KBRA Publishes Project Finance Research: How Will Pacific Gas & Electric’s Bankruptcy Impact Project Financings?

Pacific Gas & Electric (PG&E) filed for bankruptcy protection on January 29 to protect the utility from liabilities resulting from the historic California wildfires.

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Business Wire, Inc.Business Wire, Inc.
Retrieved on: 
Tuesday, February 5, 2019
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Energy, Oil, Gas, Utilities, Professional services, Banking, Finance, Insurance, Energy in California, Financial District, San Francisco, Pacific Gas and Electric Company, Bankruptcy, Companies, Finance, Money
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United States, NEW YORK
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KBRA AND KBRA EUROPE
Summary
Key Points: 
  • Pacific Gas & Electric (PG&E) filed for bankruptcy protection on January 29 to protect the utility from liabilities resulting from the historic California wildfires.
  • PG&E said its total liabilities are around $52 billion, which includes anticipated expenses from the wildfires.
  • KBRA believes that PG&E, as a debtor in bankruptcy, is likely to request the rejection of many of its PPAs.
  • KBRAs Project Finance group has published an article discussing some of these factors and the impact PPA rejections will have on outstanding project financings.


Pacific Gas & Electric (PG&E) filed for bankruptcy protection on January
29 to protect the utility from liabilities resulting from the historic
California wildfires. PG&E said its total liabilities are around $52
billion, which includes anticipated expenses from the wildfires. The
filing was expected as the utility announced on January 14 that Chapter
11 protection was the only remaining option that would allow it to
maintain financial stability and continue to service its customers.
However, the bankruptcy process is expected to be lengthy and there is
uncertainty surrounding the fate of PG&E’s signed long-term power
purchase agreements (PPAs) which, according to a 2017 10K filing, was
around $36.7 billion with various renewable energy projects.

KBRA believes that PG&E, as a debtor in bankruptcy, is likely to request
the “rejection” of many of its PPAs. The standard for bankruptcy court
approval of a contract rejection is whether the utility can demonstrate
that the rejection is a product of sound business judgment. This is
likely for those PPAs where the purchase price is higher than the
current market rate. In the event of a rejection, the seller’s recourse
is limited to (1) asserting a claim for damages from the contractual
breach, or (2) offering to renegotiate the terms of the PPA. Therefore,
it is quite plausible that a significant portion of PG&E’s existing PPAs
could be terminated entirely or renegotiated to a lower amount since
most of these contracts are above market. There are, however, some
factors that suggest this may not occur.

KBRA’s Project Finance group has published an article discussing some of
these factors and the impact PPA rejections will have on outstanding
project financings. To view the report, please click here.

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About KBRA and KBRA Europe

KBRA is a full service credit rating agency registered with the U.S.
Securities and Exchange Commission as an NRSRO. In addition, KBRA is
designated as a designated rating organization by the Ontario Securities
Commission for issuers of asset-backed securities to file a short form
prospectus or shelf prospectus, is recognized by the National
Association of Insurance Commissioners as a Credit Rating Provider, and
is a certified Credit Rating Agency (CRA) by the European Securities and
Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is
registered with ESMA as a CRA.

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