Paul Singer's Elliott Scores a Big Win -- WSJ
By Matt Wirz
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 12, 2019).
The California legislature delivered a preliminary victory to
hedge-fund billionaire Paul Singer and other PG&E Corp.
bondholders in their monthslong battle with the utility's
Mr. Singer's firm, Elliott Management Corp., is one of the
biggest owners of bonds issued by the power company, which filed
for bankruptcy protection in January while estimating that it could
owe tens of billions of dollars to victims of the state's deadly
2017 and 2018 wildfires. The investors have been lobbying in
Sacramento for months to sway the wildfire-liability bill the
legislature passed Thursday, people familiar with the process
The legislation requires utilities to contribute as much as
$10.5 billion into a wildfire insurance fund and billions of
dollars for wildfire prevention, while capping future liabilities.
Bondholders and shareholders alike support the broad strokes of the
measure, but have clashed over an obscure point that may decide
which group ultimately controls the company, the people familiar
with the process said.
The skirmish over the reform bill shows how the funds involved
are reaching deep into California politics to gain an advantage.
Their lobbying has forced the state's politicians into a delicate
balancing act, forming policies that keep investors willing to
inject more cash into PG&E but don't come at the expense of
wildfire victims and electricity customers.
For PG&E to emerge from bankruptcy, it must have funding to
pay out claims from insurers and victims hurt by past wildfires it
caused, estimates of which range from $14 billion to $54
Holders of the company's stock, such as Abrams Capital
Management LP, Knighthead Capital Management LLC and Redwood
Capital Management LLC, petitioned lawmakers to include language in
the bill that would have allowed the company to pay for those
liabilities by issuing a new bond backed by income that would
otherwise be paid to shareholders.
The bondholders, who proposed to invest as much as $18 billion
to meet liabilities in exchange for control of the company, argued
that doing so would weaken PG&E's finances, according to people
familiar with the matter. Firms beside Elliott in the group include
Apollo Global Management LLC, Capital Group Cos., Citadel Advisors
LLC, Davidson Kempner Capital Management LLC, Pacific Investment
Management Co. and Värde Partners.
California lawmakers and Gov. Gavin Newsom's staff spent months
working on the reform bill and met multiple times with both
investor groups, the people familiar with the process said.
Legislators ultimately sided with bondholders on the issue,
writing a bill that allows PG&E to issue the securitization
bonds to pay victims from future wildfires, but not to pay off
claims from fires it already caused.
"Under this bill, PG&E can't borrow against the future
earnings to solve for the problems that got it into bankruptcy,"
said Michael Wara, head of the climate and energy policy program at
Stanford University's Woods Institute. "That's a good thing for the
state, but maybe not so much for shareholders."
Investors appear optimistic that both groups can come out ahead.
PG&E shares closed at $21.40 Wednesday, well above prices that
members of the shareholder group paid for their stakes. The
company's frequently traded bond due 2034 traded at 112 cents on
the dollar Wednesday, up from a low of 78 cents in January,
according to MarketAxess.
The shareholder group supports the new bill and could press for
passage of new legislation allowing issuance of bonds to fund
existing wildfire-claim settlements, a person familiar with the
group's thinking said. Equity holders also have a key advantage
over bondholders because they appointed PG&E's new management
and, for now, only the company can propose legally binding
bankruptcy plans to restructure it.
The next clash stands to be in a court hearing this month, when
bondholders will argue to remove PG&E's exclusive right to file
a restructuring plan. If they succeed, Elliott and others in the
bondholder group will be able to galvanize more support for their
own proposal to revamp the company.
Elliott's involvement could make PG&E's restructuring even
more contentious, because the fund has a reputation for employing
hardball tactics to pressure opponents ranging from the government
of Argentina to corporate executives, said a person involved in
California politics. "The governor does not want to be seen
standing next to Elliott at a press conference about this," the
Mr. Newsom's office couldn't be reached for comment.
Write to Matt Wirz at email@example.com
(END) Dow Jones Newswires
July 12, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
Historical Stock Chart
From Oct 2020 to Nov 2020
Historical Stock Chart
From Nov 2019 to Nov 2020