Item 1.01 Entry into a Material Definitive Agreement.
As previously disclosed, in September 2015, a wildfire (the “2015 Butte fire”) ignited and spread in Amador and
Calaveras Counties in Northern California. On December 2, 2016, a fire (the “2016 Ghost Ship fire”) broke out in a former warehouse in Alameda County in Northern California. Beginning on October 8, 2017, multiple wildfires spread through Northern
California, including Napa, Sonoma, Butte, Humboldt, Mendocino, Lake, Nevada, and Yuba Counties, as well as in the area surrounding Yuba City (the “2017 Northern California wildfires”). On November 8, 2018, a wildfire began near the city of Paradise,
Butte County, California (the “2018 Camp fire”). The 2015 Butte fire, the 2016 Ghost Ship fire, the 2017 Northern California wildfires and the 2018 Camp fire are collectively referred to herein as the “Fires.”
Also as previously disclosed, on January 29, 2019, PG&E Corporation and its subsidiary, Pacific Gas and Electric
Company (the “Utility,” and together with PG&E Corporation, the “Debtors”), filed voluntary petitions for relief under chapter 11 of title 11 (“Chapter 11”) of the United States Code in the U.S. Bankruptcy Court for the Northern District of
California (the “Bankruptcy Court”). The Debtors’ Chapter 11 cases are being jointly administered under the caption In re: PG&E Corporation and Pacific Gas and Electric Company, Case No. 19-30088 (DM) (the “Chapter 11 Cases”). On November 4,
2019, the Debtors filed a Joint Chapter 11 Plan of Reorganization dated November 4, 2019 (the “Proposed Plan”).
On December 6, 2019, the Debtors entered into a Restructuring Support Agreement (the “RSA”) with the Official
Committee of Tort Claimants (the “TCC”), the attorneys and other advisors and agents for holders of Fire Victim Claims (as defined below) that are signatories to the RSA (each a “Consenting Fire Claimant Professional”), and certain funds and accounts
managed or advised by Abrams Capital Management, LP and certain funds and accounts managed or advised by Knighthead Capital Management, LLC (each a “Shareholder Proponent”). The RSA provides for, among other things, the Proposed Plan to be amended
(the “Amended Plan”) to provide for an aggregate of $13.5 billion in value to be provided by the Debtors pursuant to the Amended Plan (together with certain additional rights, the “Aggregate Fire Victim Consideration”) in order to settle and
discharge all claims against the Debtors relating to the Fires (other than insurance subrogation claims relating to the 2017 Northern California wildfires and the 2018 Camp fire, and the claims of certain local public entities that have entered into
Plan Support Agreements with the Debtors) (the “Fire Victim Claims”), upon the terms and conditions set forth in the RSA and the Amended Plan. The Aggregate Fire Victim Consideration is to be funded into a trust (the “Fire Victim Trust”) to be
established pursuant to the Amended Plan for the benefit of holders of the Fire Victim Claims and will consist of (a) $5.4 billion in cash contributed on the effective date of the Amended Plan, (b) $1.35 billion in cash payable through (i) $650
million paid in cash on January 15, 2021 and (ii) $700 million paid in cash on January 15, 2022, subject to the terms of a tax benefit payment agreement to be entered into between the Fire Victim Trust and the reorganized Utility, and (c) $6.75
billion in common stock of the reorganized PG&E Corporation valued at 14.9 times Normalized Estimated Net Income (as defined in the RSA), except that the Fire Victim Trust’s share ownership of the reorganized PG&E Corporation will not be less
than 20.9%, assuming the Utility’s current allowed return on equity. Under certain circumstances, including certain change of control transactions and in connection with the monetization of certain tax benefits related to the payment of
wildfire-related claims, the reorganized Utility’s payments described in (b) will be accelerated and payable upon an earlier date. The Aggregate Fire Victim Consideration also includes (1) the assignment by the Debtors to the Fire Victim Trust of
certain rights and causes of action related to the Fires that the Debtors may have against certain third parties and (2) the assignment of rights under the 2015 and 2016 insurance policies to resolve any claims related to the Fires in those policy
years.
