Pacific Gas & Electric has signed debtor-in-possession commitment letters totaling $5.5 billion with a foursome of banks ahead of its expected filing for Chapter 11 bankruptcy protection later this month.

JP Morgan, Bank of America Merrill Lynch, Barclays and Citi are the institutions providing the DIP funds, according to paperwork filed with the U.S. Securities and Exchange Commission on Jan. 21, the same day the commitment papers were signed.

The senior secured superpriority debt will be split between a $3.5 billion revolving credit facility, a $1.5 billion initial term loan and a $500 million delayed-draw term loan, according to the agreement reached between the utility and the banks.

The loans will be due to be repaid on Dec. 31, 2020, subject to a one-year extension under certain circumstances.

In addition to the DIP loans, JP Morgan is providing a $250 million senior secured six-month bridge loan which the company can draw on before filing for Chapter 11.

The facilities have been launched into syndication with initial price talk on all three in the range of 250 to 275 basis points over Libor, with a 99.5% original issue discount.

The notes are rated Caa3, CC and C by Moody’s Investors Service, S&P Global Ratings and Fitch Ratings, respectively.

"It seems like they are well organized and are being very deliberate about this," says an investment banker, commenting on the approach taken by PG&E's management and advisers. "But you have a complicated situation. The wildfire claims are not determined yet and there is likely to be legislative activity during the case."

Lazard Frères & Co. is advising PG&E on the restructuring, say deal watchers. David Kurtz, the firm's vice chairman of U.S. investment banking and head of global restructuring, and Ken Ziman, a managing director in the restructuring group, are said to be overseeing the process. A spokesperson for Lazard in New York declined to comment and officials at PG&E in San Francisco did not immediately respond to an inquiry about its financial adviser.

Not everyone is impressed, however, with the company's handling of the situation, which has arisen from liabilities and expected liabilities relating to PG&E's role in deadly wildfires in California in recent years.

"We implore you to reconsider your headlong rush toward an unnecessary and damaging bankruptcy filing," wrote Blue Mountain Capital Management in the second of two open letters it has written to the company's board in the past week. "We reiterate our request that you take the time to obtain opinions from disinterested advisors, convene a Board meeting, and carefully reevaluate the Company's options."

Blue Mountain owns more than 11 million shares of PG&E common stock, which has plummeted in value from almost $50 a share at the beginning of November to less than $10 a share this month.

PPA wildcard

For holders of project finance loans and owners of projects associated with the utility through power purchase agreements, however, the share price is not the main concern (PFR, 1/17).

"Following a bankruptcy filing, PG&E could quickly move to reject a PPA (meaning, a breach of the PPA by PG&E for which the project owner is entitled to damages) or to assume a PPA (meaning, to reaffirm and perform the PPA going forward)," wrote attorneys at Orrick in an email alert on Jan. 22. "For strategic or other reasons, PG&E could also do nothing at all for a considerable period of time while PG&E continues to evaluate its options."

What PG&E does about the PPAs is "probably, other than how they settle the wildfire claims, the biggest wildcard in this bankruptcy," adds the investment banker. "Contrary to the opinion that some people have expressed, that because they are passed through the ratepayers there’s no incentive for the company to do anything about them, my experience dealing with regulated utilities is that is very much not the case."

Not taking any chances

One sponsor has already launched a legal bid to prevent PG&E from changing the terms of its PPAs.

NextEra Energy filed a three-page complaint against the utility with the U.S. Federal Energy Regulatory Commission on Jan. 18, asking the body to ensure PG&E does not “abrogate, amend or reject in bankruptcy any of the rates, terms and conditions of its wholesale” PPAs without FERC approval.

PG&E shot back on Jan. 22, asking FERC to reject the move in a 1,038-page filing.

NextEra’s largest PG&E exposure comes in the form of two decade-old projects—the 559 MW Desert Sunlight solar PV facility in Desert Centre, Calif., and the 250 MW Genesis concentrated solar thermal project in Blythe, Calif. (PFR, 2/24/12).

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