PG&E Creditors Sweeten Deal for Fire Victims in New Proposal

(Bloomberg) -- PG&E Corp. creditors, seeking to salvage their bid to take control of the bankrupt utility’s restructuring, sweetened their offer to wildfire victims and made new proposals aimed at winning over California Governor Gavin Newsom.

In a letter to Newsom, the creditor group said they are prepared to pay the victims $13.5 billion in cash upfront instead of using stock in the reorganized company to finance half of the settlement. The bondholders -- led by Elliott Management Corp. and Pacific Investment Management Co. -- also committed to address demands Newsom raised with PG&E, including a forming new board and making provisions for the option of a state takeover.

The group said they plan to make their pitch directly to those with claims from wildfires.

“We believe this is simply a better deal for the true victims of PG&E’s fires, the individuals who need this money as soon as possible so they can rebuild and move on,” the bondholders said in the letter Friday.

The Elliott and Pimco group faces a big challenge in its effort after a bankruptcy judge approved the utility’s $13.5 billion settlement with fire victims and an $11 billion payout to holders of insurance claims. Those claimants are now required to support the company’s restructuring proposal as a condition of the agreements. On Thursday, the official committee representing fire victims formally withdrew its support for the creditor plan.

PG&E said in a statement Friday that this week marked an “important milestone” and that it’s moving forward with its bankruptcy proceedings.

“We remain in active in constructive dialogue with stakeholders,” the San Francisco-based company said.

A representative from the official committee representing fire victims declined to comment. The governor’s office didn’t immediately respond to requests for comment.

PG&E Plan

Under PG&E’s plan, half of the payout to wildfire victims would be financed through stock in the reorganized company and the other half would come from a series of cash payments. Attorneys representing wildfire claimants had wanted more cash as part of the deal and said an all-cash settlement between PG&E and insurance claims holders -- including some investors -- forced them to take stock in the company.

PG&E, California’s largest utility, has been in talks with Newsom over his concerns with its restructuring proposal raised in a letter a week ago. The governor said the current plan doesn’t comply with state law and demanded that the company replace its board, provide a better financing structure and include a provision that would allow the state or a third party to take over operations if the utility falls short on safety standards.

Newsom has said that the Elliott and Pimco plan also doesn’t meet his requirements. 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, effectively wiping out shareholders.

The group said Friday that their latest proposal was designed to address the governor’s concerns. Their pitch envisions a new independent board where the majority of directors would be California residents, with some appointees selected by the governor’s office, unions and the wildfire fund. It also calls for no debt at the utility holding company.

The creditor group would allow for a PG&E takeover by the state if the company is found to have caused future fires that destroy more than 5,000 structures, according to the new term sheet. California’s purchase options would be at a price equivalent of 1.5 times the total value of the utility’s assets, and allow for a right of first refusal if a competing superior bid comes in for the company.

The proposal also would cap rate increases at 3% through 2023.

Any reorganization would have to be approved by a state utility commission that the governor appoints. PG&E will have to prove to Newsom’s office that it has fully resolved its bankruptcy and past wildfire liabilities by June if it wants to participate in a new fire insurance fund to avoid future catastrophic losses. The company has said it expects its plan to comply with state requirements.

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, ;Liana Baker at lbaker75@bloomberg.net, Kara Wetzel, Michael Hytha

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