PG&E Nearing Deal With Pimco, Elliott on Restructuring Plan

By Scott Deveau and Steven Church | January 15, 2020

PG&E Corp. is nearing a deal with a group of bondholders led by Pacific Investment Management Co. and Elliott Management Corp. that would entitle them to a mix of equity and new debt if they scrap their rival restructuring plan, people familiar with the matter said.

The California power giant announced a potential deal at the start of a bankruptcy court hearing on Tuesday that had been delayed twice as the two sides talked. When court began an hour late, PG&E lawyer Stephen Karotkin told the federal judge overseeing the reorganization that the company and bondholders were in “constructive negotiations.”

Karotkin didn’t provide any details about what an agreement would include. A deal hasn’t yet been struck and the talks may still break off, the people said, asking not to be identified because the talks are private.

PG&E said in a statement that it has been holding discussions with stakeholders on its reorganization and hopes “to make progress over the next week.” A representative for the bondholders didn’t immediately respond to a request for comment.

Shares of PG&E surged 7.7% to $11.92, after gaining as much as 11% during the session. Some of its longer-dated bonds also jumped, including the 5.8% unsecured notes maturing in 2037, which rose 2.5 cents on the dollar to 112.25.

A deal with bondholders would leave California Governor Gavin Newsom as the last major obstacle to PG&E’s plan for getting out of bankruptcy. The company has been trying for months to craft a proposal that would keep shareholders from being wiped out while paying $13.5 billion to wildfire victims, who blame the utility for sparking the blazes that caused their losses.

The state has set a deadline of June 30 for the utility to win court approval of its reorganization if it wants to participate in an insurance fund that would shield it from future catastrophic wildfire losses.

Under the deal being negotiated, the bondholders’ investment in the company would replace some of the exit financing that PG&E is proposing as part of its restructuring, the people said. Bonds paying less than 5% interest would be reinstated as part of the agreement being hammered out, and those above 5% would be revised to 4.75% through a mix of 10-year and 30-year bonds, they said.

One of the biggest of PG&E’s bond issues also carries one of the highest interest rates: $3 billion of unsecured notes due in 2034 that pay 6.05%.

Equity Stake

The creditors would be given the right to participate in the company’s financial backstop commitments, a move that could hand them a part of the equity financing in the deal, the people said.

The two sides were in court to make final arguments about the current bankruptcy exit plan, which would refinance the company’s $17.5 billion bond load. Much of that debt carries higher-than-market interest rates.

Bondholders claim the proposal would trigger a customary “make-whole payment” to compensate for the interest income they were promised in future years. PG&E says that being bankrupt voids any such assurances made in its debt contracts.

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

–With assistance from Mark Chediak.

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