ADVERTISEMENT

Pimco-Elliott Group Uses PG&E’s Setback to Lobby for Their Rival Plan

PG&E shares tumbled 14% Monday as Newsom’s letter roiled the company’s plan just after it had cleared a major hurdle.

Pimco-Elliott Group Uses PG&E’s Setback to Lobby for Their Rival Plan
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)

(Bloomberg) -- As PG&E Corp. races to salvage its restructuring after a major blow, a group of creditors trying to gain control of the bankrupt utility are using the setback to reinvigorate their own plan.

The creditors, led by Pacific Investment Management Co. and Elliott Management Corp., have sent a presentation to PG&E stakeholders making the case that their plan satisfies demands raised by California Governor Gavin Newsom. The governor late Friday rejected the San Francisco-based utility’s reorganization based on concerns over the company’s board structure, safety issues and debt load.

The creditor presentation, reviewed by Bloomberg, was sent to Newsom’s office and is being circulated elsewhere in Sacramento, according to people with knowledge of the matter. It outlines 45 regulatory commitments and argues the creditors’ bid would deliver an additional $6.5 billion in tangible benefits to PG&E customers, employees, and other stakeholders. The proposal would also enable the utility to emerge from bankruptcy by a June 30 deadline.

Newsom’s office said in a court filing Monday that the creditor plan also falls short of meeting requirements of a state wildfire law.

PG&E shares tumbled 14% Monday as Newsom’s letter roiled the company’s plan just after it had cleared a major hurdle. Earlier this month, the utility reached a $13.5 billion settlement with victims of wildfires caused by its equipment, paving a way for the restructuring and nearly killing the Pimco and Elliott group’s bid. That deal, however, is contingent on the governor’s approval.

Pimco-Elliott Group Uses PG&E’s Setback to Lobby for Their Rival Plan

PG&E now has until Tuesday to address Newsom’s demands. The company’s executives worked throughout the weekend to save the plan, said people familiar with the matter.

The utility said in a statement Monday that it believes its proposal meets state requirements and is the best course forward.

“We’ve welcomed feedback from all stakeholders throughout these proceedings and will continue to work diligently in the coming days to resolve any issues,” PG&E said.

Representatives for the creditor group declined to comment.

While shares fell, PG&E’s most actively traded bonds rose as the plan by Pimco, Elliott and other bondholders gained newfound momentum. PG&E’s 6.05% senior unsecured notes maturing in 2034 gained about 0.5 cents on the dollar to 107 cents at 1:51 p.m. in New York, according to Trace bond price data.

New Board

The bondholders have offered to inject as much as $20 billion in cash into PG&E in exchange for almost all of the company’s equity, effectively wiping out shareholders. The group was first to reach a deal with wildfire victims, agreeing to pay them $13.5 billion. PG&E initially proposed just $8.4 billion before raising its offer and winning over the claimants.

The creditor group’s plan calls for an independent board that includes a new chairman, new chief executive officer, and representatives from various stakeholders, including the governor’s office, labor, and the state wildfire fund, according to the presentation. Newsom’s letter had cited the makeup of the board post-bankruptcy as a major issue, saying he didn’t expect the restructured company would have any current directors.

He also called for provisions enabling a takeover by the state or third party if certain safety provisions aren’t met. The creditor document shows that its plan would allow for a PG&E takeover if the company is found to have caused future fires that destroy more than 5,000 structures during the emergence period.

California’s purchase options would be at a price equivalent of 1.5 times the utility’s total rate base, and allow for a right of first refusal if a competing superior bid comes in for the company, according to the presentation.

The creditor group argues that its own plan would leave the company able to reach an investment-grade credit rating, emerge with lower debt, and cap rate increases at 3% per year through 2023, the documents show.

To contact the reporters on this story: Scott Deveau in New York at sdeveau2@bloomberg.net;Mark Chediak in San Francisco at mchediak@bloomberg.net

To contact the editors responsible for this story: Liana Baker at lbaker75@bloomberg.net, ;Lynn Doan at ldoan6@bloomberg.net, Kara Wetzel, Joe Ryan

©2019 Bloomberg L.P.