ML020910730
| ML020910730 | |
| Person / Time | |
|---|---|
| Site: | Diablo Canyon  |
| Issue date: | 03/20/2002 |
| From: | Donnelly M Pacific Gas & Electric Co |
| To: | Office of Nuclear Reactor Regulation, US Federal Judiciary, Bankruptcy Court, Northern District of California |
| References | |
| 01-30923 DM, 94-0742640 | |
| Download: ML020910730 (41) | |
Text
JAMES L. LOPES (No. 63678)
JEFFREY L. SCHAFFER (No. 91404)
JANET A. NEXON (No. 104747)
HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN A Professional Corporation Three Embarcadero Center, 7th Floor San Francisco, California 94111-4065 Telephone:
415/434-1600 Facsimile:
415/217-5910 Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA 11 12 13 HcWR CA, XF' 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SAN FRANCISCO DIVISION In re PACIFIC GAS AND ELECTRIC COMPANY, a California corporation, Debtor.
Federal I.D. No. 94-0742640 No. 01 30923 DM Chapter 11 Case Date:
Time:
Place:
Judge:
April 9, 2002 1:30 p.m.
235 Pine Street, 22nd Floor San Francisco, California Hon. Dennis Montali DECLARATION OF MICHAEL J. DONNELLY IN SUPPORT OF DEBTOR'S MOTION FOR ORDER APPROVING DEBTOR'S EXECUTION AND PERFORMANCE UNDER THE
SUMMARY
OF TERMS WITH RESPECT TO FORBEARANCE AND PROPOSED REVISED TREATMENT OF LETTER OF CREDIT BANK CLAIMS IN THE PLAN OF REORGANIZATION I
t DECLARATION OF MICHAEL J. DONNELLY 4o0o1 1
2 3
4 5
6 7
8 9
10
1 I, Michael J. Donnelly, declare:
2
- 1.
I am the Assistant Treasurer of Pacific Gas and Electric Company, the 3
debtor and debtor in possession in the above-captioned Chapter 11 case (the "Debtor" or 4
"PG&E"). I make this Declaration in support of the Debtor's Motion For Order Approving 5
Debtor's Execution And Performance Under The Summary Of Terms With Respect To 6
Forbearance And Proposed Revised Treatment Of Letter of Credit Bank Claims In The Plan 7
Of Reorganization (the "Motion"). Except as otherwise stated herein, all capitalized words 8
and terms used herein have the same meanings ascribed to them in the Motion. I know the 9
following of my own knowledge (except as to any matters stated on information and belief, 10 and as to such matters, I am informed and believe they are true) and, if called upon as a 11 witness, could and would testify competently thereto.
12 In General:
13
- 2.
By the Motion, PG&E seeks the Bankruptcy Court's approval of PG&E's RKE u
14 execution of, and performance under, the Summary of Terms With Respect to Forbearance
&P.Af(IN 15 and Proposed Revised Treatment of Letter of Credit Bank Claims in the Plan of 16 Reorganization (the "Term Sheet," a true and correct copy of which is attached as Exhibit A 17 hereto), which PG&E has entered into with the various counterparties described below, 18 subject to Bankruptcy Court approval, in order to maximize the chance that PG&E can 19 preserve for the. bankruptcy estate and the anticipated reorganized Debtor the benefits of 20 favorable tax-exempt bond financing. The Motion is related to, but distinct from, the 21 Debtor's Motion For Order Approving Stipulation Regarding Credit Enhancement of 22 Pollution Control Revenue Bonds dated August 10, 2001, which was granted by this Court's 23 Order dated September 7, 2001 (hereinafter the "Prior Motion and Order").
24
- 3.
As described more fully below, PG&E is currently benefiting from certain 25 below-market-rate loans made to PG&E by the California Pollution Control Financing 26 Authority with the proceeds from the sale of certain tax-exempt revenue bonds. The bonds 27 are secured by certain letters of credit, and PG&E is obligated to repay the loans by 28 reimbursing the Letter of Credit issuing banks for all draws made on the letters of credit that DECLARATION OF MICHAEL 1
2 3
4 5
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8 9
10 11 12 HOWA&
13 RIE GNADx 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 are used to pay the bonds.
- 4.
