Q: Is $13.5 billion a good amount for the Fire Victims to accept?
A: Yes. In any litigation, $13.5 billion is a large amount of money. In a bankruptcy setting, it is unprecedented. No sum of money is ever going to be enough to fully compensate you for the losses caused by PG&E’s misconduct. With that said, this settlement is larger than what was paid to Enron victims, WorldCom victims, victims of the BP Oil Spill in 2010, and the victims of the Exxon-Valdez oil spill in 1989.
Of note, the stock portion ($6.75B) is subject to a complex formula that may be worth more or less than $6.75 billion. What we can say is that:
Numerous financial experts believe the stock has potential to appreciate.
This is stock for a completely new PG&E. This PG&E company is no longer ridden by litigation from Fire Victims, the insurance companies, FEMA, and/or other creditors.
Additionally, if PG&E exits per this plan it will have access over $10 Billion in AB1054 money to remediate against future fire damages and discharge such damages without threatening payment to you.
Q: Do the lawyers for the Fire Victims support the plan?
A: The lawyers’ role is to inform their clients fully as to the plan and the alternative to the plan so that the clients may make the decision. So far, the responses by clients have been overwhelmingly in favor of the plan. Moreover, there is no actual alternative to this plan.
First, the so-called community or state “plan” is not a bankruptcy plan. It is an idea that has been floated but has no funding as required. Further to this point, the Governor does not back this idea. The governor backs the current plan that is being voted on. Additionally, there is no legislative action proposed that has the support of legislature regarding such an idea. Finally, such a takeover is not feasible before the June 30th deadline PG&E must meet in exiting bankruptcy per an actual plan to get AB1054 money necessary for remediating future fires. Without AB1054 money, PG&E could be responsible for such post-petition claims, wiped out by them, and thus your ability to recover would be gone.
Second, there is no Bondholder plan. They never provided a binding proposal and, significantly, they are now on record supporting this PG&E equity plan.
Finally, there is nothing to suggest the victims would get more money if the deal is rejected and some other deal was eventually adopted after years of delay. We are informed that the lawyers that represent the vast majority of claimants have indicated that their clients will vote overwhelmingly in favor of the plan.
Q: How does the claims process and the payments work?
A: The Court has already appointed the Honorable John Trotter (a former California Court of Appeal Judge) as the Trustee, and Cathy Yanni (the current administrator of the $105 million Wildfire Assistance Program fund) as the Claims Administrator. The mechanics and process for the claim’s payouts are as follows:
1. The Trustee will finalize the claim rules and the claim forms. The Trustee will then set a specific period of time for individual claimants to put in their specific claims. This will be called the “claims period.”
2. During the claims period, claimants make their individual claims to the Trust by submitting them to the third-party administrator BrownGreer. BrownGreer (“BG”) is a company that is in the business of being a claims administration which means they specialize in the legal and administrative aspects of the design and implementation of settlement programs.
3. When the claims period closes, BG will apply the Trust rules to the claims that are timely made to the Trust, and a preliminary recommendation will be made for a suggested payout. An individual fire victim can either accept the suggested claims payout to receive that amount immediately or seek to have the number adjusted upward.
4. The request for adjustment is first done through BG if the claimant can show that BG somehow misapplied the claims rules or did not properly assess the claims data provided. Following this request, a final suggested claims payout will be issued by BG.
5. The claimant may then either accept the final suggested claims payout total and receive payment, or the claimant may appeal the final suggested claims payout to a neutral third-party that will be selected by the Trustee. This third-party neutral will hear the claimant’s objection to the final suggested claims payout number from BG and will decide upon the appropriate number. Should the claimant agree with the number decided by the third-party neutral, the claimant can accept the total and receive payment.
6. However, if the claimant wants to appeal the number decided by the third-party neutral, the claimant can seek a final appeal. For a final appeal, the Trustee will appoint a panel of three neutral parties who will hear the appeal and render a final decision. Once the final decision is made by the three-party-neutrals panel, payment will be made.
7. This process will be followed for each of the 70,000 claimants. Eventually, all of the money will be distributed, and the Trust will close.
