Demonstrators protesting Pacific Gas and Electric Corp. (PG&E) walk along Market Street in San Francisco, California, U.S. (Photographer: David Paul Morris/Bloomberg)  

Pimco, Elliott Lead Distressed-Debt Heavyweights in PG&E Faceoff

(Bloomberg) -- Some of the biggest players in distressed debt have banded together in PG&E Corp.’s bankruptcy to press their case for repayment of about $12.5 billion.

Topping the list is bond giant Pacific Investment Management Co. with about $2.7 billion in PG&E debt, and Elliott Management Corp., which holds $1.2 billion in debt and a mix of long and short positions in the utility’s stock, court records show. That makes them the biggest players in a group of 24 investors who gave themselves the generic-sounding title of Committee of Senior Unsecured Noteholders.

Their presence foreshadows some hard-fought battles over who gets what in the bankruptcy process, which analysts have said could last two years or more. Besides Elliott, which is led by billionaire Paul Singer, the group includes firms such as Howard Marks’s Oaktree Capital Management and Leon Black’s Apollo Global Management LLC that have long track records of dealing with troubled companies and complex litigation.

The group has been aggressive early in the biggest-ever bankruptcy by a U.S. utility, fighting against proposed debt-trading restrictions sought by PG&E and inserting itself in a battle between the power company and federal regulators.

Wildfire Costs

PG&E was driven into bankruptcy on Jan. 29 by looming costs of wildfires that tore through Northern California in 2017 and 2018. While in bankruptcy, related lawsuits will be put on hold as the company negotiates with victims, bondholders and power regulators on the best way to restructure PG&E and fire liabilities that could hit $30 billion.

The case is unusual in part because PG&E shares have gained since the bankruptcy was filed, signaling shareholders expect to keep ownership under any reorganization plan hammered out in court. Under the U.S. Bankruptcy Code, all creditors must be paid in full before shareholders get anything, which often means a complete wipeout.

Davidson Kempner Capital Management is the third-biggest investor in the group, with $761.2 million in debt and 1.8 million shares in PG&E stock, according to court records.

Other major holders include:

  • Angelo Gordon & Co. with $102.4 million in senior utility notes.
  • Apollo Global Management with $217.8 million in notes and $129 million in bankruptcy loans that PG&E took out to fund itself during the Chapter 11 process.
  • Centerbridge Partners with $380.5 million in notes and $25 million in bankruptcy loans, formally know as debtor-in-possession loans.
  • Oaktree Capital Management with $128.8 million in notes and 1.2 million in PG&E stock.
  • Och-Ziff Capital Management with $329 million in notes.
  • TPG Sixth Street Partners with $335.5 million in notes and 2.4 million shares.
  • Varde Partners with $647.2 million in notes.

Before PG&E filed bankruptcy, Elliott and Apollo were said to be among firms that offered rescue financing aimed at keeping the utility out of Chapter 11. The company opted to proceed with bankruptcy because it needed a way to address California’s inverse condemnation policy, which makes it responsible for fires caused by its equipment, people familiar with the matter said at the time.

Elliott’s holdings were described in the filing as a long position of cash-settled equity swaps tied to 14 million shares of PG&E, and a short position of call options in 7 million shares of PG&E.

At least two other big investor groups have also gotten involved, but haven’t yet disclosed their holdings. Two days after the Chapter 11 case was filed, bankruptcy attorney Bruce Bennett told the judge overseeing the case that the Jones Day law firm represented investors who hold a large block of PG&E shares. A group calling itself the Ad Hoc Group of Institutional Bondholders hired bankruptcy attorney Martin Bienenstock at the Proskauer Rose law firm.

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

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