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DIEMER & WEI, LLP

Kathryn S. Diemer (#133977)

100 West San Fernando Street, Suite 555

San Jose, CA 95113

Telephone: (408) 971-6270

Facsimile: (408) 971-6271

Email: kdiemer@diemerwei.com

WILLKIE FARR & GALLAGHER LLP

Matthew A. Feldman (pro hac vice)

Joseph G. Minias (pro hac vice)

Daniel I. Forman (pro hac vice)

787 Seventh Avenue

New York, NY 10019-6099

Telephone: (212) 728-8000

Facsimile: (212) 728-8111

Email: mfeldman@willkie.com

jminias@willkie.com

dforman@willkie.com

Counsel for Ad Hoc Group of Subrogation

Claim Holders

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

In re:

PG&E CORPORATION,

-andPACIFIC GAS AND ELECTRIC

COMPANY,

Debtors.

☐ Affects PG&E Corporation

☐ Affects Pacific Gas and Electric 

Company

 Affects both Debtors

* All papers shall be filed in the lead case,

No. 19-30088 (DM)

Chapter 11

Bankr. Case No. 19-30088 (DM)

(Jointly Administered)

OBJECTION AND RESPONSE OF THE AD 

HOC GROUP OF SUBROGATION CLAIM 

HOLDERS TO THE MOTION OF THE AD HOC 

COMMITTEE OF SENIOR UNSECURED 

NOTEHOLDERS TO TERMINATE THE 

DEBTORS’ EXCLUSIVE PERIODS PURSUANT 

TO SECTION 1121(d)(1) OF THE 

BANKRUPTCY CODE

Hearing Date and Time: July 24, 2019 at 9:30 a.m. (PT)

Hearing Location: 450 Golden Gate Ave., San 

Francisco, CA, Courtroom 17

Judge: Hon. Dennis Montali

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TABLE OF CONTENTS

Page

PRELIMINARY STATEMENT ......................................................................................................... 1

BACKGROUND ................................................................................................................................. 5

A. General Background ..................................................................................................... 5

B. Background to the Motion ............................................................................................ 5

ARGUMENT....................................................................................................................................... 6

I. The Ad Hoc Bondholder Group Has Not Proposed a Credible and Potentially 

Confirmable Plan .......................................................................................................... 6

A. The Bondholder Plan’s $18.4 Billion Cap on All Wildfire Claims Is 

Unreasonably Low............................................................................................ 7

B. The Bondholder Plan Suffers from Major Deficiencies................................... 9

II. If Exclusivity Is Terminated, It Should Be Terminated for Everyone, So That The Ad 

Hoc Subrogation Group May Pursue Confirmation of Its Proposed Plan .................. 10

CONCLUSION.................................................................................................................................. 14

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TABLE OF AUTHORITIES

Cases Page(s)

In re Adelphia Commc’ns Corp., 

352 B.R. 578 (Bankr. S.D.N.Y. 2006).................................................................................6

In re Borders Grp., Inc., 

No. 11-10614 (MG), 2011 WL 9155779 (Bankr. S.D.N.Y. June 2, 2011) .......................12

In re Bi-Lo, LLC, 

No. 09-02140 (HB), 2010 WL 5140036 (Bankr. D.S.C. Aug. 5, 2010)......................12, 13

In re Crescent Beach Inn, Inc., 

22 B.R. 155 (Bankr. D. Me. 1982) ....................................................................................12

In re Dow Corning Corp., 

208 B.R. 661 (Bankr. E.D. Mich. 1997)..............................................................................6

In re Gibson & Cushman Dredging Corp., 

101 B.R. 405 (E.D.N.Y. 1989) ..........................................................................................11

In re GMG Capital Partners III, L.P., 

503 B.R. 596 (Bankr. S.D.N.Y. 2014)...............................................................................12

In re Kun, 

15 B.R. 852 (Bankr. D. Ariz. 1981)...................................................................................12

L & J Anaheim Assocs. v. Kawasaki Leasing Int’l, Inc. (In re L & J Anaheim Assocs.), 

995 F.2d 940 (9th Cir. 1993) .............................................................................................10

In re New Meatco Provisions, LLC, 

No. 13-bk-22155 (PC), 2014 WL 917335 (Bankr. C.D. Cal. March 10, 2014)................12

In re Texaco Inc., 

81 B.R. 806 (Bankr. S.D.N.Y. 1988).................................................................................12

In re United Press Int’l, Inc., 

60 B.R. 265 (Bankr. D.D.C. 1986) ....................................................................................12

United Sav. Ass’n of Tex. v. Timbers of Inwood Forest Assocs., Ltd. (In re Timbers of Inwood 

