PCG PG&E Corporation

By Peg Brickley 

The judge presiding over the bankruptcy of PG&E Corp. is worried that another year of wildfires could upend the utility's efforts to pull out of massive financial and legal trouble.

Judge Dennis Montali cited the possibility that blazes this year, with PG&E under chapter 11 protection, could tip the utility into default on the $5.5 billion bankruptcy loan he has been asked to approve.

"There's an elephant in the room here. We all know there could be 2019 wildfires," Judge Montali said at a hearing in U.S. Bankruptcy Court in San Francisco where PG&E and its lenders are seeking approval of the loan.

Led by JPMorgan Chase & Co., lenders have offered concessions, but approval of the loan has been held in limbo while wildfire claimants examine the revised financing deal. If an official committee representing people with damages from the fires agrees to drop its objections, the loan will be approved. If the committee rejects the compromise deal, Judge Montali said, he will decide whether to approve the loan over its objection.

California's largest utility, PG&E filed for chapter 11 bankruptcy protection at the end of January, launching an effort to resolve an estimated $30 billion worth of damage claims from earlier fires. If the fires return this year, the damages would be top-priority debts, because PG&E, in bankruptcy, must pay all its current bills.

"There could be an astronomical claim," the judge said. A big 2019 wildfire damage claim could give lenders power over the affairs of a utility that supplies power to millions of Californians, due to provisions that govern remedies for defaults.

The prospect that this year could see a continuation of the deadly blazes has haunted the utility. Wildfires in 2015, 2017 and 2018 triggered the bankruptcy. Fires this year could be big enough to tip the bankruptcy loan into default, with uncertain consequences for PG&E and its efforts to stabilize, Judge Montali said.

The company and its lenders have pushed for approval of the financing and said the default provisions are standard for loans to problem companies. Judge Montali pushed back, concerned that the risk of default is real, and lender remedies could be too strong.

Lawyers for people with wildfire-damage claims have said the bankruptcy loan gives lenders too much control over PG&E's future, especially if something goes wrong.

Judge Montali, a bankruptcy judge, cited a second high-level risk to PG&E's case: Judge William Alsup, the federal judge is overseeing the company's criminal probation safety violations. A U.S. district court judge appointed under Article III of the U.S. Constitution, Judge Alsup has been critical of PG&E's safety record. He has the power to take PG&E's chapter 11 case away from the bankruptcy judge, oust management and put the company in the hands of a trustee.

Under terms of the bankruptcy loan, appointment of a trustee is a default.

"We have an Article III judge that feels very strongly about what this utility is up to," Judge Montali said. "What if he decides, 'I don't like management, I am going to order the appointment of a trustee, instantly'?"

In early April Judge Alsup is scheduled to review PG&E's conditions of probation on a felony conviction for safety lapses. Earlier this year, he found the company has violated its probation.

In an effort to win support from the official committee of wildfire victims and get approval from the judge, lenders agreed to give PG&E more time to refinance the bankruptcy loan, if a default is declared.

Bankruptcy lending is big business. and PG&E's loan is one of the largest ever made. The bankruptcy financing is being made to an essential utility that has a large cushion of unencumbered collateral -- at least $70 billion. That cushion means the risks for lenders are relatively low, and opportunities for Wall Street investors to trade are great.

"People are going to be making money left and right," said Cecily Dumas, lawyer from an official committee of wildfire victims, in court Wednesday.

She urged PG&E to allot funding to the northern California city of Paradise, which was destroyed in the 2018 fires.

"Even the capital markets would appreciate the debtor making the gesture of housing and sheltering these people," she said.

The company has said it is going to provide a housing fund for wildfire victims but has not disclosed details about when and how much money will be set aside.

PG&E filed for chapter 11 protection not long after agreeing to settlements with victims of the 2015 fire. Those people may have to wait years, and collect reduced settlements, because of the bankruptcy. The amount at stake in the settlements is about $15 million, which is a small fraction of the bankruptcy loan, according to Christopher Hawkins, lawyer for some of the claimants.

"Help them get on with rebuilding their lives," Mr. Hawkins urged.

Write to Peg Brickley at peg.brickley@wsj.com

(END) Dow Jones Newswires

March 13, 2019 17:58 ET (21:58 GMT)

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