Proposed Settlements with Fire Victims and Others
RELATED PLAN DOCUMENTS (on TCC Website): https://dm.epiq11.com/case/pge2/info
Under the proposed settlement with fire victims, PG&E would deposit into a Fire Victims Trust (a) $5.4 billion in cash on the Effective Date (targeted as August 29, 2020), (b)* $650 million on January 15, 2021, (c)* $700 million on January 15, 2022, and (d) $6.75 billion in common stock of the reorganized PG&E, which will represent not be less than 20.9% of the company on the Effective Date. It appears the Fire Victims Trust will end up owning more than 20.9% of PG&E because the stock value is so low and it will take more shares to reach $6.75 billion in value. In addition, PG&E will assign to the Fire Victims Trust certain rights and causes of action PG&E may have against certain contractors, consultants, other third parties, and insurance policies for fires that occurred during 2015 and 2016.
[* The cash funding in items (b) and (c) comes from a ‘Tax Benefits Payment Agreement’ which is, essentially, tax savings obtained through legal tax write-offs for anticipated net operating losses for the prior year (over two consecutive years), along with any tax deductions arising from paying the claims of the bankruptcy creditors.]
Despite the rumors, there is no guarantee that the stock issued to the Fire Victims Trust will actually be worth $6.75 billion on the Effective Date or any time after that. In fact, many believe the formula for calculating the value of the stock is inaccurate, and the Fire Victims Trust stock could be worth significantly less on day one. There is also no guarantee that the stock will hold its value after that date.
We think the confusion arises from the terms of the Equity Backstop Agreement and the Debt Commitment Letters (See Prime Clerk docket 6013). These documents commit certain large investor groups and banks to buy stock and make loan on the Effective Date. Those commitments will help to fund PG&E’s initial $5.4 billion payment to the Fire Victims Trust, among other obligations. But these agreements have nothing to do with the price of the stock after that date.
The Fire Victims Trust will be managed by the Honorable John K. Trotter, a retired judge who managed the claim resolution process for the 2007 San Diego fires. He and his team are currently developing the procedures and compensation guidelines for paying fire victims out of the Fire Victims Trust. All fire related claims will be “channeled” to the Trust, including personal injury, wrongful death, property loss and damage, loss of income and community, and additional living expenses. This means fire victims will no longer have the right to sue PG&E directly for the 2015, 2017, and 2018 fires. They will be paid out of the Fire Victim Trust.
PG&E also entered into a proposed settlement agreement with subrogation rights holders. Subrogation Rights gives your insurance company the right to recover from PG&E everything it paid to you. Many insurance companies sold their subrogation rights to hedge funds for as little as 25 cents on the dollar. Insurance companies and these hedge funds are called ‘subrogation rights holders’ or Subro. Under the proposed Bankruptcy Plan, PG&E will pay Subro $11 billion entirely in cash on the Effective Date. Subro is not taking any stock or ‘Tax Benefits Payments’ as part of their settlement.
PG&E also entered into a $1 billion settlement agreement with governmental entities other than FEMA and Cal OES. That payment will be made on the Effective Date.
FEMA and Cal OES made multi-billion dollar claims against the Fire Victims Trust. PG&E has reached tentative settlements with these governmental entities. As of March 31, 2020, these deals were not finalized by the parties or approved by the Bankruptcy Court, but here is a summary of the proposed terms:
FEMA will reduce its claim to $1 billion and be paid only after all fire victims have been paid in full.
Other federal claims will be reduced to $117 million and paid only if and to the extent the Fire Victims Trust recovers on claims against non-PG&E parties that might have contributed to the causes of the fires.
Cal OES claims will be reduced to $115.3 million and will be paid only from interest earned on cash in the Fire Victims Trust.
Other State claims will be reduced to $89 million and paid from any gain (over an assumed value of $6.75 billion) in the value of the PG&E stock held by the Fire Victims Trust.
On March 20, 2020, Governor Gavin Newsom finally approved the proposed Bankruptcy Plan subject to a number of conditions. In summary, if (a) PG&E fails to have a confirmed Bankruptcy Plan by June 30, 2020, or (ii) the Effective Date (the date PG&E is to pay the initial $5.4 billion and delivery $6.75 billion in PG&E stock to the Fire Victims Trust), then PG&E will be put up for sale.
On March 23, 2020, PG&E entered into a Plea Agreement and Settlement with the Butte County District Attorney under which PG&E pleaded guilty to 84 counts of manslaughter in connection with the Camp Fire and agreed to pay a fine and costs of about $4 million. That means they are paying less than $50,000 per death. To add insult to injury, PG&E argues that the fine and costs should be paid by the Fire Victims Trust. PG&E also contends that the $200 million fine imposed by the CPUC should be paid by the Fire Victims Trust. PG&E continues to shock the conscience.