Forest Assocs., Ltd.), 

808 F.2d 363 (5th Cir. 1987), aff’d, 484 U.S. 365 (1988).................................................11

In re Victory Constr. Co., 

42 B.R. 145 (Bankr. C.D. Cal. 1984).................................................................................10

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Statutes 

11 U.S.C. § 1121(d)(1) ...................................................................................................................6

11 U.S.C. § 1129(a)(3) .................................................................................................................10

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The Ad Hoc Group of Subrogation Claim Holders (the “Ad Hoc Subrogation Group”) in 

the above-captioned chapter 11 cases of PG&E Corporation and Pacific Gas and Electric Company 

(together, “PG&E” or the “Debtors”), by its attorneys Willkie Farr & Gallagher LLP and Diemer 

& Wei, LLP, hereby submits this objection and response (the “Response”) to the Motion of the Ad 

Hoc Committee of Senior Unsecured Noteholders to Terminate the Debtors’ Exclusive Periods 

Pursuant to Section 1121(d)(1) of the Bankruptcy Code [Docket No. 2741] (the “Motion”). In 

support of the Response, the Ad Hoc Subrogation Group respectfully represents as follows:

PRELIMINARY STATEMENT

1. The Court’s statements at the May 22nd exclusivity hearing were unambiguous—a 

party wishing to terminate exclusivity must propose a “credible, potentially confirmable plan.” 

May 22, 2019 Hr’g Tr. at 76:9-13. By this standard, the Motion should be denied because the plan 

(the “Bondholder Plan”) described in the term sheet filed by the Ad Hoc Committee of Senior 

Unsecured Noteholders (the “Ad Hoc Bondholder Group”) is neither credible nor potentially 

confirmable. Nor will pursuit of the Bondholder Plan push these cases forward. Accordingly, the 

Bondholder Plan cannot satisfy any legal standard, and terminating exclusivity to pursue it would 

waste the Court’s and all stakeholders’ time as the June 2020 deadline to emerge from bankruptcy 

quickly approaches.

The Bondholder Plan’s Serious Shortcomings

2. In order to place the Ad Hoc Bondholder Group’s Motion—and its shortcomings—in 

perspective, it is important to understand that, as a practical matter, there are only two classes of 

claims in these cases that have not already settled with the Debtors1on the treatment of their claims 

that will be impaired under a plan and whose votes on confirmation must be solicited: (a) Wildfire 

 

1 The municipalities holding Wildfire Claims have settled with the Debtors on the amount to be paid under a “Debtor 

Plan” in satisfaction of their claims and, whether technically impaired or not by the Bondholder Plan, have agreed 

to vote against any plan not proposed or supported by the Debtors. See, e.g., PG&E Corp., Current Report (Form 

8-K), at Ex. 10-1, Section 3(b)(iii) (June 19, 2019). The Bondholder Plan lacks a legitimately impaired accepting 

class, and therefore must rely on the municipalities’ vote.

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Claims (as defined below) held by individuals for direct damages; and (b) Subrogation Claims2

based on payments of insurers to individuals. The Ad Hoc Bondholder Group’s Motion concedes 

as much by attaching a proposed term sheet that allegedly would leave every other class of claims 

unimpaired, except for a purported “impairment” of certain bondholder claims. This purported 

impairment consists of collateralizing existing unsecured bonds whose maturities extend beyond 

January 21, 2023 and reducing their interest rate by just 0.10%. There is no need, however, to 

“impair” these bonds by making them more secure and more valuable; the transparent purpose is to 

manufacture an impaired consenting class to try to address the Bondholder Plan’s failure to comply 

with Section 1129(a)(10) of the Bankruptcy Code.

3

3. The Ad Hoc Bondholder Group’s Motion is not intended to protect creditor interests. 

Instead, it is intended to gift to a subset of bondholders what they perceive as a lucrative investment 

opportunity and hundreds of millions of dollars in backstop fees to the detriment of the Debtors and 

holders of Wildfire Claims, while simultaneously attempting to force unfairly low distributions on 

the Wildfire Claim classes who will be voting creditors in nearly every plan that could be proposed. 

Although the Ad Hoc Bondholder Group asserts the need to build consensus, it does nothing of the 

sort.

4. These cases were filed to address Wildfire Claims. However, the Bondholder Plan 

ignores traditional consensus building and simply proposes to litigate aggregate wildfire liability as 

a substitute for the normal chapter 11 process. As a result, the Bondholder Plan is conditioned on 

the remote possibility that the Court estimates wildfire liability at less than $18.4 billion. That 

approach has failed to build any momentum because the Ad Hoc Bondholder Group’s “offer” is far 

below what the members of the Ad Hoc Subrogation Group or of the Official Committee of Tort 

 

2

“Subrogation Claims” are Wildfire Claims that include, but are not limited to, claims that arise from subrogation 

(whether such subrogation is contractual, equitable or statutory), assignment (whether such assignment is 

contractual, equitable or statutory), or otherwise in connection with payments made or to be made by the applicable 

insurer to insured tort victims, and whether arising as a matter of state or federal law, including, without limitation, 

Section 509 of the Bankruptcy Code.