Q: Could there be a better settlement option if this plan fails?
A: There is no other alternative bankruptcy plan and settlement on the table.
First, the so-called community or state “plan” is not a bankruptcy plan. It is an idea that has been floated but has no funding as required. Further to this point, the Governor does not back this idea. The governor backs the current plan that is being voted on. Additionally, there is no legislative action proposed that has the support of legislature regarding such an idea. Finally, such a takeover is not feasible before the June 30th deadline PG&E must meet in exiting bankruptcy per an actual plan to get AB1054 money necessary for remediating future fires. Without AB1054 money, PG&E could be responsible for such post-petition claims, wiped out by them, and thus your ability to recover would be gone.
Second, there is no Bondholder plan. They never provided a binding proposal and, significantly, they are now on record supporting this PG&E equity plan.
Third, there is nothing to suggest the victims would get more money if the deal is rejected and some other deal was eventually adopted after years of delay. We are informed that the lawyers that represent the vast majority of claimants have indicated that their clients will vote overwhelmingly in favor of the plan.
Further, in the wake of the COVID-19 stock market movement this past month, there are no other investors lined up to provide the money it would take to pay wildfire victims if the current plan and settlement offer were to be rejected.
Q: What are the financial risks in continuing to fight for more money?
A: There are at least seven financial risks in voting “no” on the proposed $13.5 billion settlement:
1. The number of claims can increase. First, the insurance carriers would assert a claim of over $22 billion instead of the $11 billion that they took in their settlement. Second, FEMA could then assert a $3.9 billion claim while California’s Office of Emergency Services would reassert their $2.4 billion claim. Third, local government entities with another $3.0 billion in claims would assert the full amount of those claims instead of the $1 billion they settled for. In total, claims from other entities besides the Fire Victims could result in $17 billion of additional claims.
2. The settlement with the bondholders and other parties would fall away. The combination of these events would lead to at least an additional $18.5 billion of claims against PG&E, thus materially reducing what is available to victims.
3. The June 30, 2020, deadline set by the State would pass, and under the terms of the settlement between PG&E and the Governor, PG&E would need to be sold to a new buyer. When sold, a $7.5 billion shareholder tax asset would be lost. This is important because that tax asset is being used to help fund over $6 billion of exit financing needed to pay victims.
4. All of the committed financing secured by PG&E at favorable rates would disappear, requiring the company to go out and obtain new financing that would likely come at a higher cost.
5. Drawing out a longer fight could result in years without compensation.
6. This could make investing in PG&E undesirable and erode the company’s ability to raise funds needed to pay the victims, insurers, and other claimants mentioned. The worst-case scenario is where PG&E is unable to attract new capital, therefore extinguishing its ability to pay Fire Victims and other claimants at all.
7. Most importantly, there is a June 30th deadline that PG&E must meet in exiting bankruptcy per an actual plan (and this is the only actual plan) to get the AB1054 money necessary for remediating future fires. Without AB1054 money, PG&E could be responsible for such post-petition claims, wiped out by them, and thus your ability to recover would be gone.
Q: Do I have to take stock in PG&E?
A: No one is required to take stock in PG&E. The $13.5 billion is set to be paid one-half in cash and one-half in stock. The $6.75 billion in cash is a payment obligation backed up by $12 billion in financial backstop commitments from over 70 of the largest financial institutions in the United States in what amounts to an insurance policy to make certain the payments will in fact be made.
Because the company is in bankruptcy with limited access to capital, Fire Victims also required that the owners of PG&E give up a percentage of their ownership in the company in order to fund the settlement. Therefore, the Fire Victims Trust is also set to receive no less than 22.4% of the equity of PG&E. This will be sold off to accumulate more money to compensate victims.
A number of professional stock analysts agree that PG&E future earnings mean the value of this stock will rise over time, which could make the contributions into the Trust worth more than $13.5billion.
Q: Is the stock that is to be put into the Victims’ Trust worth the suggested $6.75 billion in value?
