PG&E Settlement and Voting Information
Thursday May 28, 2020 — PG&E filed for voluntary Chapter 11 bankruptcy to restructure its finances and resolve the company’s extensive wildfire liabilities.
On December 6, 2019, attorneys representing fire survivors in the bankruptcy case reached a settlement with PG&E, known as the Restructuring Support Agreement (or “RSA”).
Under the agreement, PG&E must fund a Fire Victim Trust with $6.75 billion in cash and $6.75 billion in PG&E stock, for a total settlement of $13.5 billion.
Fire survivors who filed claims may now vote on whether to accept or reject PG&E’s Chapter 11 reorganization plan, which incorporates this settlement.
The voting period remains open through May 15, 2020 at 4pm PDT.
Before You Vote – Important Update
Since the time of the RSA, PG&E has made material changes to its financing structure that could threaten the value of the fire victims’ $13.5 billion settlement.
The Official Committee of Tort Claimants (TCC), which represents the interests of all wildfire survivors in the bankruptcy proceedings, outlined various concerns in an April 6, 2020 filing with the court. [Docket No. 6636]
In its motion, the TCC sought approval of a supplemental disclosure to inform fire victims about certain risks and deficiencies in PG&E’s reorganization plan ahead of the voting deadline, including the following:
- Funding date. The RSA requires that PG&E transfer cash and stock to the Fire Victim Trust before August 29, 2020. To date, PG&E has not provided any commitment that it will fund the Trust with cash and stock by that time. In fact, PG&E has indicated that it might not fund the Trust until as late as December 31, 2020, significantly delaying payments to fire victims and exposing the Trust to the risk of additional PG&E wildfires in the Fall of 2020.
- Ability to pay cash. PG&E’s financial ability to fund the cash portion of the settlement remains uncertain. Under the RSA, PG&E must fund $5.4 billion in cash payable on August 29, 2020, an additional $650 million on January 15, 2021, and $700 million on January 15, 2022. Although the voting deadline is quickly approaching, PG&E has still not given assurance that it has adequate capitalization or the ability to pay these cash installments to the Trust.
- Stock value. The formula used to calculate the value of the fire victims’ stock is susceptible to market conditions, including the coronavirus downturn. There is no guarantee that the stock portion of the settlement will have $6.75 billion of value at the time the Trust liquidates its shares to pay wildfire claims.
- Less equity. PG&E reduced the amount of new equity it originally intended to issue to support its reorganization plan from $12 billion down to $9 billion.
- More debt. At the same time, PG&E increased its total debt load by $3.7 billion since the time of the RSA in December 2019.
- Higher risk. With less equity and more debt, PG&E will be highly leveraged upon emergence from bankruptcy, creating significant risk to the value of PG&E’s stock, the company’s ability to pay fire victims, and the overall financial structure underlying its reorganization plan.
- Shareholder rights. Further, the RSA requires that PG&E enter into a registration rights agreement. This agreement would govern when the Fire Victim Trust and other shareholders may sell their PG&E stock. The purpose of the agreement is to protect against hedge funds and other institutional investors that might dump their PG&E stock before the Fire Victim Trust is permitted to sell its shares, driving down the stock price. Again, PG&E has not agreed to any registration rights that would safeguard the value of stock to the Fire Victim Trust.
- CPUC fines. Finally, PG&E filed an appeal arguing that $200 million in CPUC fines assessed against the company be paid from the Fire Victim Trust, potentially devaluing the fire victims’ settlement even further.
- Comply with the agreement. The RSA requires that the parties negotiate in good faith to carry out the original intent of the settlement, i.e., to fund the Fire Victim Trust with cash and stock valued at $13.5 billion by August 29, 2020.
Accordingly, the TCC’s motion recommends that fire victims withhold their votes until May 1, 2020 pending further negotiations with PG&E and an additional disclosure detailing the final settlement terms.
Multiple parties filed joinders in support of the TCC’s motion for a supplemental disclosure to fire victims, stating:
- “The supplemental disclosure is necessary because the promises made by PG&E to fire victims in its Disclosure Statement are not secure and may well be illusory. PG&E is already angling to make its first cash deposit in December, not August, of this year. PG&E will transfer less than $6.75 billion in stock to the fire victim trust, and the stock’s value will not be protected from early sale by institutional investors or unforeseen market conditions brought on by the coronavirus.” [Docket No. 6656]
- “Without such a supplemental notice, the fire victims are again placed in the untenable position of having to vote on the Debtors’ plan before there has been a complete disclosure of all of the facts that bear on that decision and that are necessary to permit those claimants to make an informed decision. Fire victims should know that critical issues related to the value of the trust that will be their sole recourse are unsettled and in dispute.” [Docket No. 6657]
- “There has been a concerted effort from some parties to push for early voting before supplemental disclosures and other relevant information is brought to light.” [Docket No. 6659]
- “Tens of thousands of claimants injured by PG&E will be deciding how to cast their vote on the Debtors’ proposed plan of reorganization. [We] believe that those creditors should be entitled to full, accurate, and truthful information about the plan on which they are being asked to vote.” [Docket No. 6667]
While the judge denied the motion for a court-approved supplement to fire victims, the TCC’s proposed letter is publicly available, and attorneys must ensure their clients have sufficient facts to make a meaningful and informed voting decision.
Consult Your Attorney
If you are represented by counsel, please consult your attorney about the risks and benefits of the PG&E settlement, the current status of negotiations, and the voting process.
Be aware that the bankruptcy court will not tabulate votes on PG&E’s reorganization plan until May 15, 2020, and you may change your vote at any time until the voting period expires.
Most importantly, you are not obligated to “vote early” before final negotiations on the terms of the settlement have concluded.