Pimco, Other PG&E Creditors Said to Pitch $35 Billion Plan

(Bloomberg) -- Some of the biggest players in distressed debt are proposing a $35 billion plan that would allow California utility giant PG&E Corp. to emerge from bankruptcy within a year, according to people familiar with the matter.

Pacific Investment Management Co., Elliott Management Corp. and Davidson Kempner Capital Management have been meeting with California lawmakers and other stakeholders to discuss the proposal, the people said, asking not to be identified because the discussions are private. The plan would establish a $14 billion cash trust to pay for claims tied to the deadly 2017 and 2018 wildfires that forced the utility to declare bankruptcy, according to the proposal seen by Bloomberg News.

Shares in PG&E dropped 2.4 percent to $17.25 after falling as much as 12 percent. The company’s bonds were among the top gainers in the U.S. high yield market.

Since making a Chapter 11 filing in January, PG&E has become the target of investors wrestling for control over the company’s incoming board and chief executive officer. The company is facing liabilities that may exceed $30 billion from wildfires its equipment may have caused. Its bankruptcy case, the biggest for a utility in U.S. history, is expected to be contentious and complex as creditors, shareholders, wildfire victims and state officials weigh in on the remake of the power giant.

Pimco didn’t respond to multiple requests for comment. Davidson Kempner also couldn’t be reached for comment. Elliott and PG&E declined to comment.

What Bloomberg Intelligence Says

“It’s hard to analyze without full details, yet the reported plan would use an $8 billion recapitalization largely to repay debt. The absence of any rate hikes or fixes to the inverse condemnation law makes it difficult to imagine that equity values will recover.”
--Kit Konolige, senior industry analyst
Click here to view the report.

The plan that Pimco, Elliott and Davidson Kempner are pitching on behalf of an ad hoc committee of PG&E’s senior unsecured noteholders would also establish a statewide wildfire fund of at least $13 billion that would be financed by PG&E, other California utilities, statewide bonds and other state funding sources, according to the people.

Capital Restored

Under the plan, PG&E would be recapitalized through contributions totaling $8 billion, allowing the company to refinance its debtor-in-possession loan and other maturities. In all, roughly $18.5 billion in funds would be provided by the creditor group -- about half in equity and half in debt-linked securities, the people said. Another $2 billion would come from insurance proceeds, they said.

In the term sheet, the creditors describe the proposal as “a fresh capital commitment of unprecedented scale by existing PG&E creditors, including leading financial institutions and investors in the U.S. regulated utility industry.” It would have PG&E exiting bankruptcy by March 31, 2020, and would be “mainly neutral for consumers” with respect to electricity rates, according to the document.

“This is a good step forward,” said Patrick McCallum, a lobbyist who represents wildfire victims and their attorneys. “The good news is that a lot of people are trying to get a faster agreement, which is better for California and for victims moving forward.”

The creditors aren’t asking for action by California legislators outside of the establishment of the statewide wildfire fund -- a move that could expedite PG&E’s exit from bankruptcy, the people said.

--With assistance from John Gittelsohn.

To contact the reporters on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net;Scott Deveau in New York at sdeveau2@bloomberg.net

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, Christine Buurma

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