ML020910404
| ML020910404 | |
| Person / Time | |
|---|---|
| Site: | Diablo Canyon  |
| Issue date: | 03/18/2002 |
| From: | Kennedy R Pacific Gas & Electric Co, Pacific Investment Management Co |
| To: | Office of Nuclear Reactor Regulation, US Federal Judiciary, Bankruptcy Court, Northern District of California |
| References | |
| 01-30923 DM, 94-0742640 | |
| Download: ML020910404 (6) | |
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PACIFIC GAS AND ELECTRIC COMPANY, a California corporation, Debtor.
Federal I.D. No. 94-0742640 Case No. 01-30923 DM
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Chapter 11 Case
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Date:
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Time:
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Place:
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March 25, 2002 9:30 a.m.
235 Pine Street San Francisco, California DECLARATION OF RAYMOND G. KENNEDY IN FURTHERANCE OF THE SENIOR DEBTHOLDERS' STATEMENT IN SUPPORT OF PACIFIC GAS AND ELECTRIC COMPANY'S MOTION FOR ORDER (A) APPROVING SETTLEMENT AND SUPPORT AGREEMENT BY AND AMONG PLAN PROPONENTS AND SENIOR DEBTHOLDERS, (B) AUTHORIZING PAYMENT OF PRE-AND POST-PETITION INTEREST TO HOLDERS OF UNDISPUTED CLAIMS IN CERTAIN CLASSES, (C) AUTHORIZING PAYMENT OF FEES AND EXPENSES OF INDENTURE TRUSTEES AND PAYING AGENTS AND (D) AUTHORIZING DEBTOR TO ENTER INTO SIMILAR SETTLEMENTS
<4C Kennedy.doc Declaration of PIMCO in Furtherance of Senior Debtholders' Statement IN RE:
1 James E. Spiotto [Admitted Pro Hac Vice]
Chapman and Cutler 111 West Monroe Street Chicago, IL 60603-4080 Telephone: (312) 845-3000 Facsimile: (312) 701-2361 William R. Pascoe, Esq. (State Bar #54284)
Pascoe & Rafton 1050 Northgate Drive Suite 356 San Rafael, CA 94903 Telephone: (415) 492-1003 Facsimile: (415) 492-3312 ATTORNEYS FOR THE SENIOR DEBTHOLDERS UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION
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I, Raymond G. Kennedy, declare as follows:
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I am a Managing Director of Pacific Investment Management Co. LLC 4
("PIMCO"), and maintain an office at 840 Newport Center Drive, Suite 300, Newport Beach, 5
CA 92660. This Declaration is based on my personal knowledge of the facts stated herein. If 6
called as a witness, I could and would testify competently to the following facts.
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I make this Declaration in furtherance of the Senior Debtholders' Statement in 8
Support of Pacific Gas and Electric Company's Motion for Order (A) Approving Settlement and 9
Support Agreement By and Among Plan Proponents and Senior Debtholders, (B) Authorizing 10 Payment of Pre-and Post-Petition interest to Holders of Undisputed Claims in Certain Classes, 11 (C) Authorizing Payment of Fees and Expenses of Indenture Trustees and Paying Agents and (D) 12 Authorizing Debtor to Enter into Similar Settlements.
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PIMCO is one of the world's largest investment management companies, 14 managing assets of over $253.8 billion for governments, foundations, pension plans, institutions 15 and other investors. I am an experienced professional investment manager. I have over 15 years 16 of investment management experience.
I serve as a Managing Director and portfolio manager 17 with responsibility for management of funds and accounts investing in debt securities and 18 obligations, corporate fixed income obligations, corporate fixed income securities, bank loans, 19 and structured debt obligations. I hold a bachelor's degree from Stanford University and an 20 MBA from the Anderson Graduate School of Management at the University of California, Los 21 Angeles.
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PIMCO routinely purchases fixed-income securities that are consistent with the 23 investment strategies of PIMCO's clients. In making the decision to purchase a given security, 24 PIMCO considers, among other things, the creditworthiness of the issuer, the contractual rate of 25 interest and the likelihood that the agreed-upon interest will be paid as promised.
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-2 Declaration of PIMCO in Furtherance of Senior Debtholders' Statement
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PIMCO has filed on behalf of its clients or funds it manages $226.4 million of 3
claims representing Floating Rate Notes and Senior Notes (collectively, the "Notes") issued by 4
the Debtor, Pacific Gas and Electric Company ("PG&E"). 1 5
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PIMCO purchased such Notes based upon the understanding that the Notes were 6
investment grade securities of a utility offering appropriate risk-adjusted yields. The capital 7
markets generally consider investment grade, fixed income securities such as the Notes to be 8
appropriate for governmental bodies, pension funds and the like.
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Further, PIMCO purchased such Notes in reliance on representations by PG&E 10 that payment of principal and interest on the Notes would be made in a timely manner. The 11 assumption that principal and interest would be paid on the Notes on a timely basis in the 12 amounts agreed to by PG&E in turn influenced other investment decisions made by PIMCO for 13 its clients.
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PIMCO understood that the issuance of the Notes was specifically approved, 15 during an energy crisis, not only by the Board of Directors of PG&E, but also by the California 16 Public Utility Commission ("CPUC") as a reasonable cost and an appropriate part of the rate 17 base. This meant that there was a clear source of repayment for the Notes.
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During the pendency of the case, PG&E has been able to amass large amounts of 19 cash while valid obligations to governmental bodies and pension funds are unpaid.
