PG&E Corp. and new debt of the Reorganized Utility, in each case as described herein;
  • The proceeds of the new money investments shall be used to (a) pay in full outstanding DIP Financing Facility Claims (as defined below), (b) pay in full all Utility bond, term loan and revolving debt maturing prior to December 31, 2022, (c) fund the creation of a trust (the 'Fire Claims Trust') for the purpose of paying fire claims related to those Northern California fires listed in Schedule 1 attached hereto, equal to $24 billion in cash and shares of common stock of Reorganized PG&E Corp. (representing approximately 39.5% of the outstanding common stock of Reorganized PG&E Corp. on a fully diluted basis) issued to the Fire Claims Trust and certain other fire consideration as set forth herein ('Aggregate Fire Consideration') and (d) fund the Debtors’ contribution of $5.0 billion, which amount consists of both the Debtors’ initial and first annual contributions, to the long-term California statewide wildfire fund created for purposes of paying future utility-related wildfires in California (the 'Wildfire Fund'); 
  • Reinstatement in full of the Long-Term Utility Unsecured Notes; and
  • Payment of all trade claims in the ordinary course of business and assumption and/or continuation of pension-related obligations."

The Court scheduled a hearing to consider the motion for September 24, 2019.

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