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PG&E Is Pushing Tax-Exempt Bond Bill for Fire Claims

Scott Deveau, Mark Chediak and Jeffrey Taylor
(Bloomberg) -- PG&E Corp. is lobbying California legislators to allow it to issue tax-exempt bonds to help pay for past and future wildfire claims, according to people familiar with the matter.The bankrupt utility is pushing lawmakers to introduce the legislation next month to allow PG&E to present its $31 billion restructuring plan by Sept. 26, after which stakeholders will be able to submit competing proposals, said the people, who asked not to be identified because the matter is private.PG&E currently intends to file its reorganization plan in August and exit bankruptcy protection in March 2020, according to documents reviewed by Bloomberg.It isn’t clear whether California Governor Gavin Newsom, Democrat, is considering such legislation, the people said. Any bill would have to clear the state’s Democratic-controlled Assembly and Senate by the end of the legislative session on Sept. 13 and then be signed by the governor by Oct. 13.Nathan Click, a spokesman for Newsom, didn’t immediately respond to requests for comment. A representative for PG&E declined to comment.PG&E shares, already down for the day, fell as much as 3.5% more on news of its lobbying for the legislation. The shares were down 4.2% to $20.50 at 2:30 p.m. in New York trading, giving the company a market value of $10.85 billion.Wildfire ClaimsUnder separate legislation approved Thursday, power companies would be able to borrow from a multibillion-dollar fund to pay for future wildfire claims. The measure would also make it easier for utilities to recover the costs from their customers if they meet new, more stringent safety standards.The bill being pushed by San Francisco-based PG&E would authorize a state entity to issue about $10 billion in tax-exempt bonds. The tax-exempt status would allow more capital to be raised more quickly, with the debt being securitized by diverting a portion of the company’s earnings over the life of the bonds, the people said.About $7 billion of the proceeds would be set aside for a $14 billion fund for claims from past wildfire victims, according to the people. Another $3 billion would be earmarked for PG&E’s contributions to the statewide fund, they said.The utility doesn’t believe legislation would be required to raise another $5 billion that would be securitized through $500 million in cost cuts at the utility, the people said.If the bill fails to pass by the September deadline, PG&E is considering raising the capital to help finance part of its reorganization through a rights offering that would allow existing shareholders to buy additional equity in the utility proportionate to their current holdings to avoid dilution, the people said. A rights offering would delay the company’s emergence from bankruptcy, the people said, adding that issuing bonds would be essential for paying wildfire claims expeditiously.Current ProposalPG&E’s proposed restructuring would be funded by $15 billion of securitizations, the issuance of $14 billion in debt and $2 billion in insurance proceeds, according to documents reviewed by Bloomberg.An ad hoc committee of the company’s senior creditors led by Pacific Investment Management Co., Elliott Management Corp. and Davidson Kempner Capital Management is developing an alternative $47.5 billion restructuring plan. That group has asked a bankruptcy judge to end the exclusivity period granted to PG&E through Sept. 26 so it can present its own plan.(Updates with share price in sixth paragraph)\--With assistance from Romy Varghese.To contact the reporters on this story: Scott Deveau in New York at sdeveau2@bloomberg.net;Mark Chediak in San Francisco at mchediak@bloomberg.netTo contact the editors responsible for this story: Liana Baker at lbaker75@bloomberg.net, ;Lynn Doan at ldoan6@bloomberg.net, Michael HythaFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

(Bloomberg) -- PG&E Corp. is lobbying California legislators to allow it to issue tax-exempt bonds to help pay for past and future wildfire claims, according to people familiar with the matter.

The bankrupt utility is pushing lawmakers to introduce the legislation next month to allow PG&E to present its $31 billion restructuring plan by Sept. 26, after which stakeholders will be able to submit competing proposals, said the people, who asked not to be identified because the matter is private.

PG&E currently intends to file its reorganization plan in August and exit bankruptcy protection in March 2020, according to documents reviewed by Bloomberg.

Any bill would need California Governor Gavin Newsom’s sign-off. Newsom, a Democrat, said in an interview on Thursday that he doesn’t support PG&E’s proposal at this time. “That’s not where we are,” Newsom said, noting that some legislators have proposed the idea.

Any bill would have to clear the state’s Democratic-controlled Assembly and Senate by the end of the legislative session on Sept. 13 and then be signed by the governor by Oct. 13.

A representative for PG&E declined to comment.

PG&E shares were down 4.4% to $20.45 at the close in New York. They dropped as much as 2.2% more in after-market trading after Newsom said he didn’t support the plan.

Wildfire Claims

Under separate legislation approved Thursday, power companies would be able to borrow from a multibillion-dollar fund to pay for future wildfire claims. The measure would also make it easier for utilities to recover the costs from their customers if they meet new, more stringent safety standards.

PG&E wouldn’t be able to tap into the fund until it settles claims with past wildfire victims and emerges from bankruptcy by June 30 of next year.

“We’re not at this stage entertaining new proposals,” said Ann O’Leary, Newsom’s chief of staff. Once PG&E starts “making serious moves to comply with this plan, sure, we’ll entertain other ways of moving forward, but we’re not presently supporting that,” she said of PG&E’s bond request.

The bill being pushed by San Francisco-based PG&E would authorize a state entity to issue about $10 billion in tax-exempt bonds. The tax-exempt status would allow more capital to be raised more quickly, with the debt being securitized by diverting a portion of the company’s earnings over the life of the bonds, the people said.

Proceeds Earmarked

About $7 billion of the proceeds would be set aside for a $14 billion fund for claims from past wildfire victims, according to the people. Another $3 billion would be earmarked for PG&E’s contributions to the statewide fund, they said.

The utility doesn’t believe legislation would be required to raise another $5 billion that would be securitized through $500 million in cost cuts at the utility, the people said.

If the bill fails to pass by the September deadline, PG&E is considering raising the capital to help finance part of its reorganization through a rights offering that would allow existing shareholders to buy additional equity in the utility proportionate to their current holdings to avoid dilution, the people said. A rights offering would delay the company’s emergence from bankruptcy, the people said, adding that issuing bonds would be essential for paying wildfire claims expeditiously.

Current Proposal

PG&E’s proposed restructuring would be funded by $15 billion of securitizations, the issuance of $14 billion in debt and $2 billion in insurance proceeds, according to documents reviewed by Bloomberg.

An ad hoc committee of the company’s senior creditors led by Pacific Investment Management Co., Elliott Management Corp. and Davidson Kempner Capital Management is developing an alternative $47.5 billion restructuring plan. That group has asked a bankruptcy judge to end the exclusivity period granted to PG&E through Sept. 26 so it can present its own plan.

(Updates with Newsom comments in the fourth paragraph.)

--With assistance from Romy Varghese and Jeffrey Taylor.

To contact the reporters on this story: Scott Deveau in New York at sdeveau2@bloomberg.net;Mark Chediak in San Francisco at mchediak@bloomberg.net;Jeffrey Taylor in San Francisco at jtaylor48@bloomberg.net

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, ;Liana Baker at lbaker75@bloomberg.net, Michael Hytha

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.