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DONNA S. TAMANAHA (WI SBN 1013199) 

Assistant United States Trustee

LYNETTE C. KELLY (SBN 120799)

Trial Attorney 

MARTA E. VILLACORTA (NY SBN 4918280)

Trial Attorney

United States Department of Justice

Office of the U.S. Trustee 

450 Golden Gate Avenue, Suite 05-0153

San Francisco, CA 94102

Telephone: (415) 705-3333

Facsimile: (415) 705-3379

Email: lynette.c.kelly@usdoj.gov;

marta.villacorta@usdoj.gov

Attorneys for James L. Snyder,

Acting United States Trustee for Region 121

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

In re

PG&E CORPORATION,

 Debtor-in-Possession.

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Case No. 19-30088 DM 

Chapter 11

In re

PACIFICE GAS AND ELECTRIC 

COMPANY,

 Debtor-in-Possession.

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Case No. 19-30089 DM 

Chapter 11

OBJECTION OF THE UNITED STATES TRUSTEE TO 

DEBTORS’ MOTION FOR INTERIM AND FINAL ORDERS AUTHORIZING

DEBTOR IN POSSESSION FINANCING

The Acting United States Trustee for Region 12 (the “United States Trustee”) hereby files 

this preliminary objection (the “Objection”) to the Motion of Debtors Pursuant to 11 U.S.C. §§ 

105, 362, 363, 364, 503 and 507, and Fed. R. Bankr. P. 2002, 4001, 6003, 6004 and 9014 for 

Interim and Final Orders (I) Authorizing the Debtors to Obtain Senior Secured, Superpriority, 

 

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James L. Snyder, Acting United States Trustee for Region 12, is acting in this appointment for Tracy Hope 

Davis, United States Trustee for Region 17, who has recused herself.

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Postpetition Financing, (II) Granting Liens and Superpriority Claims, (III) Modifying the 

Automatic Stay, (IV) Scheduling Final Hearing and (V) Granting Related Relief (ECF No. 23) (the 

“DIP Financing Motion”). In support of the Objection, the United States Trustee respectfully 

states as follows:

I. INTRODUCTION

The Debtors have not demonstrated that certain provisions in the proposed financing 

should be approved at this early stage of the case. It is unclear whether the $1.5 billion which the 

Debtors propose to borrow on an interim basis is necessary to avoid immediate and irreparable 

harm in accordance with Fed. R. Bankr. R. 4001. In addition, the proposed transaction fees 

include fees set forth in fee letters that have been filed under seal. Moreover, the proposed Interim 

Order contains a premature good faith finding under Section 364(e). 

II. FACTUAL BACKGROUND

1. On January 29, 2019 (the “Petition Date”), the Debtors filed voluntary petitions for 

relief under Chapter 11 of the BankruptcyCode.

2. The Debtors have not filed the required Schedules and Statements. The Debtors 

have instead filed an application to extend their deadline to do so by 60 days. See ECF No. 18. If 

granted, the request would allow the Debtors a total of 74 days after the Petition Date to file their 

Schedules and Statements.

3. Although the United States Trustee has not had sufficient time to appoint an 

Official Committee of Unsecured Creditors, a formation meeting will be held on February 11, 2019. 

4. On the Petition Date, the Debtors filed the DIP Financing Motion. As set forth in 

the DIP Financing Motion, the Debtors seek authorization to borrow $5.5 billion on a secured, 

superpriority basis. On an interim basis, the Debtors seek authorization to borrow $1.5 billion. See

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DIP Financing Motion, at p. 2 of 42.2

5. As part of the credit agreement filed as Exhibit B to the DIP Financing Motion 

(ECF No. 23-2) (the “DIP Credit Agreement”), the Debtors have agreed to pay fees to the DIP 

Lenders and/or the DIP Agents: (i) a fee for unused availability under the “Revolving Credit 

Facility”; (ii) a fee for undrawn “Delayed Draw Term Loans”; (iii) a fronting fee for outstanding 

letters of credit; (iv) a letter of credit participation fee; and (v) an extension fee. See DIP Financing 

Motion, at p.18 of 42; DIP Credit Agreement, at §§ 2.4, 2.5, 3.3. 

6. The Debtors also seek authorization to pay fees set forth in certain fee letters they 

seek to keep confidential by filing a seal motion (ECF No. 25).3 See DIP Financing Motion, at 

p.18 of 42; see also proposed Interim Order on DIP Financing Motion (ECF No. 23-1) (the 

“Proposed Interim Order”), at p.12 of 37.

