PG&E Says Elliott, Pimco Don’t Deserve $5 Billion ‘Windfall’
A Pacific Gas & Electric Co. (PG&E) employee watches as contractors clear trees away from the company’s power lines in Nevada City, California, U.S. (Photographer: David Paul Morris/Bloomberg)

PG&E Says Elliott, Pimco Don’t Deserve $5 Billion ‘Windfall’

(Bloomberg) -- Bondholders don’t deserve a $5 billion “windfall” when PG&E Corp. reorganizes next year because the utility is in bankruptcy, voiding any right investors had to an early payoff premium, the company said in a court filing.

PG&E’s bankruptcy-exit plan is built on a proposed funding package that includes refinancing about $17.5 billion of debt that has not yet matured. The company is challenging a demand for the so-called make-whole payment by some of the biggest names in the business, including Elliott Management Corp., Pacific Investment Management Co. and Oaktree Capital Management. The firms say their debt contracts guarantee them the money if PG&E chooses to pay the notes early.

The dispute is among the most important issues U.S. Bankruptcy Judge Dennis Montali must decide on before he rules on PG&E’s reorganization plan next year. Noteholders also have their own bankruptcy-exit plan they claim would be better for all creditors. Both plans assume the utility is solvent, but PG&E’s would provide a much bigger return to shareholders than the bondholder version. PG&E’s plan got a boost this month when wildfire victims abandoned an alliance with noteholders and struck a $13.5 billion deal with PG&E.

For the troubled utility “to pay more on claims than is legally required would be patently irresponsible,” PG&E said in papers filed in federal court in San Francisco on Friday.

Representatives for the ad hoc noteholders, PG&E and wildfire victims did not immediately respond to a request for comment. A representative for shareholders declined to comment.

Make-Whole Debate

For years, bondholders and financially troubled companies have fought over whether make-whole premiums should be honored in bankruptcy. The two federal courts that handle the most corporate bankruptcies have split over the issue.

Appeals court judges in Philadelphia ruled in late 2016 in favor of lenders demanding a make-whole in the case of Energy Future Holdings Corp., finding that at least one debt contract signed by the utility specifically allowed the premium in bankruptcy.

A similar dispute just a few months later went the other way, when an appeals court in Manhattan denied a make-whole to lenders in the bankruptcy of Momentive Performance Materials Inc.

The PG&E debt contracts don’t have clear language backing the bondholders, Bloomberg Intelligence analyst Negisa Balluku wrote in a note on Monday.

The noteholders, for their part, say only one of the debt contracts has the kind of ambiguity that PG&E is trying to take advantage of to get out of the payment. The governing documents for the rest of the $17.5 billion of notes clearly show holders are entitled to payout, they argue in court papers.

“The issue is whether the refinancing of the senior notes for the express purposes of repaying those notes early is an optional redemption entitling the holders to an allowed claim for the optional redemption premium,” noteholders said. “The short answer is yes.”

Montali is scheduled to hear arguments about the issue next month.

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

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