PG&E Corp. PCG 12.82% won court approval for a $13.5 billion settlement with victims of fires linked to its equipment but the utility said it expects talks to continue with California Gov. Gavin Newsom, who last week said its bankruptcy-exit plan falls short of needed reforms.
The pact with fire victims is the third and largest in a series of settlements aimed at putting a lid on damage claims from a series of blazes in recent years that left people dead, destroyed homes and businesses and plunged PG&E into bankruptcy in January.
Also approved at a court hearing Tuesday was PG&E’s $11 billion settlement with insurance creditors, a group that includes insurers that paid for fire damages and investors that bought claims at a discount, like hedge fund Baupost Group LLC.
Mr. Newsom wants a reshaped company, with a new board that is conscious of safety and provisions that kick in if PG&E fails to hit goals linked to improved operations and fire prevention.
Until Monday, it was a condition of the company’s settlement with wildfire victim claims that Mr. Newsom approve of PG&E’s bankruptcy exit plan. But PG&E dropped the condition after Mr. Newsom said the bankruptcy plan wasn’t acceptable.
Nancy Mitchell, a lawyer for Mr. Newsom, said Tuesday the governor didn’t intend to stand in the way of the fire victims’ deal and supported the $13.5 billion settlement.
“What the governor is saying is, ‘Do whatever advances the ball toward getting those victims paid,’” said Judge Dennis Montali, who approved the pact between PG&E and fire victims at a hearing in the U.S. Bankruptcy Court in San Francisco.
The governor hasn’t abandoned hope that PG&E will be able to develop a chapter 11 exit plan that passes muster with the state, Ms. Mitchell said at a hearing at the U.S. Bankruptcy Court.
As it stands, however, PG&E’s plan won’t get the company out of bankruptcy in sufficient shape to qualify for a statewide fund designed to cushion utilities that operate safely against rising wildfire risks, she said. A rival chapter 11 exit plan proposed by bondholders, led by Elliott Management Corp., also lacks Mr. Newsom’s approval, the governor’s lawyer confirmed.
Wildfire victims, who at first agreed to back the bondholder plan, backed a new deal with PG&E, counting on the utility for an easier, faster pass through bankruptcy than the bondholder plan, said Cecily Dumas, lawyer for the official panel representing fire victims.
“There may be a time in the future when the debtor’s plan falls over and the bondholder plan is left standing,” she said. If PG&E can’t get the governor’s support, or financing falls through, lawyers for fire victims would then be free to change their minds again, Ms. Dumas said.
Even though “the governor is sending nastygrams to the debtor every few days,” lawyers for fire victims think PG&E has a shot at wooing the governor, she said. Strong signals from Mr. Newsom that the bondholder plan will meet the state’s requirements—and that PG&E’S plan won’t—would be enough to allow fire victims to turn their backs on the utility’s plan, according to Ms. Dumas.
PG&E lawyer Stephen Karotkin said the utility intends to get its chapter 11 plan through bankruptcy court, past utilities regulators and into the wildfire fund. The company’s new deal with wildfire victims means the bondholder-backed plan can no longer claim support from a crucial class of creditors, people owed billions of dollars due to lives, homes and businesses lost to the wildfires, he said.
Fire victims originally joined forced with the bondholders, backing a chapter 11 plan that would have preserved only a small piece of PG&E for existing shareholders. Then they switched sides.
Michael Stamer, a lawyer for bondholders, said Tuesday that the bondholder plan would send PG&E out of bankruptcy on firm financial footing, meaning the stock portion of the payment to fire victims would be worth more than the equity the company is offering.
Both PG&E and the bondholders are offering $13.5 billion to fire victims as part of their competing plans. Bondholders haven’t abandoned hope of winning Mr. Newsom’s support, particularly if PG&E’s plan falls apart.
“We have had conversations with the governor’s office,” Mr. Stamer said.
To survive after paying off fire claims, PG&E needs to participate in a statewide fund set up under a California law, known as AB 1054, that is designed to cushion safely operated utilities against rising wildfire risks. To get into the fund, PG&E must be out of bankruptcy by June 30 next year.
“We do believe that an AB 1054-compliant plan can be developed in these cases,” Ms. Mitchell said at Tuesday’s hearing. “I’m not going to tell you that it’s this plan.”
A lawyer for fire victims said the group sympathizes with Mr. Newsom’s drive to reshape PG&E, a company that has been criticized for paying out billions of dollars in dividends to shareholders while its equipment aged and became more dangerous.
“The governor is concerned, obviously, about the past history of PG&E,” said Gerald Singleton, whose firm represents more than 5,000 victims of wildfires who blame PG&E.
“The fire victims have two main considerations. They want to be fully compensated and they want to ensure nothing like this happens again,” Mr. Singleton said.
Write to Peg Brickley at [email protected]
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