PG&E derives substantial benefit, in the form of reduced borrowing costs, by maintaining the bonds and the resulting loans outstanding. However, pursuant to their terms, the bonds cannot remain outstanding unless they continue to be secured by letters of credit or certain other forms of credit enhancement.
- 5.
Under their current terms, due to certain defaults by PG&E, the letter of credit issuing banks currently have the right to cause the bonds to be redeemed through draws on their letters of credit. Further, unless the letter of credit issuing banks elect to extend the maturity of their letters of credit, certain of the letters of credit expire in accordance with their terms prior to the date that PG&E anticipates any plan of reorganization could become effective.
- 6.
Accordingly, PG&E desires to enter into a consensual arrangement with the letter of credit issuing banks, as set forth in the Term Sheet, pursuant to which, among other things, in exchange for an increase in the letter of credit fees payable by PG&E and the current payment of certain fees and expenses of the letter of credit issuing banks, such banks would agree to maintain their existing letters of credit for the benefit of PG&E, extend the maturity of their letters of credit, allow the existing letters of credit to continue to be drawn to pay accruing interest on outstanding tax-exempt bonds, and take certain other actions in cooperation with PG&E to keep the tax-exempt bonds, and the related below-market-rate loans to PG&E, outstanding.
- 7.
For the reasons set forth above and as more fully described below, PG&E believes that the agreement set forth in the Term Sheet is beneficial to the Debtor and its estate.
- 8.
On September 10, 2001, PG&E and its parent company, PG&E Corporation, jointly propounded and filed a Plan of Reorganization Under Chapter 11 of the Bankruptcy Code for Pacific Gas and Electric Company (the "Plan"), which Plan has been amended by a Second Amended Plan of Reorganization filed March 7, 2002 (the Plan, as so amended and as may be further modified prior to the hearing on the Motion, being DECLARATION OF MICHAEL 1
hereinafter referred to as the "Amended Plan").
2 Background and Mechanics of Subject Bond Issuances:
3
- 9.
Pursuant to the terms of various separate trust indentures (each, an 4
"Indenture") each between the California Pollution Control Financing Authority, a public 5
instrumentality and political subdivision of the State of California (the "Issuer") and Bankers 6
Trust Company, as trustee (the "Bond Trustee"), and various corresponding loan agreements 7
between the Issuer and PG&E, as of the commencement of this Chapter 11 case, the Issuer 8
had issued and outstanding 15 series of its revenue bonds in aggregate principal amount of 9
approximately $1.69 billion. As of the filing of the Motion, 11 series of such revenue bonds 10 in the aggregate principal amount of approximately $1.24 billion remain outstanding. Of 11 this $1.24 billion, the revenue bonds that are the subject of the Motion consist of four series 12 of credit-enhanced revenue bonds in the aggregate principal amount of approximately 13
$613,550,000, as set forth more specifically on Schedule 1 attached to the Term Sheet PICE C
14 (collectively, the "Letter of Credit Backed PC Bonds").'
M'J(
&RAN(N 15
- 10.
The Issuer loaned the proceeds from the sale of each series of Letter of 16 Credit Backed PC Bonds (each a "Bond Loan" and collectively the "Bond Loans") to PG&E 17 for the purpose of financing or refinancing the acquisition and/or construction of certain 18 pollution control, sewage disposal and/or solid waste disposal facilities of PG&E located 19 within the State of California. The Bond Loans were made pursuant to the terms of various 20 loan agreements (each, a "Loan Agreement" and collectively the "Loan Agreements")
21 between the Issuer and PG&E, pursuant to which PG&E agreed, among other things, to 22 repay the Bond Loans at the times and in the amounts necessary to enable the Issuer to make 23 full and timely payment of the principal of, premium, if any, and interest on, each series of 24 Letter of Credit Backed PC Bonds when due and to pay the purchase price of any Letter of 25 Credit Backed PC Bonds tendered for purchase by PG&E in accordance with the terms of 26
'The seven series of revenue bonds representing the difference between the $1.24 27 billion total revenue bonds outstanding and the $613,550,000 of Letter of Credit Backed PC Bonds are not covered by the Motion because they are not supported by letters of credit, and 28 they therefore do not raise the issues leading to the Term Sheet and the Motion.