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Those capital market creditors who purchased the securities of PG&E in 2000, 21 including the Floating Rate Notes issued in November of 2000 with a maturity of November of 22 2001, did not intend a long term financial commitment. They provided capital to PG&E during 23 Unless otherwise defined herein, all capitalized terms not defined herein shall have the same meaning 24 ascribed to them in the Motion and Settlement Agreement or in the Second Amended Plan of Reorganization proposed by the Debtor and PG&E Corporation.
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the California energy crisis based upon the representations by PG&E, supported by the CPUC, 3
that sufficient funds would be available to pay the securities at maturity and that the interest 4
payments would be made as scheduled. Those financial investors relied on the statements of 5
PG&E and CPUC regarding the availability of funds to pay the securities and had other uses 6
planned for the funds on and after November 2001. These institutions had to function without 7
the funds, while PG&E, which has indicated it is solvent, had the benefit of over $4 billion in 8
cash, most of which it presently is holding for the sole purpose of paying debt service and debt 9
that has matured or is otherwise due.
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PIMCO has filed Proofs of Claim in the above matter. PIMCO is aware of the 11 proposed treatment accorded the Notes in the Second Amended Plan and Disclosure Statement 12 filed by the Plan Proponents. PIMCO is also aware of the proposed treatment of the Notes in the 13 term sheet for a Plan proposed publicly by the CPUC.
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PIMCO has been involved in the negotiation of the Settlement Agreement and 15 strongly supports the Settlement Agreement as the best alternative currently available for Senior 16 Debtholders. The Settlement Agreement is desirable because it fixes the rate to be paid on the 17 Notes at the contract rate in effect as of the Petition Date and protects investors from risks 18 inherent in delays in the reorganization process by allowing for increases in interest rates if the 19 Plan does not go effective by certain dates. Moreover, it seeks to defray the fees and costs of all 20 entitled indenture trustees and paying agents and otherwise amelioiate the damage suffered by 21 investors by reason of the cessation of interest payments since the bankruptcy filing. PG&E is 22 solvent and will be required to pay the interest on the Notes in order to emerge from bankruptcy.
23 PG&E has available cash to make the payments, the payments now will avoid negative arbitrage 24 as discussed in the Declaration of Kent M. Harvey filed on March 5, 2002 in support of PG&E's 25 motion to approve the Settlement Agreement (which PG&E claims is as much as $35 million 26 27
-4 Declaration of PIMCO in Furtherance of Senior Debtholders' Statement 2.9 _
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annually) and will restore the confidence of financial investors such as PIMCO in the reliability 3
of PG&E as a credit.
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The terms of the Settlement Agreement will be available to all general unsecured 5
creditors similarly situated and therefore will not favor any individual creditors of the Debtor.
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The capital markets have been distressed by the bankruptcy filing by PG&E. That 7
is because PG&E has been perceived as a solvent entity. In the absence of an effort to build 8
capital market acceptance while the Debtor is still in bankruptcy, PG&E may have difficulty 9
establishing capital market credibility post-bankruptcy. Normally, financial investors would 10 avoid the securities of a financially troubled debtor in the future or demand a significant interest 11 rate increase over market to reflect the risk of nonpayment. The capital markets will generally 12 regard court approval of the Settlement Agreement as indicative of PG&E's intent to make 13 capital market creditability and confidence a priority which is important to PG&E's future and to 14 comply with financial covenants by which it is bound. Evidence of such intent would restore 15 confidence in the capital markets that PG&E can be relied upon, once again, for consistent, 16 continued compliance with its obligations. I believe approval of the Settlement Agreement will 17 restore investors' confidence in PG&E's financial integrity which confidence will ultimately 18 reduce PG&E's cost of borrowing. This enhanced reputation in the capital markets and reduced 19 cost of borrowing will benefit PG&E, the Estate and those who deal with PG&E, such as its rate 20 paying customers.
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Based upon my experience, I believe that continued failure to make timely 22 principal and interest payments to PIMCO and other investors during the pendency of this case 23 may jeopardize the ability of PG&E to obtain financing post-confirmation at attractive rates.
24 This is particularly true because, while PG&E's creditors have been faced with Chapter 11, 25 26
-5 27 Declaration of PIMCO in Furtherance of Senior Debtholders' Statement
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Southern California Edison creditors have benefited from that corporation having now cured its 2
defaults by making payments on past due amounts owed.
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As part of my duties, I frequently evaluate Chapter 11 plans and the proposed 4
treatment of creditors under those plans. Tt is my opinion that the treatment of the unsecured 5
creditors of PG&E as envisioned by the Settlement Agreement is appropriate and in the best 6
interests of the E.statc.
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PJMCO offers this Declaration solely in support of its own position.
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.8 foregoing does not and is not intended to represent the position of the Official Committee of 9
Unsecured Creditors Committee ("Committee i, Of which PtMCO is a member, or any member 10 of that Committee and is a statement made by PjMCO in its capacity as an individual creditor 11 and not'as member of the Committee.
12 1 declare under penalty of perjury under the laws of the United States of America and the 13 State of California that the foregoing is true and correct. Executed this 18th day of March, 2002 14 at Newport Beach, California.
15 DATED: MARCH 18,2002.
16 17 Raymond G. Kennedy, tor 18 19 20 21
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27 Fwteheno-o,*
un**h c ofSenior Debiholder' Swment Recei ved J-Ti e-Mar.19.
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