A judge turned the PG&E Corp. takeover fight into a free-for-all Wednesday, ruling that Wall Street hedge funds trying to seize control of the troubled California utility can begin pressing their case right away.
In a major setback for Pacific Gas and Electric Co. and its parent, U.S. Bankruptcy Court Judge Dennis Montali said the utility’s bondholders can start selling their corporate reorganization plan in direct competition with the company itself.
The ruling came the same day PG&E came under intense criticism for launching a blackout covering more than 500,000 customers as high winds blanketed much of Northern California. The utility called the power outage a defensive move to prevent more fires.
Until now, PG&E had the exclusive right until the end of November to forge ahead with its reorganization plan. But Montali was persuaded by the bondholders’ recent alliance with lawyers for tens of thousands of Northern California wildfire victims.
The bondholders have offered victims of the 2017 wine country fires and last November’s Camp Fire about $14.5 billion for damages not covered by insurance. That’s about $6 billion more than PG&E offered the fire victims. Both sides have agreed to pay insurance companies $11 billion for the settlements they’ve made with policyholders.
The partnership with the fire victims, who are sympathetic players in the PG&E drama, gives the bondholders a major advantage.
Montali, at a lengthy hearing Monday, seemed reluctant to allow the bondholders to move ahead with their plan, saying the fight could lead to extensive litigation that could delay payments to fire victims. But he decided ultimately that he wouldn’t “second-guess the informed decision” of the bondholders and fire victims’ lawyers to team up.
Time is critical in the PG&E bankruptcy. The company has until next June 30 to exit bankruptcy to be able to participate in an insurance fund created by the Legislature to cushion utilities against liabilities from future mega-fires.
The company had argued that it couldn’t match the bondholders’ offer to fire victims without seeing solid evidence of the size of the damages. It added that, under bankruptcy law, it couldn’t risk over-paying the fire victims at the expense of another group of creditors: its own shareholders. It also accused the bondholders, led by hedge fund Elliott Management, of trying to grab the company on the cheap.
The bondholders and fire victims, however, said PG&E was simply trying to protect its shareholders at all costs. If the bondholders succeed, they would control the company and wipe out the investments of current shareholders.
PG&E said of Montali’s ruling: “We are disappointed that the Bankruptcy Court has opened the door to consideration of a plan designed to unjustly enrich Elliott and the other ad hoc bondholders and seize control of PG&E at a substantial discount. We are confident that our fully funded Plan of Reorganization, which will satisfy all wildfire claims in full while treating all stakeholders fairly and protecting customers, is the better solution for all constituencies and will be confirmed.”