Brown and Out: PG&E Bankruptcy Expected to Have Impacts in California and Beyond
On January 14, 2019, facing “billions of dollars in liability claims from two years of deadly wildfires,”[i] PG&E Corporation and its regulated utility subsidiary, Pacific Gas and Electric Company, reported that they expect to file petitions under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern District of California on or about January 29, 2019. It is rare for a debtor to telegraph its filing so clearly in advance of the petition date, but a recently enacted California law required a 15-day advance notice period before the filing.
The PG&E bankruptcy raises the specter of political, economic, and even environmental disputes in a bankruptcy case that could last for two years or more.[ii] To meet its liquidity needs during what promises to be a contentious and protracted case, PG&E has entered into a commitment letter for debtor-in-possession financing with JPMorgan Chase Bank, N.A., Bank of America, N.A., Barclays Bank PLC and Citigroup Global Markets Inc. pursuant to which the DIP lenders committed to provide $5.5 billion debtor-in-possession financing, which is comprised of a $3.5 billion revolving credit facility, a $1.5 billion term loan facility, and a delayed draw term loan facility of $500 million. PG&E expects the final hearing to approve the DIP financing to occur within 30 to 45 days after the petition date and believes that, if approved, “the DIP financing will provide it with sufficient liquidity to fund its ongoing operations, including its ability to provide safe service to customers during the Chapter 11 cases.”[iii]
With liabilities from the wildfires reportedly as high as $30 billion, the bankruptcy will certainly have significant if not devastating impacts on the company’s bondholders and shareholders. But with limited options to close the gap between its available assets and its sprawling liabilities, many analysts believe that customers could bear the brunt of the bankruptcy in the form of higher rates. And not for the first time: as one commentator has observed, “PG&E’s 2001 bankruptcy ended in 2003 with a settlement that allowed the utility to pass on about $7 billion in costs on to its customers through increased rates.”[iv]
Finally, observes have also identified at least one truly novel aspect of PG&E’s bankruptcy filing. Just days after PG&E’s announcement, the Wall Street Journal mused that “PG&E Corp.’s bankruptcy could mark a business milestone: the first major corporate casualty of climate change. Few people expect it will be the last.”[v] Among other things, the value of PG&E’s assets will be impacted not only by their long term viability in a changing climate, but also their compliance with California state environmental standards, which are among the most stringent in the nation. In short, “[t]he PG&E bankruptcy could be a wake-up call for corporations, forcing them to expand how they think about climate-related risks.”
[i] “PG&E Bankruptcy Tests Who Will Pay for California Wildfires,” New York Times, January 14, 2019. Available at: https://www.nytimes.com/2019/01/14/business/energy-environment/pge-bankruptcy-california.html (last viewed on January 24, 2019). See also “PG&E Bankruptcy Could Deal Blow to Its Solar-Power Suppliers’ Finances, New York Times, January 17, 2019. Available at: https://www.nytimes.com/2019/01/17/business/pge-bankruptcy-solar-power.html (last viewed on January 24, 2019).
[ii] PG&E Corporation Current Report, Form 8-K, available at: https://www.sec.gov/Archives/edgar/data/75488/000095015719000075/form8-k.htm (last viewed on January 24, 2019).
[iv] “The Big Questions Raised by PG&E’s Coming Bankruptcy,” Green Tech Media, January 16, 2019. Available at: https://www.greentechmedia.com/articles/read/pge-questions-coming-bankruptcy#gs.t9DKm8GO (last viewed on January 24, 2019).
[v] “PG&E: The First Climate-Change Bankruptcy, Probably Not the Last,” Wall Street Journal, January 18, 2019. Available at: https://www.wsj.com/articles/pg-e-wildfires-and-the-first-climate-change-bankruptcy-11547820006 (last viewed on January 24, 2019).