3 The proposed collateralization of these currently unsecured bonds would also result in an instrument that would 

likely have a value that exceeds the full face amount of the related allowed bond claim, in violation of the 

Bankruptcy Code’s “fair and equitable” requirement.

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Claimants (the “Tort Claimants Committee”) could ever support and if approved, would leave 

them collecting pennies on the dollar in a supposedly solvent chapter 11 case. The Debtors have 

estimated that Wildfire Claims could exceed $30 billion,4and the holders of Subrogation Claims 

alone hold in excess of $20 billion of Wildfire Claims.5 The Bondholder Plan simply is not

sufficiently credible to warrant terminating exclusivity.

The Subrogation Creditors’ Approach

5. Unlike the Ad Hoc Bondholder Group, the Ad Hoc Subrogation Group did not 

understand the Court to be inviting a race to the courthouse to file self-serving plans. Instead, the 

Ad Hoc Subrogation Group has been negotiating with various representatives of the Wildfire 

Claims, including the Tort Claimants Committee, and developing a plan it believes may actually 

provide a viable, timely exit from these cases. Only the holders of Wildfire Claims and the 

Debtors’ existing equity have something meaningful to lose in these cases; all other classes can be 

left unimpaired. So the Ad Hoc Subrogation Group has developed a plan that would: (a) allow 

individual wildfire victims to elect to settle their claims promptly or proceed to litigate and 

ultimately recover the full compensable value of their claims from a well-funded trust; (b) settle 

Subrogation Claims at a reasonable level; and (c) provide existing equity with the exclusive 

opportunity to participate in a rights offering to recapitalize the Debtors. Rather than rush to file a

 

4 Declaration of Jason P. Wells in Support of First Day Motions and Related Relief [Docket No. 28], p. 1. (“PG&E’s 

potential liability with respect to the 2017 and 2018 Northern California wildfires could exceed $30 billion, 

without taking into account potential punitive damages, fines and penalties or damages with respect to ‘future 

claims.’”).

5 Holders of Subrogation Claims have reported approximately $18.5 billion of payments and policy reserves to the 

California Department of Insurance, which amount does not include estimated but not yet reserved future 

payments, estimated or accrued interest and attorneys’ fees, all of which are recoverable under applicable law. As 

of September 2018, holders of Subrogation Claims had reported approximately $10 billion in direct incurred losses 

resulting from the 2017 Northern California Wildfires. See Press Release, Cal. Dep’t of Insurance, Carr and 

Mendocino Complex fire insurance claims top $845 million, “California Department of Insurance Insured Losses 

from the 2018 Mudslide and the 2017 & 2018 Wildfires” (Sept. 6, 2018), http://www.insurance.ca.gov/0400-

news/0100-press-releases/2018/upload/nr106Insuredlosses090618.pdf (reporting losses for Lake, Mendocino, 

Napa, Nevada, Solano, Sonoma and Yuba). As of April 30, 2019, holders of Subrogation Claims had reported 

approximately $8.5 billion in direct incurred losses resulting from the 2018 Northern California Wildfires. See

Press Release, Cal. Dep’t of Insurance, Wildfire insurance losses from November 2018 blazes top $12 billion, 

“California Department of Insurance Insured Losses from the 2018 California Wildfires” (April 30, 2019),

http://www.insurance.ca.gov/0400-news/0100-press-releases/2019/upload/nr041-

19InsuredLosses2018Wildfires050819.pdf (reporting losses for November 2018 wildfires).

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term sheet with the Court, the Ad Hoc Subrogation Group has chosen to negotiate with other 

constituents, because a consensual resolution is in every stakeholder’s interest. The legislature has 

injected new urgency into these cases by passing new legislation (Assembly Bill 1054) which 

requires that the Debtors emerge from bankruptcy by June 30, 2020 in order to enjoy the 

legislation’s benefits. If circumstances warrant, or if the Court terminates exclusivity, the Ad Hoc 

Subrogation Group is prepared to file its plan.

6. Separately, the Ad Hoc Subrogation Group has also moved to lift the stay to allow 

determination of the Debtors’ liability on account of the Tubbs fire in state court. As set forth in 

the Motion of the Ad Hoc Subrogation Group for Relief from the Automatic Stay [Docket No. 

