Law360 (April 6, 2020, 5:45 PM EDT) -- Pacific Gas and Electric Co. hit a major setback in resolving its bankruptcy when lawyers representing Northern California wildfire victims told a U.S. bankruptcy judge Monday that they could no longer support a $13.5 billion bankruptcy settlement, citing concerns with the equity-funded portion of the deal in light of the coronavirus pandemic.
Lawyers for the official committee of tort claimants, which represents the interests of fire victims in PG&E's bankruptcy cases, told the court that the parties are at an impasse and that they want to ask wildfire victims to hold off on voting on whether to confirm PG&E's bankruptcy plan.
The wildfire victims have until May 15 to vote on whether or not to confirm PG&E's bankruptcy plan.
PG&E slammed the TCC's bid, saying it is "an attempt to change the settlement it agreed to despite the fact that the agreement has the broad support of the parties and the governor's office and is the best and fastest path to getting victims paid. The TCC's effort to recut the deal puts at risk their clients' ability to be paid quickly."
Michael Carlson of Caymus Vineyards, a victim of the Atlas Fire in 2017 and member of the TCC, said in a statement Monday on behalf of the TCC that it has identified several problems "in the way PG&E has attempted to implement the settlement it reached with fire victims, and the TCC believes those problems will impact the value of the stock and eventual amount of money available for victims."
Robert A. Julian, co-counsel for the TCC, wrote in a declaration to the court Monday that the disputed issues include "the potential devaluation of the $6.75 billion of stock promised to the Fire Victim Trust" and said there is uncertainty about whether the trust will be promptly funded with stocks and cash.
The TCC says "the coronavirus worldwide tragedy is devaluing the fire victim claimants' share of PG&E's equity at an amount lower than the $6.75 billion value."
Julian said the parties also disagree on a lack of a registration rights agreement.
"These issues are critical" to how the fire victim claimants vote, and the tort claimants committee "believes that it needs to express its views publicly on the plan," Julian told the court.
The TCC is seeking permission from the court to send a letter to fire victim claimants outlining the shortfalls of the plan and asking them to withhold voting until they receive its supplemental report. The committee intends to send out the supplemental report to wildfire victims by May 1, updating them on whether the problems have been resolved.
A draft of the proposed letter to wildfire victims that was provided to the court states in bold and capitalized letters: "The TCC recommends that fire victim claimants do not vote until after victims receive the TCC's May 1 supplemental report so victims can decide how to vote then."
If PG&E's plan to exit bankruptcy is not confirmed by June 30, the utility is unlikely to qualify for a $21 billion state wildfire insurance plan created by a California statute.
PG&E filed for Chapter 11 protection in January 2019, buckling under an estimated $30 billion in potential liabilities tied to its supposed role in causing wildfires that killed 130 people and destroyed billions of dollars in property in 2017 and 2018. In December 2019, it struck a $13.5 billion deal with the tort claimants committee representing wildfire victims.
With the ballots and solicitation packages already distributed to victims, the TCC asked the court to hear their motion on an expedited basis at a scheduled hearing on Tuesday.
The TCC says its efforts to get PG&E to fix its problems with the settlement have so far been unsuccessful, and that the victims must be able to learn about the problems and whether or not PG&E has fixed them before voting.
But the TCC's bid didn't go over well with all wildfire victims. Some attorneys who support the deal are actively advocating for approving PG&E's reorganization plan.
Attorneys representing roughly 7,000 Northern California wildfire victims disagreed with the TCC's bid, saying in an opposition brief Monday that the motion is untimely and impermissible, and noting that tens of thousands of wildfire victim claimants have already voted since voting began on the first of April.
"The TCC does not speak for the majority of the wildfire victims," attorneys with Singleton Law Firm APC and Marshack Hays LLP wrote in an opposition brief Monday.
Gerald Singleton of Singleton Law told Law360 that the majority of his clients support the plan and that while it's not perfect, it's the best option available.
"If the plan fails, then, in all likelihood, we are looking at a sale of PG&E that will take several years, during which time our clients will have to wait to be paid. When that ends, there is no guarantee that they will receive the same amount," he told Law360.
PG&E stood by the settlement agreement and its reorganization plan, saying in a statement that it "is the best method for victims to receive compensation."
"The risk of the stock price fluctuating was well understood by all parties and was clearly and overtly included in the TCC's own statements to the fire victims. The current share price — notwithstanding the market disruptions associated with COVID-19 — is higher today than the average share price for the two months preceding the TCC's agreement to the RSA," it said in a statement.
"In light of current macro market conditions, we understand anxiety about the equity-funded portion of the settlement. But we disagree with the TCC's suggestion that the price of a stock on any given day is reflective of the stock's long-term value. It is also important to keep in mind that utility stocks have historically performed well during downturns and in the ensuing economic recovery," PG&E stated.
PG&E is represented by Stephen Karotkin, Ray C. Schrock, Jessica Liou and Matthew Goren of Weil Gotshal & Manges LLP, Tobias S. Keller and Jane Kim of Keller & Benvenutti LLP and Paul H. Zumbro and Kevin J. Orsini of Cravath Swaine & Moore LLP.
The bondholders are represented by Michael S. Stamer, Ira S. Dizengoff, David H. Botter, Abid Qureshi and Ashley Vinson Crawford of Akin Gump Strauss Hauer & Feld LLP.
The tort claimants are represented by Robert A. Julian, Cecily A. Dumas, Eric E. Sagerman and Lauren T. Attard of BakerHostetler.
The case is In re: PG&E Corp., case number 3:19-bk-30088, in the U.S. Bankruptcy Court for the Northern District of California.
--Editing by Adam LoBelia.
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