Under the terms of the Amended Plan, all Fire Victim Claims, including claims by uninsured and underinsured individual claimholders as well as
government entities not party to a previously disclosed Plan Support Agreement (including the Federal Emergency Management Agency (“FEMA”) and the State of California Office of Emergency Services/California Department of Forestry and Fire
Protection (“Cal OES/CAL FIRE”)), would be settled and discharged in consideration of the payment of the Aggregate Fire Victim Consideration to the Fire Victim Trust. However, the RSA is an agreement among the Debtors, the TCC, the Shareholder
Proponents, and the Consenting Fire Claimant Professionals, which are attorneys representing individual claimholders. No individual claimholder or government entity (including FEMA and Cal OES/CAL FIRE) is a party to the RSA. Accordingly, there
can be no assurance that such claimholders or government entities will support the Amended Plan or the treatment of their Fire Victim Claims in the Chapter 11 Cases as provided in the Amended Plan.
Under the RSA, the Debtors must, among other things, (a) file within three days of entering into the RSA a motion with
the Bankruptcy Court seeking approval of the RSA (the “RSA Approval Motion”) on shortened notice, (b) together with the TCC and the Consenting Fire Claimant Professionals, seek a stay of the estimation proceedings currently pending before the U.S.
District Court for the Northern District of California (the “District Court”) and the Tubbs preference trials currently pending before the San Francisco County Superior Court (the “Tubbs Preference Cases”), (c) deliver the Amended Plan to the
Governor of the State of California (the “Governor”) by December 6, 2019 and provide the Governor and his counsel and advisors all information necessary to evaluate the Amended Plan for compliance with Assembly Bill (“AB”) 1054, (d) file the Amended
Plan with the Bankruptcy Court by December 12, 2019, and (e) promptly enter into discussions for the settlement of the Tubbs Preference Cases.
In addition, each party to the RSA must, among other things, (a) use commercially reasonable efforts to support and
cooperate with the Debtors to obtain confirmation of the Amended Plan and any necessary regulatory or other approvals, and (b) oppose efforts and procedures to confirm the competing Chapter 11 plan of reorganization filed by the TCC and the Ad Hoc
Committee of Senior Unsecured Noteholders on October 17, 2019 (the “Ad Hoc Noteholder Plan”). Each party to the RSA also must not, among other things, (1) object to, delay, impede, or take any other action to interfere with acceptance, confirmation
or implementation of the Amended Plan or (2) propose, file or support any other plan of reorganization, restructuring, or sale of assets with respect to the Debtors. Each Consenting Fire Claimant Professional must use all reasonable efforts to advise
and recommend to its existing and future clients (who hold Fire Victim Claims) to support and vote to accept the Amended Plan and to opt-in to consensual releases under the Amended Plan.
The RSA provides that, upon the filing of the RSA Approval Motion, the parties to the RSA will agree to (a) seek a 15
day continuance of the Tubbs Preference Cases, to be made no later than December 10, 2019, and (b) stay the estimation proceedings until (i) the Bankruptcy Court has entered an order (the “Estimation Approval Order”) approving a settlement of
estimation proceedings for the Aggregate Fire Victim Consideration or (ii) the RSA is terminated. The RSA also provides that, upon entry of the RSA Approval Order, (1) the TCC will file a notice of withdrawal as a proponent of the Ad Hoc Noteholder
Plan and (2) the Debtors must have entered into settlement agreements resolving the Tubbs Preference Cases (the “Tubbs Preference Settlements”) and have filed a motion with the Bankruptcy Court seeking approval of such settlement agreements on
shortened notice.