2863], lifting the stay will remove a major impediment to a negotiated, consensual resolution of 

these cases, whether or not exclusivity is terminated. To date, very little progress has been made in 

settlement negotiations with the Debtors in large part because the parties cannot agree on the extent 

of the Debtors’ liability for the Tubbs fire. In fact, a fatal flaw of the Bondholder Plan is that it fails 

if the Debtors are liable for Tubbs. In contrast, lifting the stay will provide the best opportunity to 

have these cases successfully resolved by the June 2020 deadline for participating in the insurance 

wildfire fund and within a time frame that will expedite distributions to individual wildfire victims.

7. Rather than upset negotiations, lifting the stay will force all parties to constantly 

reevaluate their positions as evidence is discovered, depositions are taken and the trial progresses. 

Thus, lifting the stay will facilitate rather than interrupt settlement negotiations. On the other hand, 

terminating exclusivity to allow pursuit of the Bondholder Plan will force all parties to devote time 

and energy to defeat a plan that has little to no chance of confirmation from the outset.

8. The Motion also requests the unprecedented relief of terminating exclusivity for just 

one interested party.6 But if any party in interest in these cases other than the Debtors is granted the 

 

6 Multiple objections to the Motion filed so far have taken issue with the request that exclusivity be terminated solely 

for the bondholders. See International Brotherhood of Electrical Workers, Local Union No. 1245’s Joinder to 

Motion of the Ad Hoc Committee of Senior Unsecured Noteholders to Terminate the Debtors’ Exclusive Periods 

Pursuant to Section 1121(d)(1) of the Bankruptcy Code [Docket No. 3012], p. 4 (“. . . the IBEW . . . further 

requests that these Exclusive Periods be terminated for all parties rather than just for the Ad Hoc Committee 

alone.”); The Public Advocates Office’s Statement of Position re: Motion of the Ad Hoc Committee of Senior 

Unsecured Noteholders to Terminate the Debtors’ Exclusive Periods [Docket No. 3008], p. 2 (“Cal Advocates 

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ability to file a plan, the Ad Hoc Subrogation Group should be afforded the same opportunity. 

Unlike the Bondholder Plan, the Ad Hoc Subrogation Group’s plan, which the Tort Claimants 

Committee may eventually support, will credibly address wildfire liability—the central issue of 

these cases.

BACKGROUND

A. General Background

9. On January 29, 2019, PG&E Corporation and Pacific Gas and Electric Company (the 

“Utility”), as debtors and debtors in possession, commenced these voluntary cases under chapter 11

of the Bankruptcy Code.

10. The Ad Hoc Subrogation Group’s membership and collective holdings of claims and 

interests are disclosed in the Third Amended Verified Statement of the Ad Hoc Group of 

Subrogation Claim Holders Pursuant to Bankruptcy Rule 2019 [Docket No. 3020], as may be 

amended from time to time.

B. Background to the Motion

11. On May 1, 2019 the Debtors filed a motion seeking their first extension of the 

exclusive period to file a plan of reorganization to November 29, 2019 and the exclusive period to 

solicit acceptances of their plan to January 28, 2020 [Docket No. 1797] (the “Exclusivity 

Extension Motion”). On May 22, 2019, this Court held a hearing on the Exclusivity Extension 

Motion and over certain objections, granted the Debtors an extension of the exclusive right to file a 

plan until September 26, 2019 and the exclusive right to seek acceptances for such plan until 

November 26, 2019.

12. On June 25, 2019, the Ad Hoc Bondholder Group filed the Motion. The Motion 

seeks, among other things, to terminate exclusivity solely for the Ad Hoc Bondholder Group. In 

 

asserts that competing plans are in the best interests of all parties in interest in this case.”); Joinder by ESC Local 

20 in Motion of the Ad Hoc Committee of Senior Unsecured Noteholders to Terminate the Debtors’ Exclusive 

Periods Pursuant to Section 1121(d)(1) of the Bankruptcy Code [Docket. No. 3007], p. 2 (“Because ESC Local 20 

believes that competing plans will ultimately yield the best possible result for employees and other critical 

stakeholders, ESC Local 20 supports . . . [an] order to permit all parties to file and solicit acceptances of a plan of 

reorganization.”).

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support of the Motion, the Ad Hoc Bondholder Group attached as Exhibit B to the Motion a term 

sheet for a plan of reorganization (the “Bondholder Term Sheet”) that the Ad Hoc Bondholder 

Group asserts forms the basis for the Bondholder Plan. A fundamental condition precedent to 

confirmation under the Bondholder Term Sheet is the estimation of substantially all claims 

(including both claims held by individuals and Subrogation Claims) against the Debtors relating to 

prepetition Northern California wildfires (the “Wildfire Claims”) at no more than $16 billion (or 

$18.4 billion including the 15% estimation cushion referenced in the Bondholder Term Sheet).

