Is PG&E Making Promises It Can Keep?

In a statement issued late Wednesday, PG&E Corp. (NYSE: PCG) announced that it had reached an agreement with a bondholder group that had threatened to derail the utility’s bankruptcy. The so-called Ad Hoc Noteholder Committee has agreed to withdraw its alternative plan for PG&E’s reorganization and to throw its support to the company reorganization plan announced last month.

That leaves California Governor Gavin Newsom as the remaining holdout challenging the company’s reorganization plan that calls for payments totaling $13.5 billion to victims of 2017 and 2018 wildfires caused by faulty PG&E equipment and $11 billion to settle claims from insurers.

The Ad Hoc committee including bond giant Pimco and activist hedge fund Elliott Management among its members. The group has now agreed to a deal on how to treat PG&E debt existing prior to the bankruptcy filing in January 2019.

According to PG&E’s announcement, the company will issue new notes that satisfy “existing high-coupon, long-dated senior notes, senior notes with near-term maturities, and funded bank debt” and reinstate all other senior notes and pay customary debt placement fees and reimbursements.

In a Wednesday filing with the bankruptcy court, Governor Newsom reiterated his previous objections to the company’s plan. His objections are related to PG&E’s failure to comply with the requirements of Assembly Bill 1054 that established a Wildfire Fund that limits liability for participating utilities provided that a utility meet the requirement by June 30 of this year.

PG&E’s plan to meet the requirements of AB 1054 “must be materially amended to incorporate necessary changes to the governance and management provisions, enforcement mechanisms and proposed capital structure to allow the necessary transformation of the Utility.”

This is the crux of Newsom’s argument: “The Debtors’ Plan continues to rely on substantial debt at the holding company, secured debt, and expensive short-term bridge financing—all issues the Governor specifically referenced in the December 13 Letter— and that taken together, leave the reorganized entity with insufficient financial flexibility to make billions of dollars in critically needed safety investments.”

Newsom again raises the issue of a state takeover of PG&E, saying that he is “pursuing strategies” that protect the state’s interests “through further intervention, including a state takeover of the Utility.”

In early trading Thursday, PG&E stock has more than made up for its 5.2% Wednesday loss by adding about 6% to trade at $13.30, in a 52-week range of $3.55 to $25.19.