III. OBJECTION

 

Before approving debtor in possession financing, a court must consider whether the terms 

of proposed financing are fair, reasonable and adequate. See In re Los Angeles Dodgers LLC, 457 

B.R. 308, 312-13 (Bankr. D. Del. 2011) (citing In re Crouse Group, Inc., 71 B.R. 544, 546 (Bankr. 

E.D. Pa. 1987)). In this respect, courts routinely consider the following factors: (i) whether the 

proposed facility is an exercise of the debtor’s reasonable business judgment; (ii) whether the 

proposed facility is in the best interests of both the estate and its creditors; (iii) whether the 

transaction is both (a) necessary to preserve estate assets and (b) necessary and essential for the 

continued operation of the debtor’s business; (iv) whether the terms of the proposed transaction are 

 

2 Debtor Pacific Gas and Electric Company (the “Utility”) is the borrower, while Debtor PG&E Corporation 

is the guarantor. See DIP Financing Motion, at pp. 2, 9, 11 of 42.

3 Contemporaneously herewith, the United States Trustee is filing an objection to the motion to seal.

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fair and reasonable given the circumstances; and (v) whether the proposed facility was negotiated 

in good faith and at arm’s length. See In re Farmland Indus., Inc., 294 B.R. 855, 881 (Bankr. 

W.D. Mo. 2003).

Courts recognize that debtors in possession often “enjoy little negotiating power.” See In 

re Defender Drug Stores, Inc., 145 B.R. 312, 317 (B.A.P. 9th Cir. 1992). Thus, bankruptcy courts 

have not approved financing arrangements that convert the bankruptcy process from one designed 

to benefit all creditors to one designed for the sole (or primary) benefit of a post-petition lender 

See, e.g., Ames Dep’t Stores, Inc., 115 B.R. 34, 38-39 (Bankr. S.D.N.Y. 1990) (citing In re Tenney 

Vill. Co., 104 B.R. 562, 568 (Bankr. D.N.H. 1989) (holding that the terms of a post-petition 

financing facility must not “pervert the reorganizational process from one designed to 

accommodate all classes of creditors . . . to one specially crafted for the benefit” of one creditor)). 

Moreover, at an interim hearing on less than 14 days’ notice, a court “may authorize the obtaining 

of credit only to the extent necessary to avoid immediate and irreparable harm to the estate 

pending a final hearing.” See Fed. R. Bankr. P. 4001(c)(2) (emphasis added).

Here, the proposed DIP financing has a number of provisions that should not be approved 

on shortened notice, if at all. 

A. The Debtors Have Not Demonstrated the Need to Borrow $1.5 Billion on an Interim 

Basis.

As noted above, at an interim hearing, the authorization to obtain credit must be limited to 

what is necessary to avoid immediate and irreparable harm. See Fed. R. Bankr. P. 4001(c)(2).

Here, the Debtors seek authorization to borrow up to $1.5 billion. See ¶ 7, supra. That 

figure, however, assumes that a final hearing on the DIP Financing Motion will not occur until 

April 15, 2019. See DIP Financing Motion, at p. 31 of 42. A final hearing date in February is 

much more likely. According to the Debtors’ 13-week budget, if the final hearing were to occur 

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on or about February 23, 2019, the Debtors would need to borrow only $750 million. See 13-week 

budget (ECF No. 23-3), at p.2. Moreover, at least one expenditures on the 13-week budget may 

not be immediately necessary. Specifically, Week 1 of the 13-week budget reflects a debt service 

payment of $57,950,000. See id. At any rate, the 13-week budget indicates that the Debtors would 

have an ending cash balance of approximately $1.6 billion on February 23, 2019. Even if this 

figure is reduced by $700 million for budgeted customer deposits and a working capital reserve, 

the Utility may not need to borrow money before a final hearing. 

B. Parties and Interest Cannot Assess Whether the DIP Financing Fees are a Reasonable 

Exercise of the Debtors’ Business Judgment.

A court’s “discretion to authorize incentives to postpetition lenders is not unfettered.” See 

In re Defender Drug Stores, Inc., 145 B.R. at 317. Here, the Debtors seek authorization to pay a 

number of fees to the DIP Lenders and/or the DIP Agents, including the fees in the fee letters. As 

discussed above, the fee letters have been filed under seal. See ¶¶ 8-10, supra. These fees should 

not be approved unless they are made available to parties in interest, including any Official 

Committees (when formed).

