California Wildfires Ignite Innovative Utility Company Restructuring
Between 2017-2018 Pacific Gas & Electric’s (PG&E) equipment sparked the most devastating wildfires the state of California had ever seen. Saddled with more than $30 billion in liabilities, PG&E filed for bankruptcy in 2019. Akin Gump’s clients were prepared to provide financing to cover this entire amount, though this was ultimately unnecessary. More than 70,000 wildfire victims, California Governor Gavin Newsom and bondholders eagerly awaited a swift resolution to state’s largest-ever restructuring case. Pressure mounted as PG&E sought to make a deal that would not only compensate victims and insurance companies fairly but also commit billions to critical wildfire prevention and safety improvements.
Early Restructuring Plans Fall Flat
For PG&E, time was running out. Governor Newsom even declared that if a deal could not be reached by June 30, 2020, the utility would be left out of a crucial state-sponsored wildfire insurance fund. Though PG&E retained the exclusive right to develop a restructuring plan, it was clear the company lacked an exit strategy with enough funds for victims and insurers. That’s when Akin Gump and PG&E bondholders stepped in with an alternative plan to get all parties working together toward the best-possible economic solution.
Bondholders Get Creative
In representing holders of $10 billion in PG&E debt, Akin Gump spearheaded a proposal for a competing plan of reorganization. The proposed ad hoc committee plan featured our clients investing $30 billion in PG&E to ensure its successful exit from bankruptcy and subsequent eligibility for the wildfire fund. The push to terminate PG&E’s exclusive control over its reorganization plan and file a competing plan was an unusual and risky move. PG&E and stockholders were adamantly opposed. Though the judge denied the first petition, the team was undeterred.
Collaboration Gets Results
Akin Gump and the ad hoc committee regrouped and initiated a rare inter-creditor settlement between the ad hoc committee and the official wildfire victims committee. As part of the proposed $30 billion offer of committed financing, the wildfire claimants agreed to accept a $24 billion settlement in cash and company stock.
Advocating for Victims and the Environment
Armed with approval from the victims, and the governor having voiced support for a competitive process, Akin Gump argued before the judge a second time and won. While the ad hoc committee’s plan was not ultimately confirmed, the introduction of a competitive plan process marked a turning point in the negotiations. PG&E eventually reached a global settlement with the victims and the bondholders. The settlement allowed the bondholders to regain favorable treatment of their unsecured notes, despite earlier plans by PG&E to retire the notes at a significantly lower contract rate. Within a record 18 months, and without a day to spare, the court confirmed PG&E’s reorganization plan on June 20, 2020. With eligibility secured to participate in the wildfire fund, PG&E is positioned to embark on an ambitious plan to ensure a safer and environmentally responsible energy infrastructure.