PG&E lines up $5.5 billion to fund a two-year bankruptcy process

PG&E Corp. expects its looming bankruptcy to take about two years to resolve, and it has arranged $5.5 billion to fund its operations during the process. Its stock and bonds both rose on the news.

Four banks agreed to provide debtor-in-possession funding, including a $3.5-billion revolving credit facility, the embattled California utility said Tuesday in a filing with the Securities and Exchange Commission. PG&E reiterated its intention to begin a Chapter 11 reorganization around Jan. 29.

“It’s a pretty substantial amount of cash, so it does look like they expect to stay in bankruptcy for some stretch,” said Kit Konolige, a senior analyst with Bloomberg Intelligence.

PG&E’s bankruptcy could slow California’s fight against climate change »

California’s biggest utility owner faces $30 billion in potential wildfire liabilities, and its bankruptcy plan has reverberated across the power industry. The state’s big utilities have seen their shares plunge since November’s deadly Camp fire. PG&E’s debt rating has been cut to junk status. The company’s electricity suppliers are getting downgraded amid concern that the utility may seek to renegotiate contracts, and five banks may be on the hook because they’re the buyers of last resort for more than $760 million in bonds.

The banks in the agreement are JPMorgan Chase & Co., Bank of America Corp., Barclays Plc and Citigroup Inc.

PG&E previously sought protection from creditors in 2001 in a process that took about three years, after its Pacific Gas & Electric utility unit filed for bankruptcy. That came amid an electricity crisis in the state that led to severe price spikes and rolling power outages.

Now the company must find a way to sustain its operations and maintain a power grid that serves 16 million customers, while shielding itself from liabilities after fires devastated the state in 2017 and 2018 and killed more than 100 people.

PG&E said the debtor-in-possession financing would provide liquidity to fund its operations during a Chapter 11 process that it expected to take “approximately two years,” according to the filing. Debtor-in-possession credit facilities would mature Dec. 31, 2020, with an option to extend by one year if certain terms and conditions are met.

Shares of PG&E climbed 6.5% on Tuesday to $7.70. The stock is down more than 80% since the Camp fire broke out in November.

Pacific Gas & Electric’s 5.125% bonds due in 2043 rose about 1 cent on the dollar to 80 cents Tuesday morning, yielding nearly 7%. Its 6.25% notes maturing in 2039 rose about 1 cent to 84 cents on the dollar to yield 8.1%, according to data compiled by Bloomberg.

The bankruptcy plan is facing pushback from some investors. BlueMountain Capital Management, which owned about 0.8% of the company’s shares at the end of the third quarter, is urging PG&E’s board to delay any Chapter 11 filing until after a shareholder meeting scheduled in May.

Investigators are looking into whether PG&E’s equipment ignited the deadliest and most destructive blaze in California history: November’s Camp fire, which destroyed the town of Paradise, killed 86 people and razed more than 18,000 buildings.

Lawmakers including newly installed Gov. Gavin Newsom have made it clear they have little appetite to intervene with a bailout for the company, at least not until it actually has gone bankrupt. Newsom’s office didn’t immediately respond to request for comment Tuesday.