ARGUMENT

I. The Ad Hoc Bondholder Group Has Not Proposed a Credible and Potentially 

Confirmable Plan

13. At the time the Court articulated its standard for terminating exclusivity in these 

cases, the Court was similarly clear that “[O]ne thing I won’t do is waste time on nonplans or tire 

kickers or troublemakers.” May 22, 2019 Hr’g Tr. at 51:7-8. By any measure, advancement of the 

Bondholder Plan would be a waste of time.

14. Section 1121 of the Bankruptcy Code provides that the court may modify exclusivity 

“for cause,” which has been interpreted to be a fact specific, multi-factor inquiry. 11 U.S.C. 

§ 1121(d)(1); In re Adelphia Commc’ns Corp., 352 B.R. 578, 586-87 (Bankr. S.D.N.Y. 2006)

(citing In re Dow Corning Corp., 208 B.R. 661, 664-65 (Bankr. E.D. Mich. 1997)). Importantly, as 

noted by the court in Dow Corning, “[w]hen the Court is determining whether to terminate a 

debtor’s exclusivity, the primary consideration should be whether or not doing so would facilitate 

moving the case forward.” 208 B.R. at 670 (emphasis added). Notably, this determination is one 

of practicality, which can override a mere “toting up of the factors.” Id. Here, even if some of the 

traditional factors may weigh towards terminating exclusivity, the Bondholder Plan’s inability to 

move the cases forward, and the likelihood that pursuit of the Bondholder Plan actually stalls 

progress, undermines any case the Motion makes for terminating exclusivity.

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A. The Bondholder Plan’s $18.4 Billion Cap on All Wildfire Claims Is 

Unreasonably Low

15. The Ad Hoc Bondholder Group acknowledges in the Motion that these cases hinge

on fairly resolving and paying wildfire liabilities and developing consensus around a confirmable 

plan. Motion, ¶ 3. But the Bondholder Plan misses the mark on both counts. The Bondholder Plan 

is predicated upon a requirement that the aggregate amount of all Wildfire Claims not exceed $18.4 

billion. Specifically, the Bondholder Plan requires an estimation trial to determine the allowed 

amount of certain Wildfire Claims for purposes of distribution. It is a condition precedent to the 

effective date of the Bondholder Plan that estimated Wildfire Claims “shall not exceed $16 billion”

plus a maximum 15% upward adjustment, i.e., $18.4 billion total.7 One billion dollars of that total 

is set aside for the municipality claims in accordance with the settlement reached with the Debtors, 

leaving at most only $17.4 billion for all subrogation and individual Wildfire Claims.

16. $17.4 billion is not nearly enough to satisfy the unliquidated Wildfire Claims in full 

and, therefore, an essential condition precedent to the effectiveness of the Bondholder Plan will not 

be satisfied. As previously noted, the Debtors themselves have estimated that Wildfire Claims 

could exceed $30 billion, with Subrogation Claims totaling more than $20 billion.

17. One obvious flaw in the Bondholder Plan is the allocation of only $975 million for 

Subrogation Claims related to the Tubbs fire. With approximately $8 billion in Subrogation Claims 

related solely to Tubbs, the Bondholder Plan represents a ~12%8recovery (even before considering 

related claims for interest and attorney fees permitted under applicable law)—nothing more than a 

nuisance value payment for billions of dollars of Tubbs-related Wildfire Claims, despite the 

substantial evidence that the Debtors caused the Tubbs fire. The same flaw applies to the 

Bondholder Plan’s proposed treatment of individual Wildfire Claims related to Tubbs.

18. The Ad Hoc Bondholder Group’s assumption that the Debtors are not liable for the 

Tubbs fire is likely relying on the flawed January 2019 report by Cal Fire that stated it is “unlikely 

 

7 Bondholder Term Sheet, p. 22.

8 Before the 15% adjustment. 

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PG&E equipment is responsible for causing the Tubbs fire.”

9

 However, Cal Fire got it wrong. As 

further described in the Ad Hoc Subrogation Group’s pending lift stay motion [Docket No. 2863], 

there is substantial physical evidence establishing that PG&E equipment caused the Tubbs fire, 

which the Cal Fire Report inexplicably ignored. Video footage from the Bennett Lane Winery—

which is located near the origin area of the Tubbs fire—shows a bright arc flash at the same time 

(9:20:46 p.m. on October 8, 2017) that an electrical fault was recorded by PG&E, downstream

smart meters on PG&E’s Calistoga 1101 Circuit failed and fuses blew on PG&E Pole 773. The arc 

flash could only have been caused by a high voltage electrical event on PG&E’s distribution 

system—precisely the kind of electrical event that is known to start fires. The arc flash, electrical 

fault, smart meter failure, and blown fuses simultaneously occurred near the area of origin of the 

Tubbs fire, only eighteen minutes before that fire was first observed—consistent with the amount of 

time it can take for a spark to spread to visible fire.

