Two investment funds with stakes in Pacific Gas & Electric proposed a $15-billion backstop funding plan they said would allow the company to emerge from bankruptcy in time to access a newly created wildfire fund.
The firms, Abrams Capital Management and Knighthead Capital Management, said they partnered on a proposal to provide capital commitments in support of PG&E’s reorganization plan. They laid out the plan in an Aug. 7 letter to Nora Mead Brownell, chair of the board of PG&E Corp., also filed with the U.S. Securities and Exchange Commission.
“At the most basic level, we are motivated by a desire to provide a clear pathway for the company to raise needed capital in a fair, efficient and transparent manner so that it can satisfy all of its obligations quickly and responsibly,” says the letter from two of the firms’ executives.
PG&E has a material need for new funding because of wildfire liability and capital obligations, the firms said, and funding must be made available quickly to meet the June 2020 deadline for PG&E to file its bankruptcy plan if it is to be able to access a new wildfire fund, a deadline laid out in the AB 1054 legislation.
The plan competes with a separate $30-billion financing proposal filed by PG&E bondholders. But the investment firms argued that “unlike the unsolicited proposal proffered by the ad-hoc group of creditors, our proposed construct would not seek to undervalue the company, subvert the bankruptcy process or disadvantage one group of financial stakeholders to benefit another.” The firms said they believe PG&E has indicated it is open to proposals from existing equity holders and alleged their proposal does not limit participation to one small group of investors in favor of others.
The plan would meet the goals laid out in PG&E’s bankruptcy plan, the letter says, including: payment in full or reinstatement of all pre-petition debt obligations; payment of all pre-petition trade and employee-related claims; satisfaction of all pre-petition wildfire claims in amounts approved by the court; payment of post-petition interest on all unsecured pre-petition claims; assumption of all collective bargaining agreements; participation in the wildfire fund; and assumption of all power-purchase agreements and community choice aggregation servicing agreements.
The last point is key because $42 billion of PPAs that PG&E signed were put into question by the bankruptcy.
Abrams Capital Management and Knighthead Capital Management also said their plan would be neutral toward ratepayers.
The backstop commitments propose funding new equity at a level about 11 times larger than the utility’s fully diluted 2021 earnings, the firms said. Aside from helping with the reorganization, it would also allow PG&E to pursue utility investors and more traditional financing, they said.