A sign belonging to a demonstrator protesting Pacific Gas and Electric Corp. (PG&E) sits on the floor of the entrance to the company’s headquarters in San Francisco, California, U.S. (Photographer: David Paul Morris/Bloomberg) 

PG&E Is Poised to Raise Largest Bankruptcy Financing Since 2017

(Bloomberg) -- PG&E Corp. looks set to secure $2 billion in debtor-in-possession term loans on better terms than it was initially expecting.

The deal had at least twice the amount of orders needed to get it done as of earlier today, according to people familiar with the matter, who asked not to be identified. The California utility lowered the extra interest above a benchmark that it has to pay on the deal and pressed banks to commit today to making the loan instead of the previously scheduled deadline of tomorrow, both of which are usually signs of strong investor demand.

A mix of banks and loan and bond mutual funds were among the main investors, as the arrangers found demand beyond collateralized loan obligations, traditionally the biggest buyers of leveraged loans. The term loans are part of $5.5 billion total financing to fund operations during a Chapter 11, making it the largest bankruptcy loan package to be syndicated since June 2017, according to Bloomberg data.

"The DIP is multiples covered as it is well collateralized by the company’s asset and enterprise values," said Steven Oh, head of credit and fixed-income investments at money manager Pinebridge Investments. "The PG&E loan is more iron-clad than most triple B rated loans in the market."

Pushing Back

Some prospective investors had passed on the transaction, saying that the margin was insufficient to compensate for the risk, said people familiar with the terms. In particular, they disliked the fact that a so-called delayed draw portion -- which allows the company to wait until the future before it can draw down on the line of credit -- reduced the return.

Some potential investors looking at the deal also said that the ratings structure made the deal unattractive to CLOs, who wanted it to be graded by either S&P Global Ratings or Moody’s Investors Service. The deal had a BBB- rating from Fitch Ratings.

There were also concerns about political risk as the state utility goes through what is expected to be a protracted bankruptcy process, and the speed at which the financing was being arranged, said an investor looking at the transaction.

PG&E, which has said it plans to file for bankruptcy Jan. 29, launched the DIP financing package with a call on Jan. 23.

A spokeswoman at JPMorgan, which is leading the DIP financing, declined to comment. PG&E representatives didn’t immediately respond to an emailed message seeking comment.

At least two competing proposals to keep PG&E from filing for bankruptcy in the aftermath of California’s deadly wildfires surfaced today. But PG&E still expects to make a Chapter 11 filing as soon as Tuesday as planned, people familiar with the situation said.

A consortium including Paul Singer’s Elliott Management Corp. sent a proposal on Monday backed by $4 billion of bonds that could convert into shares of PG&E, one person with knowledge of the matter said. Those bonds would mature in about five years, the person said.

At least one other group that includes Ken Griffin’s Citadel LLC and Leon Black’s Apollo Global Management LLC is pitching a rival plan, separate people said.

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