Helen Sedwick woke up in her Santa Rosa, California home around 1:30 a.m. on October 9, 2017, noticing the bright night sky and the falling ash.
Her husband, Howard Klepper, jumped in his car and drove to a nearby high spot and confirmed that a wildfire was approaching. The couple grabbed a few essentials and fled, watching brushwood burning everywhere on the way out. A few days later Ms Sedwick returned, walking past a police cordon to find that her house and belongings had been destroyed, including Mr Klepper’s carpentry studio which had several guitars he had built.
“If we had waited another 15 minutes to leave, I’m not sure we would have,” Ms. Sedwick wonders.
A series of fires in 2017 and 2018, including the one that razed Ms Sedwick’s home, ravaged northern California, killing more than 100 people and destroying thousands of homes and businesses. The fires were ultimately blamed on the power transmission equipment of utility company PG&E.
Faced with tens of billions of dollars in fire liabilities, PG&E – formerly known as Pacific Gas & Electric – filed for bankruptcy and quickly became one of Wall Street’s favorite restructuring games. Investment groups such as Apollo Global, Elliott Management and Baupost Group have recovered its stocks, bonds and other debts, believing that PG&E could fairly deal with the victims of the fires, then reorganize itself into a very profitable company.
But unlike many large corporate bankruptcies, the outcome will not be decided exclusively by investors, investment bankers and lawyers. Ms Sedwick and about 80,000 other fire victims not only have a seat at the negotiating table, they may be kingmakers.
Helen Sedwick inspects the wreckage of her home in Santa Rosa, Calif., Destroyed by fire in October 2017
A committee representing the victims of the fires reached a deal in December for $ 13.5 billion in compensation, half of that total coming from PG&E actions. Yet as the voting deadline on Friday approaches, a vocal group of dissenting victims such as Ms Sedwick loudly shares their discontent on Facebook message boards and Zoom town halls, believing they have been wronged.
“Although I knew how much money controlled the world in an abstract way, when I saw what it was like to be someone helpless in this game of chess, it motivated me. Act.”
It came as a surprise to many observers when PG&E decided to file for Chapter 11 bankruptcy in January 2019. Its publicly traded shares had plummeted due to concerns about its wildfire liabilities, but had not been. wiped out, and its bonds were still trading at around 100 cents on the dollar, so there was no serious risk of default.
The company made the choice that the best way to resolve all of its wildfire-related liabilities, which it initially estimated at over $ 30 billion, was a process under judicial review.
Four key stakeholder groups would emerge. The first were the shareholders of PG&E led by hedge funds Abrams Capital and Knighthead Capital. Second, bondholders, including Elliott, Apollo, Pimco, Capital Group and Citadel. Third, there were the holders of “subrogation” claims, which represented the insurers who had made payments and who then had the legal right to sue PG&E for reimbursement. And fourth, the individual victims of the fires.
The $ 13.5 billion was at the top of what fire victims could expect, observers noted, and the equity-taking was what made that figure achievable. Under the terms of the deal, first proposed by the company and its shareholders, $ 6.75 billion in new PG&E shares would be placed in a trust whose administrator would sell shares over time to distribute cash. ‘money. In total, $ 25 billion in payments were made for fire victims and subrogation requests.
“The risk is on the victims of the fire,” said Jared Ellias, professor of law at the University of California at Hastings who has followed the case.
An aerial view shows burnt down properties in Santa Rosa, Calif. © Josh Edelson / AFP / Getty
By the spring, what seemed to be going ahead – that the necessary two-thirds of fire victims would vote in favor of the shareholder plan – had become more difficult.
Three members of the victims committee resigned in 2020 over concerns about the plan. In late March, the committee unsuccessfully attempted to get the bankruptcy court to send an additional disclosure form to fire victims, noting, among other things, that “the coronavirus pandemic and the economic ripple effect of the coronavirus present an unpredictable and significant risk that the shares of the stocks will not be worth enough to match the $ 13.5 billion that PG&E believes would be available to pay claimants who are victims of the fires ”.
The $ 6.75 billion equity component was based on a notional valuation that puts the value of the PG&E business at nearly $ 70 billion. The committee and some fire victims, however, have come to doubt this figure. An expert consultant for the committee submitted a valuation to the court in April that pegged the shares at less than $ 5 billion, based on the current valuation of PG&E competitor Edison International.
Gaps have arisen between the various law firms representing the victims of fires. Many of them were personal injury specialists, some from out of state who had moved to northern California after the fires. These companies usually work on an emergency basis and are expected to receive one-third of the settlement proceeds if the agreement is reached.
A group of lawyers who said this represented 70% of fire victims opposed the additional disclosure. One of those lawyers, Gerald Singleton, said the deal on the table was the only one available that would be practical to implement.
“Some people vote for moral reasons and say, ‘I understand it’s not in my best financial interest, but PG&E needs to be bankrupted.’ Frankly, that’s a legitimate point of view. But the only thing that does upsets me is that there are people who are deliberately giving false information that there are other plans, “Singleton said.” It is despicable to try to mislead victims. .
Still, the wobbly stock market lamented the rejection of a plan by PG&E bondholders that would have wiped out existing utility shareholders in order to limit the amount of debt the company owes after bankruptcy. In the later stages of the talks, this alternative plan even contemplated paying the victims entirely in cash.
However, the idea of ceding the company to its bondholders met resistance in Sacramento, the capital of California, where politicians feared Elliott’s Paul Singer and Apollo’s Leon Black would take over infrastructure. criticism of the state.
Ms Sedwick, who has now moved to Glen Ellen, Calif., Just two miles from her former home in Santa Rosa, is hoping the company will come back to the table and offer more cash or other concessions.
Whatever the outcome, she remains worried. “Even though this is a new PG&E, we have a long way to go to feel safe. Every time the wind blows, you are unsettled.