DECLARATION OF MICHAEL 1
the applicable Indenture.
2
- 11.
Pursuant to the terms of each of the Indentures, the Issuer has assigned to the 3
Bond Trustee, for the benefit of the holders of the respective series of Letter of Credit 4
Backed PC Bonds, certain of the Issuer's rights under the various Loan Agreements, 5
including, but not limited to, the Issuer's right under the Loan Agreements to receive 6
payments from PG&E of the principal of, and premium (if any) and interest on, the Bond 7
Loans. In this manner, the Issuer has acted solely as a conduit, loaning the proceeds from 8
the sale of the Letter of Credit Backed PC Bonds to PG&E and assigning its right to receive 9
repayment of such loans to the Bond Trustee as security for the Letter of Credit Backed PC 10 Bonds and to provide funds for the full payment of the respective Letter of Credit Backed 11 PC Bonds.
12
- 12.
The Letter of Credit Backed PC Bonds are special limited obligations of the HOWAI 13 Issuer payable exclusively out of the trust estates under each of the Indentures. None of the 14 Letter of Credit Backed PC Bonds constitute a debt or liability, or a pledge of the faith, 15 credit or taxing power of the Issuer, the State of California or any of its instrumentalities or 16 political subdivisions. Rather, each series of Letter of Credit Backed PC Bonds is a limited 17 obligation of the Issuer payable solely from the revenues derived by the Issuer from PG&E 18 pursuant to the terms of the related Loan Agreement to the extent pledged by the Issuer to 19 the Bond Trustee under the terms of the applicable Indenture and from certain other funds 20 pledged and assigned as part of the trust estates under the applicable Indentures.
21 Letter of Credit Backed PC Bonds.
22
- 13.
With respect to each series of Letter of Credit Backed PC Bonds, PG&E 23 entered into a reimbursement agreement (each, a "Letter of Credit Reimbursement 24 Agreement") with a bank (each, a "Letter of Credit Issuing Bank") and certain banking or 25 other financial institutions (each, a "Bank"), pursuant to which the Letter of Credit Issuing 26 Bank has issued its irrevocable letter of credit (each, a "Letter of Credit") to the Bond 27 Trustee, for the account of PG&E, to provide for the payment of the principal of and interest 28 on the related series of Letter of Credit Backed PC Bonds and to support the payment of the DECLARATION OF MICHAEL 1
purchase price of any Letter of Credit Backed PC Bonds tendered for purchase in accordance 2
with the terms of the applicable Indenture. Under the terms of each Letter of Credit 3
Reimbursement Agreement, PG&E is obligated to reimburse the Letter of Credit Issuing 4
Bank for all amounts drawn on the related Letter of Credit.
5
- 14.
Each Letter of Credit was issued in an initial stated amount (the "Stated 6
Amount") equal to the sum of (i) the aggregate outstanding principal amount of the related 7
series of Letter of Credit Backed PC Bonds (the "Principal Portion"), plus (ii) an amount 8
equal to the amount of accrued interest on the outstanding principal amount of the related 9
series of Letter of Credit Backed PC Bonds at an assumed maximum annual rate for a 10 specified period of days as set forth in the Letter of Credit (the "Interest Portion"). The 11 Stated Amount of each Letter of Credit is reduced by the amount of each drawing paid 12 thereunder, subject to the provision that (a) with respect to amounts drawn for the payment 13 of scheduled interest on the related Letter of Credit Backed PC Bonds, the Interest Portion of MAMa 14 the Stated Amount is automatically reinstated unless the Letter of Credit Issuing Bank gives 15 notice to the contrary to the Bond Trustee in accordance with the terms of the applicable 16 Letter of Credit, and (b) with respect to amounts drawn to pay the purchase price of Letter of 17 Credit Backed PC Bonds, the amount so drawn is subject to reinstatement upon the terms set 18 forth in the applicable Letter of Credit.
