PG&E Corp.’s glide toward approval of its bankruptcy plan has hit new turbulence, with lawyers for fire victims clashing over whether to push for a better settlement because the risk of being compensated with stock has ballooned.
Attorneys for the official committee of fire victims in PG&E’s bankruptcy want the power company to guarantee the value of the half of the $13.5 billion settlement to be paid through new shares of stock. Otherwise, they contend the deal’s value will shrink as a result of the market downturn caused by the coronavirus pandemic.
In a court filing Monday, the lawyers asked a judge to allow them to send a letter asking victims to hold off voting on the power company’s reorganization plan until issues with settlement are resolved.
Another faction of tort claimants immediately dissented and said the victims committee doesn’t represent the majority of fire victims. Lawyers for more than half the wildfire claimants said last week that their clients plan to vote overwhelmingly in favor of the utility’s reorganization plan.
While creditors with different types of debt often fight each other in bankruptcy, it’s rare for an official creditor’s committee, such as the fire victims group known as the TCC in PG&E’s case, to split publicly with a big part of its constituency.
“The TCC’s filing is an attempt to change the settlement it agreed to despite the fact that the agreement has the broad support of the parties and the governor’s office and is the best and fastest path to getting victims paid,” PG&E said in a statement. “The TCC’s effort to re-cut the deal puts at risk their clients’ ability to be paid quickly.”
Late Monday, PG&E filed an objection to the TCC’s request. Despite the current market turmoil, the company’s share price is now higher than the average price in the two months leading up to the settlement with victims, the company argued.
The rift comes as PG&E is racing to win approval of its bankruptcy plan before a state deadline of June 30. If the company fails to win confirmation of its plan by then, it won’t be able to tap a state wildfire fund to help pay for claims from future fires.
PG&E’s Chapter 11 plan must win support from two-thirds of the wildfire victims who cast ballots. Voting began last week and concludes May 15.
The company has already won the backing of bondholders and other major groups including insurance claim holders and local government agencies through multibillion-dollar settlements. Wildfire victims are the only group that will be compensated through shares, which will be held by a trust set up to pay claims.
In Monday’s filing, wildfire victims attorneys said that last-minute changes to PG&E’s plan along with the market turmoil “present unforeseeable and significant risk that the shares of stock will not have the value necessary to match the $13.5 billion that PG&E has stated would be available to pay fire claimants.”
The victims’ attorneys said PG&E hasn’t provided key details on how and when the settlement trust can sell PG&E shares. As a result, the attorneys say PG&E has “breached” its settlement agreement.
The lawyers want to give PG&E until April 28 to fix the issues. They plan to issue supplemental materials to victims by May 1 explaining whether and how PG&E has fixed the problems.
“They are looking to see if they can get the pot sweetened,” said Jared Ellias, a bankruptcy law professor at the University of California Hastings. “They are not saying they will oppose the plan no matter what.”
–With assistance from Steven Church.
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