How a New California Wildfire Could Upend PG&E’s Bankruptcy Case

(Bloomberg) -- There’s a chance PG&E Corp. could end up on the hook for another California wildfire that has so far burned more than 20,000 acres and destroyed at least 49 structures.

How exactly that will affect the utility giant’s bankruptcy has, in some ways, already been foretold by the courts. Based on the way bankruptcy cases work, any new potential claims tied to this blaze, known as the Kincade fire, would have to be paid out before anyone else’s. That means the estimated $30 billion worth of liabilities that PG&E took into its Chapter 11 case, stemming from wildfires that its equipment started in 2017 and 2018, would take a back seat.

Not only would a new catastrophic fire upend the pecking order in PG&E’s case, but it could also derail the company’s restructuring efforts, which hinge largely on reaching settlements with victims of past fires and their insurers. The San Francisco-based utility giant is already competing with a rival reorganization plan pitched by a group of creditors including Pacific Investment Management Co. and Elliott Management Corp.

What Bloomberg Intelligence Says

“PG&E’s possible role in the big Kincade fire could open up huge additional exposures for shareholders. Funding further liabilities to exit bankruptcy could create a downward equity spiral, as more shares at a shrinking stock price are required. New liabilities could threaten a timely exit, calling into question the state’s $10 billion wildfire fund.”

-- Kit Konolige, senior utilities analyst

Click here to read the report.

To be sure, there have been no reports of deaths tied to the Kincade fire. And the number of structures it has destroyed pales in comparison to the 2017 and 2018 fires that laid waste to thousands of homes and businesses. Plus, PG&E has fire insurance to help cover the costs of this blaze and may be able to tap a brand new state-backed wildfire insurance fund once it’s out of bankruptcy.

Any new fire victims would have to form a separate block of creditors and would end up competing with the committee representing past wildfire victims with claims. The committee couldn’t represent new victims because it would be a conflict of interest, said Cecily A. Dumas a lawyer for the committee.

--With assistance from Steven Church.

To contact the reporter on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net

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

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