19
- 15.
Under the terms of each of the Indentures pursuant to which each series of 20 Letter of Credit Backed PC Bonds were issued, each regularly scheduled payment of the 21 principal of, or interest on, the Letter of Credit Backed PC Bonds is made from moneys 22 drawn by the Bond Trustee under the related Letter of Credit. The obligation of PG&E to 23 repay the loan under the Loan Agreement is deemed satisfied to the extent of any 24 corresponding payment made by the Letter of Credit Issuing Bank under the terms of the 25 Letter of Credit. With respect to each such drawing, PG&E is then obligated under the 26 applicable Letter of Credit Reimbursement Agreement to reimburse the Letter of Credit 27 Issuing Bank for the amount of such drawing. Only if the Letter of Credit Issuing Bank 28 dishonors a drawing, or there is no Letter of Credit then in effect, is the Bond Trustee DECLARATION OF MICHAEL 1
authorized under the terms of the Indenture to collect Bond Loan payments under the 2
respective Loan Agreement and apply such funds to the payment of the principal of, or 3
interest on, the related Letter of Credit Backed PC Bonds.
4
- 16.
Accordingly, with respect to each series of Letter of Credit Backed PC 5
Bonds for which the related Letter of Credit remains outstanding, all payments of the 6
principal of, and interest on, the Letter of Credit Backed PC Bonds have been fully and 7
timely made when due from draws made by the respective Bond Trustee on the respective 8
Letter of Credit in accordance with the terms of such Letter of Credit and the related 9
Indenture.
10 Tax-Exempt Status of Letter of Credit Backed PC Bonds:
11
- 17.
All of the Letter of Credit Backed PC Bonds were sold in the capital markets 12 on the basis that, assuming PG&E continued to comply with certain covenants contained in 13 the Loan Agreements and certain of the documents, instruments and agreements executed in 14 connection therewith (collectively, the "PC Bond Documents") and with certain exceptions,
&RAR<N AA,*.*
. 15 interest on such series of Letter of Credit Backed PC Bonds would not be includable in the 16 gross income of the holders thereof for federal income tax purposes and that such interest is 17 also exempt from California personal income taxes.
18
- 18.
The tax-exempt status of the Letter of Credit Backed PC Bonds allowed such 19 bonds to be issued at favorable interest rates, thus allowing PG&E to finance certain of its 20 capital improvements and other qualified costs at rates substantially below comparable 21 conventional taxable financing alternatives available to PG&E. Based on the tax-exempt 22 status of the Letter of Credit Backed PC Bonds, their credit enhancement and their 23 commensurate credit rating, the Letter of Credit Backed PC Bonds currently accrue interest 24 at the average blended interest rate of only 1.26 % per annum,2 and at least some of PG&E's 25 tax-exempt bonds on a recent date (March 5, 2002) accrued interest at a rate of less than 1%
26 per annum. In the event that any of the Letter of Credit Backed PC Bonds were to be 27 28 2This rate was calculated as of March 1, 2002, shortly before the filing of the Motion.
DECLARATION OF MICHAEL 1
redeemed in accordance with the terms of their respective Indentures, it may not be possible 2
under current law to reissue such bonds on a tax-exempt basis. Accordingly, PG&E has 3
made the determination that the continued existence of such favorable tax-exempt financing 4
is a valuable asset of PG&E's bankruptcy estate, and that it is in the best interest of PG&E's 5
estate to keep the Letter of Credit Backed PC Bonds outstanding in order to preserve the 6
substantial benefits of such tax-exempt financing.
7 Post-Chapter 11 Filing Developments Re Letter of Credit Backed PC Bonds:
8
- 19.
