Victims of the California wildfires linked to Pacific Gas and Electric Company face an uncertain future both personally and financially as the types of payouts from PG&E remain unclear.
Late Monday, PG&E revised its payout to $13.5 billion to victims of the wildfires, according to Bloomberg. While insurance companies and hedge funds will receive $11 billion for subrogation claims, these claims are made by an insurance company when it pays for damage from a fire in your house, for example, before recouping the money from the responsible party.
In addition, the state has promised $1 billion in cash to cities and towns such as Napa and Paradise that were burned in the wildfires.
The higher offer followed a weekend court filing from California Gov. Gavin Newsom, who raised concerns about PG&E's proposed deal with insurance creditors and said the state would present its own resolution if the utility is unable to garner wide support for its own plan.
The San Francisco-based power company, which filed for Chapter 11 bankruptcy protection because of liabilities stemming from deadly wildfires in northern California in 2017 and 2018, has an enterprise value, or market value plus debt, of about $25.5 billion, meaning that is all it can pay out in bankruptcy.
Shares of the company have tumbled 55 percent since its Jan. 29 bankruptcy filing.
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Another scenario would offer victims a combination of cash and stock in the new company.
"Our thinking on that is taking some cash and some stock is if it comes out of bankruptcy and it gets access to the wildfire fund of the state of California and it has new management that the bondholders would put in," Cecily Dumas, lead bankruptcy counsel at Baker Hostetler, counsel to the official committee of tort claimants, told FOX Business before the revised offer. "Then we think investors will come back and they will buy stock, and the value of the stock that we've agreed to take will go up."
Dumas' group is on board with the bondholder plan, which splits the $25.5 billion into two $12.75 billion tranches of cash and equity. Bondholders would receive 60 percent of the new company, and the victims would be entitled to the remaining 40 percent. Once the company emerges from bankruptcy, the majority would be owned by California interests.
The bondholder plan also has a corporate governance stipulation that the new board must have expertise in safety and utilities, and would also be made up of labor, ratepayers and wildfire victims.
A final scenario, first reported by The Wall Street Journal on Friday, would pay victims only in equity.
But that presents problems on multiple fronts.
First, it goes against the bankruptcy code, which says everybody who has an unsecured claim that is the same priority under bankruptcy law is entitled to the same form of consideration. PG&E already offered cash to insurance companies and hedge funds that have subrogation claims, meaning that victims, who are at the same priority level, must also be paid in cash.
More importantly, wildfire victims need cash to rebuild their homes. After the expiration of the lockup, or period where victims would be unable to sell shares, it is likely that everyone would look to dump their stock at the same time. That would drive down the value of the shares, giving victims less cash and potentially putting the survival of the company in question.
The subrogation group, which has made the biggest concession of any creditor group, encourages others to “work collaboratively to achieve consensus around a reorganization plan that would treat all wildfire victims fairly and enable emergence by the June 2020 legislative deadline."
As for PG&E, the company continues to work with the victims and the state of California.
“We are committed to fairly and reasonably resolving the individual plaintiffs’ claims and doing right by our customers and the communities we serve,” PG&E told FOX Business, adding that it has made “significant progress in its Chapter 11 cases” and “looks forward to working with the mediator and the other parties to resolve the remaining wildfire claims.”