PG&E Corporation – Tort Claimants and Senior Noteholders Waste No Time Filing Competing Plan; Noteholders also Object to Debtors Restructuring Support Agreement with Subrogation Claims Holders

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October 17, 2019 – The Debtors' Official Committee of Tort Claimants (the “TCC”) and a committee comprised of holders of certain of the Debtors' senior unsecured notes (the “Ad Hoc Committee,” and together with the TCC, the "Movants") filed a competing Chapter 11 Plan [Docket No. 4257]. On October 9, 2019, in a highly anticipated hearing, the Court finally gave the Movants the go ahead to file a Plan and denied the Debtors’ request to continue as the only party allowed to file a Plan [Docket No. 4168].

In a further significant development, late on October 16th the Ad Hoc Committee also filed an objection to the Debtors' proposed September 22nd restructuring support agreement with certain holders of wildfire subrogation claims, arguing that the RSA undercuts the Court's explicit preference for dueling Plans by compelling signatories to RSA to vote in favor of the Debtors' Plan [Docket No. 4241] (see further below).

Competing Plans

The Movants argue that their Plan provides for a more comprehensive 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. In addition to its more comprehensive reach, the Movants have argued that their financing is superior to that proposed by the Debtors, in that 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 contrast to what they view as "the highly conditional and illusory ‘financing’ that the Debtors hope will materialize to back the Placeholder Plan." See also, "Alternative Plan Term Sheet" below.

On September 23, 2019, the Debtors filed a First Amended Chapter 11 Plan [Docket No. 3966] which amended their first iteration of the Plan filed on September 9th to incorporate a settlement with holders of 85% of their insurance subrogation claims further to which the Debtors agreed an $11.0bn settlement figure for claims relating to the 2017 Northern California wildfires and 2018 Camp Fire. The September 9th Plan included an absolute cap on wildfire liabilities of $17.9bn, comprised of $8.4bn for Wildfire Claims and $8.5bn for subrogation claims, and insisted that "the Plan will not become effective" if those redlines were crossed. In a move that raised a few eyebrows, having just drawn a redline of $8.5bn as to subrogation claims, the Debtors proceeded to bump that number up by $2.5bn just four days later.

The Court's Ruling on Allowing the Movants' Plan

The order granting the Movants' motion [Docket No. 4167] stated, “The court has carefully considered the arguments of the Movants, the Debtors, the PG&E Shareholders, and other parties opposing and joining the motion. The Court recognizes that the Debtors have made significant progress in these cases. Their proposed plan reflects successful resolution of major issues, including settlement with a substantial group of public entity creditors and a tentative settlement with one of the major constituencies, the Ad Hoc Group of Subrogation Claim Holders. Further, some of their opponents’ arguments that Debtors’ plan is not feasible because of uncertain financing conditions have been adequately addressed at this point. In sum, the plan is on track as well as can be expected for now.

The parties most deserving of consideration, speaking through the TCC, have changed their position from the last time the court considered terminating exclusivity, and spoken loudly and clearly that they want their and the Senior Noteholders’ proposed plan to be considered. Debtors’ contentions that their opponents’ proposed plan is flawed and will not be confirmable are no reason to deny the motion. As proposed, Movants’ proposed plan is also on track as well as can be expected for now. The coming weeks will permit ample time to explore and resolve issues regarding both plans consistent with the more traditional plan vetting processes well-known by bankruptcy professionals.

While the court has expressed concerns about avoiding any type of litigation that deals with corporate control and sophisticated and rarified bankruptcy issues at the expense of paying the wildfire victims, it will not second-guess the informed decision of two well-counselled groups who are willing to take the attendant risks that go with competing plan disputes. This is doubly important in light of the looming deadline for meeting the Wildfire Fund requirements of AB 1054. The risk that Debtors’ plan will not be confirmable for some reason is not worth turning away a viable alternative. A dual track plan course going forward may facilitate negotiations for a global resolution and narrow the issues which are in legitimate dispute. If that result is not achieved and the estimation process is completed on schedule in the district court, the outcome might result in one plan failing because it pays too much to the victims, or the other failing because it does not. One plan emerging as confirmable is a very acceptable outcome. And if both plans pass muster, the voters will make their choice or leave the court with the task of picking one of them.”

Alternative Plan Term Sheet

According to the Alternative Plan Term Sheet: “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 following is a summary of classes, claims and voting rights (defined terms are as defined in the Plan):

