Court OKs PG&E’s bankruptcy financing

Pacific Gas & Electric has won court approval to raise $23 billion to help pay its bills over destructive California wildfires after Gov. Gavin Newsom dropped his opposition to a financing package designed to help the nation’s largest utility get out of bankruptcy.

The milestone reached Monday, during an unusual court hearing held by phone, moves PG&E closer to its goal of emerging from one of the nation’s most complex bankruptcy cases by June 30.

Newsom has said he fears that P&E is taking on too much debt to be able to afford an estimated $40 billion in equipment upgrades needed to reduce the chances of its electricity grid igniting destructive wildfires in the future.

The utility’s outdated system has been blamed for catastrophic wildfires in 2017 and 2018 that killed so many people and burned so many homes and businesses that the company had to file for bankruptcy early last year.

But the recent volatility in the financial markets caused by the coronavirus pandemic apparently softened Newsom’s stance after PG&E lined up commitments from investors promising to buy up to $12 billion in stock.

Those guarantees are looming larger, given the turmoil that has caused the benchmark Standard & Poor’s 500 index to plunge by roughly 25% during the past three weeks. PG&E’s stock has been hit even harder, with shares losing nearly half their

value during the same stretch. Markets rebounded somewhat Tuesday, with PG&E closing up 3% at $9.22.

PG&E lawyer Paul Zumbro told U.S. Bankruptcy Judge Dennis Montali that the commitments are “critically important.” A representative for Newsom said the governor agreed.

Newsom has unusual leverage over PG&E because the company also needs state approval of its bankruptcy plan to qualify for coverage from a wildfire insurance fund that California created last summer.

The governor’s office didn’t immediately respond to requests for comment about Newsom’s change of heart on PG&E’s financing package or other aspects of his talks with the company.

Among other demands that still haven’t been addressed, Newsom wants PG&E to replace its entire 14member of board of directors to help ensure that the utility is better managed. The company so far has promised to reshuffle its board but has resisted sweeping out all the directors, including CEO Bill Johnson.

Newsom has intensified his focus on the coronavirus outbreak during the past two weeks as the situation worsened in California, but that doesn’t mean the Democratic governor isn’t keeping a close watch on PG&E, said Jared Ellias, a UC Hastings professor who has been tracking the case.

“The longterm health of PG&E has to remain a top priority, because God forbid if this coronavirus remains a problem heading into wildfire season this summer,” Ellias said.

Besides issuing more stock, PG&E and its parent company will take on as much as $11 billion in additional debt while refinancing billions in existing loans.

PG&E needs the cash to pay off $25.5 billion in claims as part of settlements reached with wildfire victims, insurers and government agencies.

Montali conceded that the nuances of PG&E’s financing package are “beyond my understanding“and put his faith in the parties who put it together that it’s now the best option available.

The hearing had to be held by phone because the courthouse was closed to try to help limit the spread of the coronavirus.