C. The Court Should Not Make a Good Faith Finding at a First Day Hearing without 

Input from an Official Committee.

The Debtors seek a Section 364(e) finding. See DIP Financing Motion, at p. 38 of 42; 

Proposed Interim Order (ECF No. 23-1), at Findings I and J and ¶ 16 (pp. 9, 10, 25 of 37). Such a 

finding would all but immunize the DIP financing from appellate review. See 11 U.S.C. § 364(e); 

In re Adams Apple, Inc., 829 F.2d 1484, 1488-89, 1491 & n.6 (9th Cir. 1987) (dismissing appeal of 

approval of cross-collateralization clause as moot pursuant to Section 364(e)). This sweeping 

relief should not be granted at the outset of the case, before an Official Committee of Unsecured 

Creditors has had the opportunity to consider the issue.

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D. The Court Should Not Approve a Lien on Avoidance Actions.

As part of the DIP financing, the Debtors seek to grant the DIP Lenders and/or the DIP 

Agents a lien on causes of action under Chapter 5 of the Bankruptcy Code (“Avoidance Actions”). 

See Proposed Interim Order, at ¶ 3 (p.14 of 37); see also DIP Financing Motion, at p. 21 of 42.4 

The Avoidance Actions should be maintained for the benefit of unsecured creditors. Cf. Buncher 

Co. v. Official Comm. of Unsecured Creditors of GenFarm Ltd. P'ship IV, 229 F.3d 245, 250 (3d 

Cir. 2000) (“When recovery is sought under section 544(b) of the Bankruptcy Code, any recovery 

is for the benefit of all unsecured creditors ....”); see also Court’s Guidelines for Cash Collateral 

and Financing Stipulations, at ¶ E.7. 

E. The Court Should Not Approve Waivers regarding Section 506(c) and Marshalling.

The relief requested in the DIP Financing Motion includes waivers of the Debtors’ rights 

under section 506(c) and marshalling. See DIP Financing Motion, at p. 22 of 42; Interim Order, at 

¶¶ 23-24 (pp. 26-27 of 37). These waivers should not be approved at this stage of the case. See

Court’s Guidelines for Cash Collateral and Financing Stipulations, at ¶ E.4.

F. The Court Should Not Approve Financing Terms that Divest the Debtors of 

Discretion in Formulating a Plan and Administration of the Case.

Events of default under the DIP Credit Agreement include the Debtors’ filing of (i) 

a plan that is not an “Acceptable Plan”5 or (ii) a motion to dismiss or convert the case or for 

 

4 This relief would be “subject to the approval of the Court in the Final Order.” See Interim Order, at ¶ 3 

(p.14 of 37).

5 An “Acceptable Plan” is defined as “a Chapter 11 Plan that, unless otherwise consented to in advance in 

writing by the Administrative Agent, provides for the termination of the Commitments, the indefeasible 

payment in full in cash of the Obligations (other than contingent Obligations not yet due and payable) and 

the expiration or termination of all outstanding Letters of Credit (or, with respect to any undrawn Letters of 

Credit, the establishment of a “backstop” letter of credit or other Cash Collateralization thereof as required 

herein), in each case on the effective date of such Chapter 11 Plan in accordance with the terms of this 

Agreement.” See DIP Credit Agreement, at § 1.1 (p. 9 of 113).

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the appointment of a trustee. See DIP Credit Agreement, at § 8(i), (n) (at pp. 79, 81 of 

113). These provisions may improperly divest the Debtors of discretion in formulating a 

plan and the administration of the case and should not be approved. See Court’s Guidelines

for Cash Collateral and Financing Stipulations, at ¶ E.5.

G. Findings of Fact and Limitations of Liability Should be Subject to Review at the 

Final Hearing 

The Proposed Interim Order contains extensive findings of fact, as well as a 

limitation of liability. See, e.g., Proposed Interim Order, at Findings F, G, and H and ¶ 32. 

Given the limited record before the Court and the short notice, any such findings and 

limitations should be subject to review at the final hearing.

IV. RESERVATION OF RIGHTS

The United States Trustee reserves his right to supplement this Objection on any 

and all grounds prior to the final hearing on the DIP Financing Motion.

V. CONCLUSION

WHEREFORE, the United States Trustee requests that the DIP Financing Motion in its 

current form be denied, and for such other and further relief as the Court deems just and proper.

Dated: January 31, 2019 James L. Snyder

Acting United States Trustee, Region 12

/s/ Lynette C. Kelly 

Trial Attorney

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