PG&E Corporation – Bondholders Object to Joint Administration, Wants Assurances that Each Debtor Will Be Treated Distinctly for Purposes of Cram Down Rules

January 29, 2019 – In a first bit of jockeying on the constitution of the Debtors’ classes, the Debtors’ Ad Hoc Group of Institutional Bondholders (the “Ad Hoc Group”) objected to the Debtors’ motion requesting joint administration of the Chapter 11 cases of PG&E Corporation (PG&E”) and Pacific Gas and Electric Co. (“Utility”). The concern is that in a case with only two Debtors, each with distinct capital structures, the Court might confirm a bankruptcy in respect of both Debtors when the two Debtors have only one impaired class between them accepting a jointly administered Plan. In short, the Ad Hoc Group wants to make sure that holders of the debt of one of the two Debtors does not get crammed down by the acceptance of the Plan by holders of debt of the other Debtor. This issue of whether Bankruptcy Code section 1129(a)(10) applies on a per-debtor basis or a per-plan basis, is hardly academic in jointly administered cases. Recently, the Ninth Circuit Court of Appeals became the first Circuit Court to address this question. In Transwest (which the current objections cites), the Ninth Circuit  held that “the plain language of the statute supports the ‘per plan’ approach.”

 

The objection states, “The Ad Hoc Group does not oppose the joint administration of the Debtors’ chapter 11 cases for efficiency and procedural purposes. While the Debtors state that ‘[j]oint administration will not adversely affect rights of parties in interest because [the] Motion requests only administrative consolidation of the estates for procedural purposes,’ and that ‘each creditor will continue to hold its claim against a particular Debtor’s estate . . . .’ in light of recent Ninth Circuit jurisprudence, the proposed order should make clear the Debtors’ joint administration shall not enable a joint chapter 11 plan for both Debtors to satisfy Bankruptcy Code section 1129(a)(1) with an impaired accepting class for only one debtor. 

 

Put differently, the Ad Hoc Group opposes joint administration unless it is clear that joint administration shall not convert the requirement of one impaired accepting class per debtor into a requirement of only one impaired accepting class per joint plan. Specifically, the order granting joint administration should include the following paragraph: ‘This Order shall not, for purposes of confirmation of a chapter 11 plan, allow the plan proponent to satisfy the requirement of section 1129(a)(10) of title 11 of the United States Code with less than one impaired accepting class per debtor in a joint plan for more than one debtor.’

 

The two Debtors have different capital structures and different creditors.  It would be highly prejudicial to creditors of the Utility if the Debtors were deemed to satisfy Bankruptcy Code section 1129(a)(10) by having one accepting impaired class at PG&E Corporation in a joint plan, and no accepting classes at the Utility—and vice versa. Accordingly, the inclusion in the order of the proposed paragraph is in the best interest of all stakeholders.”