19. Cal Fire turned a blind eye to this critical evidence. The Cal Fire Report fails to 

address either the videotaped arc flash or the electrical occurrences on PG&E’s lines. Nor did Cal 

Fire provide a definitive explanation of what caused the Tubbs fire. Moreover, PG&E’s argument 

that an unspecified event on insulated, low-voltage, customer-owned lines caused the Tubbs fire is 

unsupported by eyewitness testimony and cannot be squared with the physical evidence or explain 

the events of 9:20:46 p.m. After that time, the private lines were de-energized, and could not have 

caused a fire.

20. While discovery is not yet complete, the Tort Claimants Committee and the Ad Hoc 

Subrogation Group are confident that PG&E would be held strictly liable and liable in negligence 

for its role in the Tubbs fire if such claims were to be adjudicated. Since the Ad Hoc Bondholder 

Group does not claim to have any evidence that the Debtors are not responsible for the Tubbs fire, 

the assumption made in the Bondholder Plan that the Debtors are not liable for that fire is 

 

9 Declaration of Benjamin P. McCallen in Support of the Ad Hoc Group of Subrogation Claim Holders’ Motion for 

Relief From the Automatic Stay [Docket No. 2864], Ex. 2 (CALIFORNIA DEP’T OF FORESTRY & FIRE 

PROTECTION, SONOMA-LAKE NAPA UNIT, INVESTIGATION REPORT: TUBBS INCIDENT (January 20, 

2019)) at 76 (the “Cal Fire Report”).

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unsupportable. A finding against the Debtors on causation of the Tubbs fire alone would be the end 

of the Bondholder Plan.

21. Moreover, putting aside the specifics of the Tubbs fire, as time goes on, evidence 

mounts of PG&E’s systemic culpability for the epidemic of wildfires in 2017 and 2018. As was 

most recently detailed in the July 10, 2019 scathing report in The Wall Street Journal, entitled

“PG&E Knew for Years Its Lines Could Spark Wildfires, and Didn’t Fix Them,”

10 there exists 

substantial evidence that PG&E was responsible for those wildfires. Much of that evidence is only 

beginning to be made public, and will ultimately demonstrate PG&E’s liability and negligence with 

respect to all prepetition wildfires in any protracted litigation.

22. The same day that report appeared in The Wall Street Journal, Judge Alsup entered 

an order sua sponte, requiring the Debtors to: (i) respond to the report on a paragraph-by-paragraph 

basis, in up to 40 double-spaced pages, in a “fresh, forthright statement owning up to the true 

extent” of the report; and (ii) answer the following questions, (a) explain why various political 

contributions “were more important [than] replacing or repairing aging transmission lines . . . and 

removing or trimming the backlog of hazard trees, and increasing vegetation management,” and 

(b) explain why almost $5 billion in dividends prior to the bankruptcy filing were made “at a time 

when PG&E was aware of the problems named in the Wall Street Journal report and knew of its 

hazard tree backlog.”

11

 Any plan that gives short-shrift to holders of Wildfire Claims is not only 

unlikely to be confirmed, but also unconscionable.

B. The Bondholder Plan Suffers from Major Deficiencies

23. Given the wildfire claimants’ views of the strength of the Wildfire Claims, it is clear 

that both the subrogation and individual classes of Wildfire Claims would vote to reject the 

Bondholder Plan, because the actual amount of such Wildfire Claims far exceeds the $17.4 billion 

 

10 Katherine Blunt & Russell Gold, PG&E Knew for Years Its Lines Could Spark Wildfires, and Didn’t Fix Them, 

The Wall Street Journal (July 10, 2019), https://www.wsj.com/articles/pg-e-knew-for-years-its-lines-could-sparkwildfires-and-didnt-fix-them-11562768885?tesla=y, attached as Exhibit A.

11 Request for Offender PG&E to Supply Information, United States v. Pacific Gas & Elec. Co., No. Cr. 14-00175 

(N.D. Cal. July 10, 2019) [Docket No. 1075], p. 1-2, attached as Exhibit B.

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reserved for such claims. Accordingly, the Bondholder Plan would lack the support of any wildfire 

claimant constituency, and fail to resolve the primary reason these cases were commenced.

