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California wildfire may torch PG&E restructuring plan

By Lawrence Gash

Investors could pull out of bankruptcy deal if beleaguered utility is behind latest blaze

The latest California wildfires look set to engulf the bankrupt utility company Pacific Gas and Electric (PG&E), torching its ability to raise the $14bn (£10.88bn, €12.6bn) it needs to refinance.

The Kincade fire has burnt more than 75,000 acres in PG&E’s service area, with 180,000 people ordered to leave in the past week. With strong winds and dry weather fanning the blazes, California’s fire service has outlined how more than 90,000 structures are under threat by the fires

Faulty PG&E equipment has caused a number of significant wildfires in recent years. Lack of investment and a compensation bill of around $8.4bn brought the company to its knees. It sought Chapter 11 bankruptcy protection in December 2018 and has seen its stock fall by more than 65 per cent so far this year.

This month PG&E lost control of its ability to manage its own bankruptcy with a consortium of bondholders announcing its own financial restructuring plan. Last week it agreed to sell $14bn of stock to affiliates of investment firms such as Soros Fund Management, Knighthead Capital Management and Abrams Capital Management.

However, investors could walk away from their commitment to finance the bankruptcy plan. If more than 500 homes or commercial structures are destroyed in a fire caused by PG&E equipment, it will trigger a clause allowing investors to back out.

Now attention is turning to who might take on the task of restoring PG&E to profit. California Governor Gavin Newsom has said he would “love” to see Warren Buffett’s holding company, Berkshire Hathaway, make a bid.

The cause of the Kincade fire is uncertain, but there are fears that PG&E equipment may be to blame, as it broke out close to a PG&E transmission tower.

A spokesman for the company said: “It’s too soon for us to be talking about an event for which there is no official cause.”

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