By Hudson Sangree
The federal judge overseeing Pacific Gas and Electric’s bankruptcy ruled Friday against bondholders and insurers that wanted to offer their own reorganization plans for the embattled utility, but he allowed fire victims to proceed with a lawsuit blaming it for one of the most destructive blazes in state history.
Judge Dennis Montali, of the U.S. Bankruptcy Court for the Northern District of California in San Francisco, said it wouldn’t be in the interest of fire victims to let competing Chapter 11 plans confuse the proceedings. He gave PG&E until Sept. 26 to offer its own plan without interference, in keeping with a so-called exclusivity period he had earlier granted the utility.
PG&E’s unsecured bondholders had offered it an injection of $30 billion, including $18.4 billion for fire victims, in exchange for guaranteed payment of more than $10 billion in notes, which otherwise could go unpaid in bankruptcy. PG&E’s lawyers argued the deal would give the bondholders — a group of banks, mutual funds and other investors — control of the company at a heavily discounted price and could lead to chaos in the Chapter 11 proceedings. (See Judge Weighs Competing PG&E Bankruptcy Plans.)
Montali agreed the plans would likely lead to unnecessary confusion and delay.
“Competing plans are tempting, and no doubt produce a feast for lawyers, accountants, investment bankers and others, not to mention the intellectual challenges to the court,” Montali wrote in his decision. “But the inescapable fact is that the fire victims and their insurers should not need to wait for conclusion of expensive, lengthy and uncertain disputes that only indirectly concern them.”
PG&E has said it will file its own plan by Sept. 9. A recent outline says the utility will pay its debts and compensate fire victims by raising money through stock offerings. In documents filed with the U.S. Securities and Exchange Commission earlier this month, two hedge funds — Abrams Capital Management and Knighthead Capital Management — pledged to backstop PG&E’s plan with $15 billion in equity financing to provide “a foundation upon which a more fully developed capital plan and plan of reorganization can be built.”
PG&E has “placed before all a proposal that, if coaxed and guided to maturity, should result in a proper outcome for all creditors without needing to deal with all of these other issues,” the judge wrote.
Continuing his focus on fire victims, Montali decided that two cases could move forward in state court that allege PG&E caused the Tubbs Fire, which ravaged California wine country in October 2017 and burned down part of the city of Santa Rosa.
Investigators with the California Department of Forestry and Fire Protection determined a private landowner’s faulty wiring started the Tubbs Fire, but plaintiffs’ lawyers hope to convince a jury otherwise. The massive blaze killed 22 people and destroyed more than 5,600 structures in Sonoma, Napa and Lake counties. (See related story, Lawyers Argue over PG&E Wildfire Liability.)
Montali cited the plaintiffs’ estimates that the Tubbs Fire could account for two-thirds of PG&E’s liability for the 2017 and 2018 fires in Northern California that led to it declaring bankruptcy in January. Those fires include the Camp Fire, the deadliest in state history, which leveled much of the town of Paradise and killed 85 people.
Resolving liability for the Tubbs Fire will help the bankruptcy court determine PG&E’s estimated liability for those fires so that victims can be compensated appropriately, he said. Montali said that, despite PG&E’s objections, he didn’t think the lawsuits would interfere with the bankruptcy proceedings.
“The state court trial may proceed on a parallel track to the proceedings in this court,” the judge wrote in a separate ruling Friday.