The RSA will automatically terminate under certain circumstances, including, among others, if (a) a sufficient number of Fire Victim Claims votes to accept
the Amended Plan such that the class of Fire Victim Claims in the Amended Plan votes to accept the Amended Plan under 11 U.S.C. § 1126(c) as determined by the Bankruptcy Court does not occur by the later of (i) the voting deadline for the Amended
Plan and (ii) June 30, 2020, (b) the RSA Approval Order is not entered by the Bankruptcy Court by December 20, 2019, (c) the disclosure statement for the Amended Plan is not approved by the Bankruptcy Court by March 30, 2020 and a motion seeking
the Estimation Approval Order is not filed by March 30, 2020, (d) the Amended Plan is not confirmed by the Bankruptcy Court by June 30, 2020, (e) the effective date of the Amended Plan does not occur prior to August 29, 2020 (which deadlines in (b)
through (e) of this paragraph may be extended by consent of the Debtors, the TCC, the Shareholder Proponents and the Requisite Consenting Fire Claimant Professionals (as defined below)), or (f) on or before December 13, 2019, the Governor advises
the Debtors that in his sole judgment the Amended Plan and the restructuring transactions provided therein do not comply with AB 1054, provided that such termination cannot occur if the Debtors have modified the Amended Plan in a manner acceptable
to the Governor in his sole discretion by the earlier of (i) the commencement of the Bankruptcy Court hearing to approve the RSA and (ii) December 17, 2019.
The RSA may be terminated by the TCC or the Requisite Consenting Fire Claimant Professionals (consisting of (a) the
TCC, acting by vote of simple majority of its members, and (b) a group of thirteen law firms (subject to addition) that are Consenting Fire Claimant Professionals and whose initial members are specified in the RSA, acting by vote of a simple majority
of its members) if (a) the Debtors or the Shareholder Proponents breach any of their obligations, representations, warranties or covenants set forth in the RSA, (b) the Debtors and the Shareholder Proponents fail to prosecute the Amended Plan and
seek entry of a confirmation order that contains or is otherwise consistent with the terms of the RSA, or propose, pursue or support a Chapter 11 plan of reorganization or confirmation order inconsistent with the terms of the RSA or the Amended Plan,
(c) the Amended Plan is or is modified to be inconsistent with the terms of the RSA, or (d) the TCC or the Requisite Consenting Fire Claimant Professionals determine on or before the RSA Approval Motion hearing date that Section 4.19(f)(ii) of the
Amended Plan (and any related provisions) has not been modified to their satisfaction. The RSA may be terminated by the Debtors or the Shareholder Proponents if (1) either the TCC or Consenting Fire Claimant Professionals that represent in the
aggregate more than 8,000 holders of Fire Victim Claims breach any of their obligations, representations, warranties or covenants set forth in the RSA or (2) if the TCC takes any action inconsistent with its obligations under the RSA or fails to take
any action required under the RSA.
The Debtors’ obligation relating to the Tubbs Preference Settlements will survive any termination of the RSA and will
be enforceable against the Debtors. In addition, the RSA provides that, upon termination of the RSA, (a) the estimation proceedings before the District Court will immediately recommence and (b) all litigation regarding the Tubbs fire, including a
determination of whether or not the Utility caused the Tubbs fire, will be determined by the District Court without any reference to any state court proceeding.
The foregoing description of the RSA does not purport to be complete and is qualified in its entirety by reference to
the RSA, a copy of which is filed as Exhibit 10.1 hereto and incorporated herein by reference.
As described in the Debtors’ Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019, the
Debtors are subject to a substantial number of claims from other claimants. In addition, there can be no assurance that the Debtors will successfully consummate or implement the Amended Plan which will ultimately require a determination by the
Bankruptcy Court that the Amended Plan satisfies the requirements for confirmation set forth in the Bankruptcy Code. Further, there can be no assurance that the conditions for confirmation of the Amended Plan and to the occurrence of the Effective
Date (as defined in the Amended Plan) of the Amended Plan will be satisfied.
Restructuring Support Agreement with Holders of Insurance Subrogation Claims
As previously disclosed, the Debtors entered into a Restructuring Support Agreement dated as of September 22, 2019 among the Debtors and holders of
insurance subrogation claims identified in the Debtors’ Form 8-K filed September 26, 2019 as “Consenting Creditors,” which agreement was amended and restated on November 1, 2019 and subsequently amended on November 13, 2019 and November 18, 2019
(as amended, the “Subro RSA”).
On December 6, 2019, the Debtors entered into an amendment to the Subro RSA with the Consenting Creditors. The amendment extends the deadline for
obtaining Bankruptcy Court approval of the Subro RSA from December 6, 2019 to December 11, 2019.