Elliott Bashes PG&E Bankruptcy Plan as Failing State Guidelines

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(Bloomberg) -- Elliott Management Corp. criticized PG&E Corp.’s restructuring plan, saying it doesn’t meet California’s guidelines and jeopardizes the long-term health of the company.

The New York hedge fund, which is one of PG&E’s largest creditors, on Thursday came out publicly for the first time against the company’s plan, saying in a statement that its own proposal would leave California’s largest utility in better financial shape when it emerges from bankruptcy.

“The PG&E plan is not in the best interests of California residents, small businesses and commercial and industrial customers within PG&E’s service territory,” Elliott said in the statement. “It was crafted with the exclusive objective of maximizing value for existing shareholders at the expense of the company’s critical stakeholders, including most importantly its customers and employees.”

Elliott said it believed the $10 billion in added debt included in the company plan would likely lead it to be “a sub-investment grade, junk-bond issuer.” It also argued that the roughly $1 billion in cash diverted under PG&E’s plan for interest and shareholder payments would limit the utility’s ability to invest in critical safety upgrades and infrastructure, among other issues.

Elliott Bashes PG&E Bankruptcy Plan as Failing State Guidelines

Elliott’s comments Thursday come as California Governor Gavin Newsom is set to decide whether to support PG&E’s proposed $13.5 billion payout to wildfire victims. The deal struck by PG&E with the victims could be a death knell for the plan put forth by Elliott and its partners, which also contains a $13.5 billion payout to victims. If it is approved, it would likely let PG&E’s rival plan proceed.

“It is clear that only a reorganization plan that puts PG&E in a meaningfully stronger financial position than when it entered bankruptcy, while compensating wildfire victims fairly and maintaining true rate-neutrality, should be allowed to move forward,” said Jeff Rosenbaum, portfolio manager at Elliott.

He argued the creditor’s plan meets many of the state’s goals.

Elliott called on California to ensure that any restructuring plan for PG&E contain an overhaul of governance and management, limit the utility’s total debt to a moderate level and eliminate any financial engineering that would pass costs off to ratepayers.

Read More: PG&E’s Settlement Likely a ‘Fatal Blow’ to Bondholder Plan: Citi

Nathan Click, a spokesman for the governor, said earlier this week that any agreement would need to “treat victims fairly.” The company’s final reorganization plan needs to also prove fair for workers and customers, he said.

PG&E shares fell 1% to $12.01 at 9:30 a.m. in New York trading.

Wildfire Liabilities

PG&E declared bankruptcy in January after its equipment was blamed for starting catastrophic blazes in 2017 and 2018. The fires saddled the company with an estimated $30 billion worth of liabilities.

The creditor group, led by Elliott and Pacific Investment Management Co., was first to reach a deal with wildfire victims, agreeing to pay them $13.5 billion while PG&E initially proposed just $8.4 billion. But the utility later raised its offer and won over fire victims, announcing a settlement last week.

A representative for PG&E was not immediately available for comment on Thursday. PG&E said in a statement earlier this week that it believes its reorganization plan meets all state requirements for an exit from bankruptcy. The utility described its proposal as “fully financeable” and said payments to victims “will not take away from our safety investments.”

The bondholders have offered to inject as much as $20 billion in cash into PG&E in exchange for almost all of the company’s equity. The proposal would effectively wipe out the utility’s current shareholders, including hedge funds that had wrested control of its board earlier this year.

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