Pacific Gas & Electric, California's largest dealership, suffered a setback in bankruptcy court on Wednesday that could alter the course of a corporate restructuring that promises far-reaching consequences for millions of customers.
Federal bankruptcy judge Dennis Montali ruled that PG&E no longer had the exclusive right to shape the terms of its reorganization, paving the way for supporters of a rival proposal. The competing plan was drafted by a group of PG&E lenders that includes prominent hedge funds and is supported by individuals with claims against PG&E for damage caused by forest fires.
The company sought bankruptcy protection in January, saying it faced an estimated $ 30 billion or more in forest fire-related obligations that caused widespread property damage and killed dozens of people.
The judge's decision, after a contentious hearing on Monday, came when hundreds of thousands of PG&E customers were without electricity. The company shut down power on Wednesday in large areas of its territory, including much of the bay area, to reduce the risk of fire caused by high winds after months of dry weather.
Losing the exclusive right to propose restructuring terms is a big blow to the management of PG&E and its largest shareholders, which also include hedge funds. The decision, issued after normal market hours, caused the company's stock to fall nearly 30 percent in extended trading.
The lenders' plan, drawn up by a group of PG&E bond holders that includes Elliott Management, an activist hedge fund, would leave current shareholders with a small stake in PG&E as soon as it emerges from bankruptcy.
In making his decision, Judge Montali seemed to be encouraging an agreement between the parties. "A two-lane plan course going forward can facilitate negotiations for a global resolution and constrain problems that are in legitimate dispute," he wrote.
Sympathy for fire victims also seemed to play a role in the decision. The judge wrote that "the most deserving parts" had spoken through the group representing the claimants of the fire.
Frank Pitre, lawyer for forest fire victims, said: "We are extremely pleased that the court has opened the case to promote competition on the best plan to get this company out of bankruptcy, showing due concern to ensure fair compensation to victims. of fire ".
PG&E opposes the bondholders' plan because, in its opinion, it allows them to buy a large stake in the company cheaply. "We are disappointed that the bankruptcy court opened the door to considering a plan to unfairly enrich Elliott and the other ad hoc bond holders and take control of PG&E at a substantial discount," said James Noonan, spokeswoman. PG&E voice in an email. declaration. He added that PG&E was working towards a "fair settlement of all remaining individual forest fire claims."
The PG&E plan would pay $ 8.4 billion to fire victims, while bondholders would offer up to $ 14.5 billion.
The final number depends in part on what is found in other courts. A federal district judge will estimate possible damage from forest fires and should receive expert witness testimony in January. And a California Superior Court judge scheduled a trial in January to determine if PG&E equipment caused a fire in 2017 in the wine country, known as the Tubbs fire.
PG&E said it will pay all claims approved by the court.
The bankruptcy battle has repercussions on PG&E's service area, which covers most of northern and central California. The state's goal is for the company to come up with the financial resources to take steps to combat fires caused by PG&E power lines.
In addition, according to a law enacted this year, bankruptcy must be completed by June for the company to use a new state fund that is being created to help pay for the catastrophic costs of future forest fires. A provision of the California constitution holds the utility liable for damage caused by its equipment, even when there is no negligence.
In August, Judge Montali had allowed PG&E to retain the exclusive right to plan its bankruptcy. But after that, the group representing fire liability claims formally told the court that it supports the terms of the bondholders' plan and its request to terminate PG&E's only right to propose a reorganization.
The judge wrote on Wednesday that forest fire claimants "have changed their positions since the court last considered terminating exclusivity and said loud and clear that they want the proposed plan to be theirs."
Although PG&E was bankrupt and facing large fire liabilities, hedge funds bought their shares in the belief that they had become significantly undervalued. The bet worked for a while. PG&E shares traded at nearly $ 24 per share earlier this year. But they fell after Judge Montali allowed the state court to accept the Tubbs fire, increasing the prospect of major damage.
Giving bondholders a level playing field in bankruptcy led the sharp decline on Wednesday to $ 8 in prolonged talks.
Under his plan, bondholders would put $ 29.2 billion in PG&E and gain a 59% stake in the company. Almost 41% of the reorganized PG&E shares would be deposited in funds to help pay for insurance claims and the damages presented by fire victims.