Judge Gives PG&E A Reprieve on Chapter 11 Control -- WSJ

By Peg Brickley 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 24, 2019).

PG&E Corp. will stay in control of its bankruptcy proceeding until Sept. 29, less time than it wanted, but long enough to find out what California lawmakers will do this year about wildfire liabilities facing the state's largest utility.

The company had requested until the end of November to find a path out of chapter 11 protection, but creditors and California Gov. Gavin Newsom said the company needed a push. Wednesday's decision at a hearing in the U.S. Bankruptcy Court in San Francisco was a reprieve for PG&E, which faced a threat of being stripped of its exclusive right to propose a plan addressing more than $30 billion in wildfire damage claims.

The utility is facing pressure for action from Mr. Newsom and many of its creditors and bondholders as well as fire victims. Bankruptcy law gives companies that file for chapter 11 protection a certain amount of time, called the "exclusivity period," to propose a restructuring strategy without worrying about competing proposals from those outside the company.

Had PG&E lost its exclusive control rights Wednesday, as some creditors wanted, rivals would have been free to propose a chapter 11 plan without the company's agreement.

"That would be a fundamental crisis in confidence," PG&E lawyer Stephen Karotkin said at the hearing. Business partners would be rattled and the markets would be upset, he said, if PG&E's ability to steer its fate was called into question in bankruptcy court.

"It's the worst thing that could happen," Mr. Karotkin said.

Judge Dennis Montali said he would be reluctant to strip PG&E of control unless there was a viable alternative plan on offer. One large group of creditors -- financial institutions that want to recover insurance paid for fire damages -- signaled it might be prepared to propose a chapter 11 plan if PG&E doesn't move quickly to tackle its problems.

"If there comes a time when we are able to put forward a viable plan, we will be back before the court," said Matthew Feldman, a lawyer for the insurance group.

PG&E wanted exclusive control of its bankruptcy case until Nov. 29, arguing it needs an additional six months to get relief from California's stiff liability laws for utilities from the state legislature. An official committee that represents financial creditors said that was too much time, because PG&E should know by the end of the legislative session in September whether its lobbying efforts will succeed.

"Our thinking is that by the end of September the debtors should be well aware of what action was taken and wasn't taken," said Gregory Bray, lawyer for the financial creditors group.

If PG&E fails to negotiate a chapter 11 plan by Sep. 29, it would have to return to court and demonstrate that it has made enough progress to justify continued protection against competing restructuring proposals.

"We view the extension to the end of September as a checkpoint," Mr. Bray said.

The fight over control brought wildfire victims and many financial creditors into alignment against the company as they complained about a lack of urgency. PG&E filed for bankruptcy at the end of January.

Within months, thousands of people affected by fires in 2017 will lose insurance coverage for basic living expenses, said Cecily Dumas, a lawyer for an official panel of fire victims.

"That will be a storm of fury of people who live in Northern California, " she said.

After extending PG&E's exclusivity period, Judge Montali also approved a $100 million fund for fire victims with urgent living expense needs, a program that the victims' lawyers challenged as insufficient and of questionable motivation.

Write to Peg Brickley at [e-mail]

(END) Dow Jones Newswires

May 24, 2019 02:47 ET (06:47 GMT)

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