PG&E Judge Skeptical as Bondholders Demand Higher Interest Rate

(Bloomberg) -- Bondholders and other creditors struggled to persuade a federal judge to force PG&E Corp. to pay them “hundreds of millions of dollars” more in interest than the bankrupt utility has proposed.

U.S. Bankruptcy Judge Dennis Montali appeared to side with PG&E in a court hearing Wednesday in which the company and the bondholders argued over what interest rate creditors should earn during the bankruptcy. Montali repeatedly asked creditor lawyers why a ruling by a federal appeals court in a similar case that forced investors to accept the so-called federal judgment rate doesn’t apply.

“I realize we’re talking about a lot of money,” Montali said in dismissing a bondholder argument that a Texas court should set the legal precedent instead of a decision by the Ninth Circuit Court of Appeals in California. “They don’t like the Ninth Circuit in Texas. We have to periodically straighten them out.”

Montali didn’t immediately rule on the request by bondholders and other creditors.

California federal courts have long held that creditors can only collect the federal judgment rate of interest while a company is in bankruptcy. The bondholders want to collect the higher rates listed in their debt contracts.

Texas federal courts have allowed the higher rates.

PG&E filed bankruptcy in January in San Francisco. At the time, the federal judgment rate was 2.59%, which is what creditors would get paid while the company remains under court protection should Montali side with PG&E.

The company is preparing to release an updated version of its reorganization plan in the coming days based on a deal to pay $13.5 billion to tens of thousands of people who lost property in devastating wildfires linked to PG&E equipment. As part of that deal, the utility has proposed paying the lower interest rate.

PG&E is “trying to take hundreds of millions of dollars and give it to equity,” Abid Qureshi, a lawyer for bondholders, told Montali.

The bankruptcy case is PG&E Corp. 19-bk-30088, U.S. Bankruptcy Court Northern District of California (San Francisco)

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