24. Not only would the Bondholder Plan lack any wildfire claimant support, the Ad Hoc 

Bondholder Group’s attempt to manufacture an impaired consenting class cannot satisfy section 

1129(a)(3)’s requirement of good faith. L & J Anaheim Assocs. v. Kawasaki Leasing Int’l, Inc. (In 

re L & J Anaheim Assocs.), 995 F.2d 940, 943 n.2 (9th Cir. 1993) (“We believe, however, that 

abuses on the part of a plan proponent ought not affect the application of Congress’s definition of 

impairment. The bankruptcy court can and should address such abuses by denying confirmation on 

the grounds that the plan has not been ‘proposed in good faith.’”) (quoting 11 U.S.C. § 1129(a)(3)). 

As noted above, the Bondholder Plan purports to impair the long-term bonds by reducing their 

interest rate by just 0.10%, while elevating their priority by securing their currently unsecured 

bonds with liens on the Debtors’ principal assets. Moreover, whether or not the proponents intend 

to argue that reduced interest offset by collateralization that makes an instrument more valuable

constitutes technical impairment, the proposal would also violate the Bankruptcy Code’s “fair and 

equitable” requirement. An instrument that is secured by the Debtors’ assets would quite likely 

have a value in excess of the full face amount of the bondholders’ allowed claims, and would result 

in those bondholders receiving consideration that exceeds the allowed amount of their claims, in 

violation of section 1129(b). In re Victory Constr. Co., 42 B.R. 145, 155 (Bankr. C.D. Cal. 1984). 

It would also give them a priority over future wildfire and other unsecured claims.

II. If Exclusivity Is Terminated, It Should Be Terminated for Everyone, So That The Ad 

Hoc Subrogation Group May Pursue Confirmation of Its Proposed Plan

25. The Ad Hoc Subrogation Group believes for the reasons stated in this Response that 

termination of exclusivity in favor of the Ad Hoc Bondholder Group is inappropriate. However, if 

the Court disagrees and is inclined to grant the Motion, exclusivity should be terminated for all 

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parties in interest, so that the Ad Hoc Subrogation Group may quickly begin to prepare to file and 

seek confirmation of its own proposed plan, which will be credible and confirmable.

26. While still subject to negotiation, features of the plan that will be proposed by the Ad 

Hoc Subrogation Group are expected to include: (a) reinstatement or refinancing of all funded debt 

claims; (b) establishment of a well-funded trust from which individual wildfire victims will be 

allowed to elect to settle their claims promptly or proceed to litigate and ultimately recover the full 

compensable value of their claims; (c) resolution and equitization of a substantial portion of the

aggregate allowed Subrogation Claims; (d) the option for existing equity holders to invest in the 

reorganized Debtors through a rights offering; (e) payment in full, or reinstatement of, general 

unsecured claims; (f) a balance sheet upon emergence that allows the reorganized Debtors to 

maintain an investment grade rating, and will position the reorganized Utility to continue its 

compliance with state renewable standards and invest in requisite grid improvement and safety 

enhancement initiatives; (g) the assumption of the Debtors’ existing retirement plan; and (h) rate 

neutrality for the reorganized Debtors’ customers.

27. Without meaningful argument in the Motion, the Ad Hoc Bondholder Group’s 

proposed order would terminate exclusivity solely for them. Such relief is atypical, and not 

justified by the facts of this case. If allowed, the “undue bargaining leverage” granted to the Debtor 

by virtue of its exclusive power to file a chapter 11 plan would inappropriately shift to a single 

group of creditors without any fiduciary duties or public mission (and without support from any 

truly impaired class). In re Gibson & Cushman Dredging Corp., 101 B.R. 405, 409 (E.D.N.Y. 

1989) (intention of section 1121 is to “cure the prior practice that gave debtors undue bargaining 

leverage to delay and thereby force a settlement out of otherwise unwilling creditors” (internal 

quotations omitted)); United Sav. Ass’n of Tex. v. Timbers of Inwood Forest Assocs., Ltd. (In re 

Timbers of Inwood Forest Assocs., Ltd.), 808 F.2d 363, 372 (5th Cir. 1987) (“Section 1121 was 

designed, and should be faithfully interpreted, to limit the delay that makes creditors the hostages of 

Chapter 11 debtors”), aff’d, 484 U.S. 365 (1988).

