PG&E’s War With Elliott and Pimco May Be Drawing to Close
(Bloomberg) -- The hard-fought battle that’s kept the biggest utility bankruptcy in U.S. history dragging on for almost a year may finally be ending.
PG&E Corp. is nearing a deal with a group of noteholders led by bond giant Pacific Investment Management Co. and activist investor Elliott Management Corp., who’ve repeatedly sought to derail the company’s $46 billion 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 $20 billion in cash into the company in exchange for virtually all its equity.
That would leave California Governor Gavin Newsom as the last major obstacle for PG&E, which was forced into Chapter 11 last year after its equipment was blamed for a series of catastrophic wildfires that saddled the company with $30 billion 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 in a statement that it’s been holding discussions with stakeholders on its reorganization 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 Tuesday, PG&E lawyer Stephen Karotkin told the federal judge overseeing the reorganization 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 8.4% to $12.92 at 9:35 a.m. in New York Wednesday. PG&E bonds fell, with its 6.05% senior unsecured notes maturing in 2034 dropping 0.187 cents on the dollar to 111.44 cents at 8:54 a.m., according to Trace data.
The state has set a deadline of June 30 for the utility to win court approval of its reorganization 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: $3 billion of unsecured notes due in 2034 that pay 6.05%.
What Bloomberg Intelligence Says
A reported potential deal between PG&E and its bondholders on make-whole payments -- a key part of its bankruptcy-exit plan -- could pressure the utility’s higher-coupon debt, in our view.
-- Jaimin Patel, senior credit analyst
Click here to view the piece.
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 $17.5 billion 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.
The bankruptcy case is PG&E Corp. 19-bk-30088, U.S. Bankruptcy Court, Northern District of California (San Francisco)
©2020 Bloomberg L.P.