PG&E Corporation ("HoldCo") Classes

  • Class 1A (“HoldCo Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 2A (“HoldCo Priority Non-Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 3A (“HoldCo Revolver Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 4A (“HoldCo Term Loan Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 5A (“HoldCo General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 6A (“HoldCo Public Entities Wildfire Claims”) is impaired and entitled to vote on the Plan. HoldCo Public Entities Wildfire Claims shall be satisfied solely from the transfer of Cash in amount of $1.0 billion from the Fire Victims Trust and the Public Entities Segregated Defense Fund, as described in the treatment of Utility Public Entities Wildfire Claims in Class 8B in section 4.21(a) of the Plan.
  • Class 7A (“HoldCo Subrogation Wildfire Claims”) is impaired and entitled to vote on the Plan. Each Holder of a HoldCo Subrogation Wildfire Claim shall have its Claim permanently channeled to the Subrogation Wildfire Trust, and such Claim shall be asserted exclusively against the Subrogation Wildfire Trust.
  • Class 8A (“HoldCo Fire Victim Claims”) is impaired and entitled to vote on the Plan. Each holder of a HoldCo Fire Victim Claim shall have its Claim permanently channeled to the Fire Victim Trust, and such Claim shall be asserted exclusively against the Fire Victim Trust in accordance with its terms.
  • Class 9A (“HoldCo Workers’ Compensation Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 10A (“HoldCo Intercompany Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 11A (“HoldCo Subordinated Debt Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 12A (“HoldCo Common Interests”) is impaired and entitled to vote on the Plan. Each holder of a HoldCo Common Interest shall (i) retain such Interest subject to dilution from any New HoldCo Common Stock, issued pursuant to the Plan and [(b) to the extent such holder is an Eligible Offeree, shall receive a pro rata distribution of any subscription rights to purchase in the aggregate up to 5% of the New HoldCo Common Interests issued pursuant to the New HoldCo Common Stock Investment through the Rights Offering.
  • Class 13A (“HoldCo Other Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan.

Pacific Gas and Electric Company ("Utility") Classes

  • Class 1B (“Utility Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 2B (“Utility Priority Non-Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 3B (“Utility Revolver Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 4B (“Utility Term Loan Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 5B (“Utility Short-Term Senior Note Claims”) is unimpaired deemed to accept and not entitled to vote on the Plan.
  • Class 6B (“Utility Long-Term Senior Note Claims”) is unimpaired deemed to accept and not entitled to vote on the Plan.
  • Class 7B (“Utility PC Bond Claims”) is unimpaired deemed to accept and not entitled to vote on the Plan.
  • Class 8B (“Utility General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 9B (“Utility Public Entities Wildfire Claims”) is impaired and entitled to vote on the Plan. The Public Entities shall receive $1.0bn distributions in accordance with the Public Entities Settlement Distribution Protocol. The Fire Victim Trust shall also transfer $10mn to establish the Public Entities Segregated Defense Fund, in accordance with the terms of the Public Entities Plan Support Agreements.
  • Class 10B (“Utility Subrogation Wildfire Claims”) is impaired and entitled to vote on the Plan. The Reorganized Debtors shall fund the Subrogation Wildfire Trust with $11bn consisting of (a) Cash and [(b) New HoldCo Common Stock (at plan value)].
  • Class 11B (“Utility Fire Victim Claims”) is impaired and entitled to vote on the Plan. 
  • Class 12B (“Utility Workers’ Compensation Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 13B (“2001 Utility Exchange Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 14B (“Utility Intercompany Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 15B (“Utility Subordinated Debt Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 16B (“Utility Preferred Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 17B (“Utility Common Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan.

Ad Hoc Committee Objection to RSA

The objection states: "A settlement of the substantial subrogation claims against the Debtors’ estates by the Motion would be a positive development that would allow all plan proponents to focus on resolving other significant plan-related issues. To that end, the Ad Hoc Committee does not oppose the settlement by the Debtors’ estates of the aggregate subrogation claims by allowance of an $11 billion claim (the ‘Proposed Allowed Subrogation Claim’) against these estates.

However, this is the not the settlement the Court is being asked to approve through the Motion. Instead, the Debtors seek approval of a restructuring support agreement (the ‘RSA’) with the Ad Hoc Subrogation Group, which contains numerous provisions that are entirely unreasonable, anticompetitive and not in the best interests of the estates. Instead of inuring to the benefit of the estates, the RSA sought to be approved by the Debtors will only serve the Debtors’ and equity holders’ self-interests and effectively undermine this Court’s Exclusivity Decision. The Ad Hoc Committee, therefore, respectfully requests that the Court deny approval of the RSA.

First, the RSA requires the members of the Ad Hoc Subrogation Group to affirmatively vote to reject the TCC/AHC Plan (or any other plan of reorganization besides the Debtors’ plan) under any circumstance. The RSA also requires the Proposed Allowed Subrogation Claim to be voted only in favor of the plan proposed by the Debtors (the “Debtor Plan”). Thus, even if the TCC/AHC Plan includes and pays the $11 billion Proposed Allowed Subrogation Claim in full, or even if the TCC/AHC Plan provides for better treatment, the Ad Hoc Subrogation Group is required to reject the TCC/AHC Plan. See RSA, §§ 2(a)(iii). Second, the terms
of the RSA prohibit the Ad Hoc Subrogation Group from engaging in any conduct that would, among other things, directly or indirectly encourage, assist or support the formulation of or vote for any plan other than the Debtor Plan. RSA, § 2(b)(ii). This provision prevents the Ad Hoc Subrogation Group from engaging in any discussions or negotiations with the Ad Hoc Committee or TCC and directly undermines the Court’s desire expressed in the Exclusivity Decision to “facilitate negotiations for a global resolution and narrow the issues which are in legitimate dispute.”

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