PG&E Corp.’s plan to pay $11 billion to fire insurers is under attack from both California Governor Gavin Newsom and wildfire victims.
Newsom said California may pursue its own proposal to reorganize the company in a court filing on Nov. 9. Newsom threatened last week to take over PG&E’s restructuring if two warring groups can’t come to terms on how to reorganize the bankrupt utility.
A group of fire victims lodged a lawsuit against the San Francisco-based company insisting they get paid before insurers, according to the filing. Under California law, wildfire victims must be “made-whole” before insurers can collect on that settlement.
The filings come at a pivotal moment for PG&E. The utility is battling to keep its reorganization plan — based in part on the insurance settlement—alive in court while also participating in mandatory, confidential mediation with fire victims and noteholders. Since declaring bankruptcy in January, PG&E and its shareholders have battled fire victims and noteholders for control of the company.
In his court filing, Newsom said PG&E’s deal with insurers is nothing more than “legal maneuvering by parties apparently more focused on securing procedural advantages for their own pecuniary interests than on reaching a fair and expeditious resolution of this bankruptcy.”
The lawsuit filed by fire victims may upend PG&E’s deal with a coalition of insurers that includes Seth Klarman’s Baupost Group LLC. In a filing Monday, the group said opposition to the deal “is nothing more than a ‘smoke screen’ and is not a basis to deny the motion or delay its consideration.”
If U.S. Bankruptcy Judge Dennis Montali gives Newsom permission to propose his own plan, it would mean three different groups are pushing their own proposals to bring PG&E out from under court supervision.
PG&E’s plan is backed by shareholders and built on two settlement proposals: the $11 billion deal to pay insurers and a $1 billion payment to local, California governments.
That plan is opposed by wildfire victims and noteholders, including Pacific Investment Management Co. and Elliott Management Corp. Pimco and Elliott proposed a plan, backed by a committee of fire victims, that strips shareholders of almost all of their holdings and gives ownership to creditors. It is built on a proposal to pay fire victims and insurers $25.5 billion, more than PG&E has offered.
Both plans assume PG&E is solvent and therefore able to pay all debts in full before shareholders get to collect anything. Should PG&E actually turn out to be insolvent, shareholders would likely get nothing and the fire insurers $11 billion payout may shrink if the fire victims win their subordination lawsuit.
These disputes and other key legal fights are likely to be the focus of the court-ordered mediation process.
PG&E will be in court Nov. 13 to discuss a schedule for Montali to consider approving the insurance deal and other parts of the company’s reorganization plan.