PG&E hit after judge opens door to rival bankruptcy plan

Shares in PG&E shed more than quarter of their value in after-hours trading on Wednesday after a judge opened the door for bondholders and wildfire victims to submit their own proposals for reorganising the bankrupt utility.

A federal judge in San Francisco, Dennis Montali, ruled on Wednesday that bondholders led by the hedge fund Elliott Management and the victims could submit a competing plan for the Californian company.

“A dual-track plan course going forward may facilitate negotiations for global resolution and narrow the issues which are in legitimate dispute,” the judge said in his ruling.

If that does not happen, “the outcome might result in one plan failing because it pays too much to the victims, or the other failing because it does not”, he added. “One plan emerging as confirmable is a very acceptable outcome. And if both plans pass muster, the voters will make their choice or leave the court with the task of picking one of them.”

The case has become the target of some of the world’s most sophisticated investors, including Elliott, Pimco, Baupost and Apollo, all of whom have made bets on how the restructuring will play out. Even the bankruptcy filing itself was challenged after the hedge fund BlueMountain Capital unsuccessfully sought to prove the company was solvent.

The ruling comes less than a day after PG&E shut off power to almost 800,000 people across northern and central California amid the arrival of dry autumn winds in an effort to avoid a repeat of last year’s deadly wildfires that were caused by wind damage to its electrical transmission equipment.

PG&E filed for bankruptcy protection in late January and said the following month it was likely to be held responsible for the Camp Fire, which started near the community of Pulga in Butte County in November last year.

The company recorded a $10.5bn charge for claims related to the blaze, which killed 85 civilians, destroyed more than 18,800 structures and burnt just over 153,000 acres.

In May investigators concluded electrical transmission lines owned and operated by the company were the cause of the Camp Fire. Last month PG&E reached an $11bn settlement with insurance claimants related to the Camp Fire as well as the northern California wildfires in 2017.

In Wednesday’s ruling, the judge praised PG&E for making “significant progress” in the bankruptcy case and said its plan “is on track as well as can be expected for now”. But wildfire victims, “the parties most deserving of consideration”, have “spoken loudly and clearly that they want” the alternate plan put forward.

Mr Montali added that he hoped to avoid expensive court fights over individual issues in the case “at the expense of paying the wildfire victims”, and gave bondholders until October 17 to submit their proposed plan.

PG&E slammed the decision, saying it was “disappointed that the bankruptcy court has opened the door to consideration of a plan designed to unjustly enrich Elliott and the other ad hoc bondholders and seize control of PG&E at a substantial discount”.

The company added it was “confident” that its reorganisation plan “will satisfy all wildfire claims in full while treating all stakeholders fairly and protecting customers” and will be confirmed over the offer from the bondholders.

PG&E shares were down 28 per cent at $8 in after-hours trading on Wednesday.

Additional reporting by Myles McCormick in London