PG&E judge signals he would approve $11B settlement with insurers

A tentative ruling on a key piece of PG&E Corp.’s restructuring strategy could help California’s largest utility move toward a deal that would end its bankruptcy.

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Judge Dennis Montali on Tuesday issued preliminary rulings on objections to PG&E’s $11 billion settlement with insurance companies that covered damage claims from catastrophic wildfires that drove the utility to bankruptcy.

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The settlement is slated for formal review in December in the U.S. Bankruptcy Court in San Francisco, where Judge Montali is presiding over the utility’s bankruptcy, which is among the largest U.S. corporate chapter 11 cases ever based on assets.

Outside of court, negotiations continue about a revised chapter 11 exit plan for PG&E, which is trying to fend off a bankruptcy takeover by bondholders led by Elliott Management Corp. The San Francisco company is trying to match a $13.5 billion offer bondholders made to wildfire victims as part of a competing chapter 11 plan. PG&E’s current plan provides $8.4 billion to fire victims.

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The settlement Judge Montali addressed Tuesday was reached in September, when PG&E came to terms with insurers and hedge funds, chiefly the Baupost Group, that bought insurance claims. The insurance pact triggered objections from fire victims, because of a provision that insurers will get cash, which is in short supply.

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PG&E is trying to scrape up financing for the new chapter 11 strategy that would pay more to fire victims and doesn’t have much cash to spare.

If insurers and hedge funds that bought insurance claims vacuum up all the cash, PG&E will have to pay fire victims with stock, which is riskier currency than ready money, lawyers for fire victims have said.

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On Tuesday, Judge Montali left open the question of whether it is fair for insurance companies to get cash, depleting PG&E’s coffers, as part of the settlement.

The cash payment element is a question to be decided at confirmation of the chapter 11 workout plan that ultimately makes it through the court, the judge said.

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Robert Julian, a lawyer for the fire victims, said Wednesday that if insurance creditors continue to insist on cash, they will face a contest at confirmation over whether it is fair and equitable for PG&E to give better treatment to corporate and hedge fund creditors than it is offering to people who lost loved ones or homes in fires linked to the utility’s equipment.

Fire victims have already filed a lawsuit seeking a determination that insurance creditors should take a back seat to fire victims in the bankruptcy case, Mr. Julian noted.