The judge presiding over PG&E's bankruptcy handed shareholders a loss, opening the door to a competition over the best path out of bankruptcy that pits the troubled utility against bondholders led by Elliott Management Corp.
Judge Dennis Montali of the U.S. Bankruptcy Court in San Francisco cleared the way for a rival chapter 11 plan from Elliott and other bondholders that are allied with victims of wildfires that drove PG&E to bankruptcy. His ruling stripped PG&E of the sole right to propose a chapter 11 plan covering billions of dollars of damages from blazes linked to PG&E equipment.
The decision means at least two chapter 11 plans will move forward as PG&E shifts into a crucial phase of its chapter 11 proceeding. The coming months will see either a deal with fire victims or a series of judicial rulings that will produce an estimate of how much PG&E will have to set aside to cover those damages.
The rival plans are about $5 billion to $6 billion apart on where they think that number will fall. Wall Street banks and hedge funds from California to Connecticut are placing their bets, cutting deals to finance PG&E's chapter 11 plan, the bondholders' rival plan or both.
The bondholders proposed a plan to raise new money and use all but a sliver of PG&E equity to pay off debts, while the company favors raising both debt and equity financing to dig itself out of chapter 11 and prevent shareholders from taking a bigger hit.