PG&E Wins Support From Key Bondholders for Restructuring Plan
The company will save about $1 billion by refinancing higher-interest debt as part of the settlement, PG&E said in its statement.
(Bloomberg) -- After spending almost a year at war with some of the biggest names in the financial world, bankrupt utility PG&E Corp. has finally got them on its side. Now it needs to win over California’s governor.
Late Wednesday, PG&E reached a settlement with noteholders led by bond giant Pacific Investment Management Co. and activist investor Elliott Management Corp., who sought to derail the company’s $46 billion restructuring plan. The deal turns some of PG&E’s most formidable adversaries into backers of its turnaround proposal, bringing the company closer to gaining approval by a state deadline of June 30 and emerging from the biggest utility bankruptcy in U.S. history.
There’s one problem: Governor Gavin Newsom, whose backing is crucial to PG&E’s restructuring, is still trying to block its plan. He rejected the proposal last month, raising concerns about its financing and governance. And the company has “yet to make a single modification” to ease them since, the governor said in a court filing less than two hours before PG&E announced the deal with bondholders.
California’s largest utility declared bankruptcy almost a year ago after its equipment was blamed for a series of catastrophic wildfires that killed more than 100 people and saddled the company with $30 billion in liabilities. It has since struck deals with almost every major stakeholder group, including the victims of the blazes and their insurers.
Shares, which have lost almost half their value since the start of 2019, rose 4.3% at 9:47 a.m. in New York on Thursday.
Elected Officials
PG&E’s deal with bondholders is “a clear positive,” Bank of America analysts led by Julien Dumoulin-Smith said in a research note. While Newsom’s demands remain a challenge, PG&E appears willing to compromise, the analysts wrote.
PG&E Chief Executive Officer Bill Johnson said in a statement that the company remains “focused on working with key stakeholders, including elected officials and our state regulator, on how PG&E will look, act, and be held accountable as we emerge from Chapter 11.”
Meanwhile, Newsom said in his filing Wednesday that the company’s plan, as it stands, still doesn’t comply with state law. He accused PG&E of taking advantage of the Chapter 11 process and to force state officials into approving a “sub-optimal” plan.
What Bloomberg Intelligence Says
“California Governor Gavin Newsom, the last roadblock to PG&E’s planned bankruptcy exit now that bondholders have settled, could get offers addressing his concerns before the utility’s scheduled Jan. 31 regulatory filing, we believe. PG&E’s bondholder deal saves about $1 billion, reducing costs to customers -- an important consideration for regulators.”
-- Kit Konolige, senior utilities analyst
Click here to read the report.
Newsom said the company’s plan would pay $1 billion in financing fees and continues to depend on substantial debt and short-term bridge financing that would leave the utility without the resources it needs to invest billions of dollars in safety upgrades. He has also pressed for language that would allow the state to take it over should it fail to meet future safety standards. The provision emerged as a major point of contention between the governor’s office and PG&E in negotiations.
PG&E said it was aware of Newsom’s concerns and that additional changes to its plan were forthcoming. The company said in a state filing last week that it may make “material” changes to the non-financial terms of its bankruptcy exit plan, including governance, as a result of talks with the governor’s office.
“We expect that the governor will also eventually reach an agreement with the company on its plan to restructure, as the alternative option of a publicly-controlled utility is not an attractive one,” Height Securities LLC analyst Clayton Allen wrote in a research note.
$1 Billion Saved
As part of its deal with bondholders, PG&E said it would save about $1 billion by refinancing higher-interest debt. Bonds paying lower interest rates would be reinstated and paid as normal. The new mix of debt will “reduce the weighted average coupon of PG&E’s debt, the company said, consistent with the guidance given to the California Public Utilities Commission.”
The agreement also gives the noteholders the chance to participate in any subsequent backstop equity commitments of up to $2 billion under certain circumstances.
The bankruptcy case is PG&E Corp. 19-bk-30088, U.S. Bankruptcy Court, Northern District of California (San Francisco)
--With assistance from Lynn Doan, Rick Green, Scott Deveau and Joshua Fineman.
To contact the reporters on this story: Mark Chediak in San Francisco at mchediak@bloomberg.net;Steven Church in Wilmington, Delaware at schurch3@bloomberg.net
To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, ;Rick Green at rgreen18@bloomberg.net, Joe Ryan, Joe Richter
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