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Saddled in Debt and Reeling from Wildfires, PG&E Announces Intent to File Chapter 11

January 16, 2019, 08:00 AM
Filed Under: Energy

In what commentators are saying would be one of the biggest Chapter 11 filings in U.S. history, energy giant Pacific Gas & Electric (PG&E) announced its intent to file petitions to reorganize under Chapter 11 of the U.S. Bankruptcy Code on or about January 29, 2019.

PG&E has engaged in discussions with potential lenders with respect to Debtor-in-Possession (DIP) financing. PG&E expects to have approximately $5.5 billion of committed DIP financing at the time it files for relief under Chapter 11 on or about January 29, 2019, and has received highly confident letters from a number of major banks. The DIP financing will provide PG&E with sufficient liquidity to fund the Company’s ongoing operations, including its ability to provide safe service to customers.

Saddled under $9 billion in debt obligations, Richard C. Kelly, Chair of the Board of Directors of PG&E Corporation, said the company made the decision "following a comprehensive review with the assistance of our outside advisors."

"The PG&E Board and management team have determined that initiating a Chapter 11 reorganization for both the Utility and PG&E Corporation represents the only viable option to address the Company’s responsibilities to its stakeholders. Our goal will be to work collaboratively to fairly balance the interests of our many constituents—including wildfire victims, customers, employees, creditors, shareholders, the financial community and business partners—while creating a sustainable foundation for the delivery of safe service to our customers in the years ahead," he said. "The Chapter 11 process allows us to work with these many constituents in one court-supervised forum to comprehensively address our potential liabilities and to implement appropriate changes."

PG&E expects that the Chapter 11 process will, among other things, support the orderly, fair and expeditious resolution of its potential liabilities resulting from the 2017 and 2018 Northern California wildfires, and will assure the Company has access to the capital and resources it needs to continue to provide safe service to customers.

The Company does not expect any impact to electric or natural gas service for its customers as a result of the Chapter 11 process. PG&E remains committed to assisting the communities affected by wildfires in Northern California, and its restoration and rebuilding efforts will continue. The Company also expects that its employees will continue to receive their pay and healthcare benefits as usual.

The Company expects that the Chapter 11 process will, among other things:

  • Enable continued safe delivery of natural gas and electric service to PG&E’s millions of customers;
  • Support the orderly, fair and expeditious resolution of PG&E’s potential liabilities resulting from the 2017 and 2018 Northern California wildfires;
  • Enable PG&E to continue its extensive restoration and rebuilding efforts to assist communities affected by the 2017 and 2018 wildfires in Northern California;
  • Allow the Company to work with regulators and policymakers to determine the most effective way for customers to receive safe natural gas and electric service for the long-term in an environment that continues to be challenged by climate change; and
  • Assure the Company has access to the capital and resources necessary to support ongoing operations and enable PG&E to continue investing in its systems, infrastructure and critical safety efforts, including investing in its Community Wildfire Safety Program, an additional precautionary safety measure implemented following the 2017 Northern California wildfires to further reduce wildfire risk.

As a result of the announcement Moody's Investors Service downgraded the ratings of Pacific Gas & Electric Company and its holding company, PG&E Corporation, including the Corporate Family Rating (CFR) to Caa3 from Ba3 and Probability of Default Rating to Ca-PD from B1-PD. Moody's also downgraded PG&E's senior unsecured rating to Caa3 from Ba3, PCG's senior unsecured rating to C from B2 and the Speculative Grade Liquidity Rating to SGL-4 from SGL-3. The rating outlook is negative. This rating action concludes the review for downgrade initiated on November 15, 2018.

"The rating downgrade is prompted by the very high likelihood of a bankruptcy filing by PG&E and its parent company following the announcement that they expect to make such a filing on or about 29 January," said VP-Senior Credit Officer, Jeff Cassella. "Management has indicated that they believe the Chapter 11 process is the only viable option to resolve potentially substantial wildfire liabilities, rebuild and invest in its existing system, and maintain access to sufficient financial and liquidity sources," added Cassella.

Weil, Gotshal & Manges LLP and Cravath, Swaine & Moore LLP are serving as the Company’s legal counsel, Lazard is serving as its investment banker, and AlixPartners LLP is serving as the restructuring advisor to PG&E.

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