Sunday, 17 October 2021

California wildfire threatens PG&E’s plan to raise $14bn

AP Photo / Noah Berger

SAN FRANCISCO: A wildfire raging in California threatens to destroy more than homes and businesses – it could also undermine bankrupt PG&E Corp’s plan to raise $14 billion to finance the crisis-stricken utility’s turnaround plan.

If the fire becomes large enough, investors could walk away from their commitment to finance the California power utility’s bankruptcy plan. That would put in doubt the company’s plan to provide up to $8.4 billion to victims of past fires blamed on the company’s equipment.

In Sonoma County north of San Francisco, the Kincade Fire has burned more than 75,000 acres in PG&E’s service area since breaking out on Oct. 23, forcing evacuation orders for some 180,000 people.

The fire has destroyed 124 structures and more than 90,000 are threatened amid strong winds and dry weather, according to CalFire, California’s fire-fighting agency.

(Kevin N. Hume/S.F. Examiner)

The number of structures destroyed is key to PG&E’s bankruptcy exit plan. Any fire this year caused by PG&E that destroys more than 500 homes or commercial structures would trigger a clause in the financing agreement that would allow investors to back out. The agreement has a similar termination clause for next year.

PG&E said in court filings last week it has agreements to sell $14 billion of stock to affiliates of investment firms such as Abrams Capital Management LP, Knighthead Capital Management LLC and Soros Fund Management.

The cause of the Kincade Fire has not been determined. But it ignited near a broken wire on a PG&E transmission tower, raising concerns that the company’s equipment may again be to blame for a massive wildfire.

The San Francisco-based power producer in January filed for Chapter 11 bankruptcy protection anticipating its liabilities from massive wildfires in 2017 and 2018 blamed on its equipment could top $30 billion.

One of the blazes, November’s Camp Fire, leveled the town of Paradise and destroyed more than 14,000 structures in the deadliest and most destructive in California’s modern history.

PG&E’s main priority in its bankruptcy is paying thousands of wildfire victims, which it expects to do with $34 billion in debt financing and its $14 billion in equity commitments.

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