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28. In nearly all cases, when exclusivity is terminated, it is terminated for all parties in 

interest. See, e.g., In re New Meatco Provisions, LLC, No. 13-bk-22155 (PC), 2014 WL 917335, at 

*3 (Bankr. C.D. Cal. March 10, 2014) (terminating exclusivity “so that all the players, including the 

debtor, have an even chance in proposing a plan.”) (citations omitted); In re Kun, 15 B.R. 852, 853 

(Bankr. D. Ariz. 1981) (“[T]he exclusive plan period has expired and . . .any party in interest, 

including the debtor, the trustee, a creditor, a creditors’ committee, an equity security holders’

committee, an equity security holder, or any indenture trustee may file a plan as provided for under 

Section 1121(c) of the Bankruptcy Code.”); In re Borders Grp., Inc., No. 11-10614 (MG), 2011 

WL 9155779, at *1 (Bankr. S.D.N.Y. June 2, 2011) (“Once the 120-day period expires or is 

terminated, any party in interest may file a plan of reorganization.”); In re GMG Capital Partners 

III, L.P., 503 B.R. 596, 600 (Bankr. S.D.N.Y. 2014) (“Once exclusivity terminates, any party in 

interest, including the debtor, can file a plan.”); In re Crescent Beach Inn, Inc., 22 B.R. 155, 160-61 

(Bankr. D. Me. 1982) (“Shortening the debtor’s exclusive period for filing a plan will permit any 

party in interest . . . to file a plan.”).

29. In the handful of cases where exclusivity was not terminated globally, it has

terminated for the benefit of another fiduciary, or in the 2001 cases of the Utility, was allowed to 

expire in favor of the California Public Utility Commission, the Utility’s primary regulator, acting 

in the public interest. See Order Terminating Exclusivity With Respect to the California Public 

Utilities Commission and Authorizing the California Public Utilities Commission to File an 

Alternative Plan of Reorganization, In re Pacific Gas & Electric Co., No. 01-30923 (DM) (Bankr. 

N.D. Cal. 2001) [Docket No. 5155]; In re United Press Int’l, Inc., 60 B.R. 265, 271 (Bankr. D.D.C. 

1986) (mentioning without explanation a previous consent order whereby the unsecured creditors’ 

committee and the debtor’s employee union were granted co-exclusive authority with the debtor to 

file plans of reorganization); In re Texaco Inc., 81 B.R. 806, 808 (Bankr. S.D.N.Y. 1988) 

(discussing a previous decision to modify exclusivity for the purpose of allowing the statutory 

committees the opportunity to file their plan); In re Bi-Lo, LLC, No. 09-02140 (HB), 2010 WL 

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5140036, at *7 (Bankr. D.S.C. Aug. 5, 2010) (noting that the unsecured creditors’ committee had 

previously been granted co-exclusive authority with the debtors to propose a plan of 

reorganization).

30. The specific relief sought in the Motion by the Ad Hoc Bondholder Group, who are 

not fiduciaries or a state regulator charged with acting in the public interest, is unprecedented and 

unjustified. The Ad Hoc Bondholder Group complains in the Motion that the Debtors have thus far 

not sufficiently engaged with the Ad Hoc Bondholder Group. However, the Ad Hoc Bondholder 

Group’s claims are likely to be largely unimpaired and ride through the bankruptcy. If the proposed 

order is entered, the Ad Hoc Bondholder Group, a stakeholder without any meaningful role in the 

reorganization process, would be elevated and given a unique position equal to the Debtors, 

undermining the equality of distribution principals at the heart of the Bankruptcy Code. Those that 

support terminating exclusivity in these cases have generally stated that it should be terminated for 

everyone, to truly allow for the marketplace of ideas to select from among competing plans, rather 

than to allow the Ad Hoc Bondholder Group to launch a hostile takeover of these cases.

12

 

12 See Note 6, supra.

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CONCLUSION

WHEREFORE, the Ad Hoc Subrogation Group requests that the Court deny the Motion, or 

in the alternative, grant relief consistent with this Response as it determines is just and proper.

Dated: July 18, 2019

Counsel for Ad Hoc Group of Subrogation Claim Holders

WILLKIE FARR & GALLAGHER LLP

/s/ Matthew A. Feldman 

Matthew A. Feldman (pro hac vice)

Joseph G. Minias (pro hac vice)

Daniel I. Forman (pro hac vice)

787 Seventh Avenue

New York, NY 10019-6099

Telephone: (212) 728-8000

Facsimile: (212) 728-8111

Email: mfeldman@willkie.com

jminias@willkie.com

dforman@willkie.com

DIEMER & WEI, LLP

Kathryn S. Diemer (#133977)

100 West San Fernando Street, Suite 555

San Jose, CA 95113

Telephone: (408) 971-6270

Facsimile: (408) 971-6271

Email: kdiemer@diemerwei.com

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Exhibit A

Wall Street Journal Article:

PG&E Knew for Years Its Lines Could Spark Wildfires, and Didn’t Fix Them

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Exhibit B

Judge Alsup Order, July 10, 2019

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