A: Recent stock market volatility has raised a number of questions about the value of the stock being placed into the trust. However, a substantial margin of safety was built into the agreement negotiated with PG&E.
First, the amount of stock being placed into the trust is based on a valuation meaningfully below the fair value of other major utilities.
Second, since PG&E is an electric utility with predictable earnings, the stock has meaningful room for increasing in value as PG&E’s earnings grow after bankruptcy.
Third, the stock in the trust does not need to be sold immediately or all at once. As the victims are paid, the stock will be sold into the market to raise funds needed to pay victims.
Fourth, the Trust will hire a major U.S. investment bank to ensure that the value of the shares is maximized.
With that said, we are not licensed financial professionals. That is the role of those the trustee will appoint to manage the stock. As with any stock, its price can fluctuate above or below the $6.75B principal. The reason we took stock is that (1) as in any bankruptcy there is a limited amount of cash available for the victim’s claims as well as all other creditor classes and (2) unlike some other creditor groups, such as the insurance companies who took all cash, we have not accepted the steep discounts in payment from PG&E like they did. Instead, we took part in stock.
Q: When will the stock be liquidated?
A: Approximately half of the $13.5 billion of the Fire Victims settlement fund is PG&E stock. The short answer is that we do not know precisely when the stock will be sold. The stock will be funded based on the effective date (to be determined shortly after coming out of bankruptcy), and the stock will then go to the Trustee. The Trustee will use HIS investment banking professionals to advise on the selling of stock.
Selling hundreds of millions of shares in one day could push the stock price down. This is why investment banking professionals will be hired. Further, the Trustee does not need to liquidate the stock immediately because there will already be cash on hand.
A shareholder rights agreement will be negotiated soon. This agreement will place limits on how soon and the amount of stock that can be sold to prevent devaluation of the stock.
Our estimate is that stock will be held for at least 180 days and then liquidated in early 2021 as needed to pay claims.
Q: What will happen to the value of the stock?
A: The stock value is a primary concern to fire victims, especially those who mistakenly believe they will have to take their settlement in stock (which, as explained above, they will not). In truth, an investment bank hired by the Fire Victims’ Trust will coordinate the orderly liquidation of the stock placed in the Trust so to minimize the risk of the price from falling, while also achieving the liquidity necessary to pay claims in cash.
Given the historical trading levels of the stock, other companies traded as part of the liquidity index, and the fact that PG&E has predictable cash flow in the form of 16 to 17 million customers paying monthly, respected analysts believe that the stock price will go up.
No one can ensure the future performance of a stock. However, a Trust receiving stock during an economic dip, as we are likely to continue to be in this summer, is in position to enjoy stock appreciation as the economy recovers thereafter.
Q: If I take stock, will it pay a dividend?
A: It is anticipated that there will be no dividend for at least three years while PG&E allocates money elsewhere to fund the plan and remediate future fires.
Q: If a structure has been destroyed, how do the claims work when there are multiple occupants?
A: A home and property loss will be paid at the family-level. This is sometimes referred to as payment by “Household.” On the other hand, claims for mental anguish will be paid to claimants individually. Of note, a parent will recover on behalf of their minor-child’s possessions because that minor-child does not own the possession until they are of age.
Q: Is everyone going to get the same amount of money regardless of loss?
A: Absolutely not. Everyone has their own individual claim and will be paid based on their individualized loss. For example, people who were in the fire zone will have a more valuable emotional distress claim than those who were evacuated early. People who owned large acreage with greater tree losses will have bigger claims than renters in an apartment complex. The value of your claim depends on your specific circumstances.
Q: What is required to prove a wrongful death case?
A: There are two scenarios. First, you must provide a death certificate if a loved one died by fire. Second, if a loved one died days or weeks after the fire, the claimant will be required to provide medical records showing that the “attenuated death” was causally related to the fire.
Q: Are there secret risks and secret provisions in the settlement?
A: No. Everything is in the Disclosure Statement. The Disclosure Statement is a court approved objective description of what the deal is. There are no side deals. There are no unknown provisions. Everything is transparent.