PG&E Shareholders Plan a $15 Billion Equity Offering

(Bloomberg) -- Two hedge funds are seeking to raise $15 billion of equity to bolster PG&E Corp.’s plans to emerge from the largest utility bankruptcy in U.S. history, according to a regulatory filing Thursday.

Knighthead Capital Management and Abrams Capital Management, which together own about 7.8% of the California utility, plan to raise the money through a rights offering that would be open to all existing PG&E shareholders, they said in a filing with the U.S. Securities and Exchange Commission. The plan was reported earlier by Bloomberg News, and shares rose by as much as 2.8% to $18.67.

The two firms would contribute $1.5 billion themselves, according to people familiar with the matter, who asked to not be identified discussing private information. The rest of the pool would be raised through an offering to PG&E investors proportionate to the size of their holdings. Shareholders would also be given an opportunity to backstop the offering, which would allow them to contribute additional equity if others choose not to participate.

The equity raise would strengthen PG&E’s bankruptcy plan, which has been criticized by an opposing faction that says it is not viable without legislation that would allow it to recapitalize the company through the issuance of tax-exempt bonds.

“Our proposed construct would not seek to undervalue the company, subvert the bankruptcy process or disadvantage one group of financial stakeholders to benefit another,” Abrams Managing Member David Abrams and Knighthead Managing Member Thomas Wagner said in the filing. “We believe that our capital proposal provides the company with a foundation upon which a more fully developed capital plan and plan of reorganization can be built.”

“Our goal throughout the chapter 11 process is to fairly compensate wildfire victims, protect customer rates, develop a more sustainable business model and continue delivering safe and reliable service,” PG&E said in an emailed statement.

The equity raise would be supplemented by about $5 billion in debt that PG&E would issue to help fund its $31 billion reorganization plan, according to the filing.

The company has received several inbound expressions of interest to participate in raising equity from current shareholders and debtors, the people said.

The rights offering would not replace a current effort to partially fund the restructuring through the issuance of tax-exempt bonds, the people said, adding that efforts by PG&E and its shareholders to lobby lawmakers to implement legislation to allow for that continue.

The rights offering would be an alternative pool of capital that could be tapped, they said, adding that any combination of tax-exempt bonds or rights offering could be used to fund the plan.

Knighthead, Abrams and other shareholders helped PG&E revamp its board this year to help oversee the restructuring.

PG&E’s plan is being rivaled by several other factions, including an ad hoc committee of senior unsecured creditors that have urged the bankruptcy court to end the period of exclusivity the company has to develop its reorganization plan. That group argues PG&E’s plan is not viable because it would require legislation that would allow for tax-exempt bonds to be issued to help fund its reorganization.

Judge Dennis Montali delayed ruling on the motion to end exclusivity last month and gave the parties until Aug. 9 to see if the parties could come up with a process for evaluating alternative reorganization proposals.

The creditor group -- led by Pacific Investment Management Co., Elliott Management Corp. and Davidson Kempner Capital Management -- said in a filing with the court Wednesday that no consensus could be met between the parties despite their efforts and put forth its own proposal for the court to evaluate competing plans. It said it planned to proceed with a motion to terminate exclusivity at a hearing on Aug. 13.

PG&E filed for bankruptcy in January to deal with an estimated $30 billion in liabilities from wildfires that its equipment may have ignited in 2017 and 2018.

Its shares fell less than 1% to $18.06 at 10:24 a.m. in New York trading Thursday, giving the San Francisco-based company a market value of about $9.6 billion.

--With assistance from Mark Chediak.

To contact the reporter on this story: Scott Deveau in New York at sdeveau2@bloomberg.net

To contact the editors responsible for this story: Liana Baker at lbaker75@bloomberg.net, Matthew Monks, Joe Ryan

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