PG&E Corp. and a group of insurers urged a judge to reject a competing reorganization plan for the bankrupt utility because the proposal would pay fire victims who lost their homes ahead of insurance companies and “unjustly enrich” bondholders including Elliott Management Corp.
Under bankruptcy law, insurance companies and the victims of wildfires blamed on PG&E should be treated equally, which means they would be paid at the same time and in the same percentage, according to a statement by PG&E and a court filing by the insurers.
The company and the insurers are fighting to protect their $11 billion reorganization deal that would bring PG&E out of bankruptcy while preserving value for current shareholders. The competing proposal by bondholders and a committee of fire victims suing PG&E would split ownership of the company between them and wipe out current shareholders.
The structure of the bondholder/fire victims plan violates bankruptcy rules and should be rejected, PG&E and the insurance companies said.
“The law requires that all claims of the same priority be treated equally,” PG&E said in the statement Monday. “The Elliott Proposal would improperly pay one creditor group (individual fire claimants) ahead of another (the insurers who paid individuals billions of dollars following the 2017 and 2018 wildfires to help them recover and rebuild).”
PG&E also argued that the bondholder proposal would violate a California law that requires satisfaction in full of all wildfire claims.
Bondholders and fire victims have launched similar attacks on PG&E’s plans. Next month, U.S. Bankruptcy Judge Dennis Montali is scheduled to decide whether to cancel the utility’s exclusive right to reorganize itself and allow the bondholders and fire victims to put forward their proposal.
PG&E filed bankruptcy in January saying it needed to restructure in order to pay fire claims that may coast as much as $30 billion. The company has insisted it can pay the fire claims without wiping out shareholders. Under the so-called absolute priority rule of the bankruptcy code, which both sides of the debate have cited, fire victims and other unsecured creditors must be paid in full before shareholders can recover anything.
Lawyers for the bondholders and fire victims did not immediately respond to a request for comment.
The case is PG&E Corp., 19-bk-30088, U.S. Bankruptcy Court Northern District of California (San Francisco)
–With assistance from Jeremy Hill and Nick Lichtenberg.