Since PG&E's Chapter 11 filing on April 6, 2001 (the "Petition Date"), all of 9
the Letter of Credit Backed PC Bonds have remained outstanding, and all of the scheduled 10 interest payments on the Letter of Credit Backed PC Bonds have been fully and timely paid, 11 when due, through periodic draws by the Bond Trustee on the Letters of Credit provided by 12 the Letter of Credit Issuing Banks. To date, following each such drawing, each of the Letter 13 of Credit Issuing Banks has allowed the Interest Portion of its respective Letter of Credit to RICE NEMNURV9CI c
14 automatically reinstate in accordance with the terms thereof each month, which has resulted salu(
&RAWN 15 in automatic reinstatements each month since PG&E's Chapter 11 filing in April 2001. This 16 in large part is the result of the interim stipulation negotiated between PG&E, the Letter of 17 Credit Issuing Banks and the Banks (among others) during the first few months of this case, 18 culminating in the Prior Motion and Order in September 2001.
19
- 20.
Pursuant to the Prior Motion and Order and the interim stipulation approved 20 therein, the Letter of Credit Issuing Banks did not obligate themselves to allow any Letter of 21 Credit to be reinstated automatically and instead reserved the right in any month to give a 22 notice of nonreinstatement and trigger the presentment of any Letter of Credit. However, as 23 a small and fair incentive for the Letter of Credit Issuing Banks to allow automatic 24 reinstatement to take place while negotiations over a more permanent resolution of the Letter 25 of Credit issues was being negotiated, the estate agreed pursuant to the Prior Motion and 26 Order that with respect to any automatic reinstatements and draws for interest that occur 27 post-petition as a consequence of the Letter of Credit Issuing Banks allowing the automatic 28 reinstatement to take place, any post-petition interest drawings under the Letters of Credit DECLARATION OF MICHAEL 1
2 3
4 5
6 7
8 9
10 11 12 HOWRD 13 RICE S15 16 17 18 19 20 21 22 23 24 25 26 27 28 will constitute allowed claims against PG&E and-its bankruptcy estate in favor of the Letter of Credit Issuing Banks. Similarly, the Prior Motion and Order provides that, subject to certain conditions, the fees and expenses of the Letter of Credit Issuing Banks and the Banks (including the post-petition fees and expenses of unrelated third-party professionals retained by the Letter of Credit Issuing Banks and the Banks), to the extent provided for under the applicable Reimbursement Agreement, will constitute allowed claims against PG&E and its bankruptcy estate. Pursuant to the Prior Motion and Order, PG&E also was authorized to pay on a current basis certain fees and reasonable out-of-pocket expenses of the remarketing agents, the credit rating agencies, the tender agents and the Bond Trustee associated with the maintenance of the Letter of Credit Backed PC Bonds, to the extent such fees and expenses are payable in accordance with the terms of the applicable underlying agreements and are incurred with respect to the post-petition period.
- 21.
The next interest draw on the Letters of Credit will be on or about April 1, 2002, and each Letter of Credit Issuing Bank thereafter has until on or about April 8, 2002 to decide whether to give notice to the Bond Trustee that such Letter of Credit Issuing Bank's Letter of Credit will not be reinstated or to stay silent and permit an automatic reinstatement.
- 22.
Since the Petition Date, consistent with its duties as a Chapter 11 debtor in possession, the Debtor has not reimbursed the Letter of Credit Issuing Banks for any of the payments they have made pursuant to the monthly post-petition draws by the Bond Trustee.
As a result thereof, during the period that one or more "Events or Defaults" under its Reimbursement Agreement continue to exist, each of the Letter of Credit Issuing Banks has the right upon the passage of time, the giving of notice or both, (i) to declare a default under its respective Reimbursement Agreement, (ii) to notify the Bond Trustee of such default, and (iii) to direct the Bond Trustee to call an Event of Default under the terms of the respective Indenture and, in accordance with the terms of the respective Indenture, to cause the Bond Trustee to declare the respective series of Letter of Credit Backed PC Bonds immediately due and payable. In such event the Bond Trustee would, in accordance with the terms of the respective Indentures and the respective Letters of Credit, draw upon the respective Letters DECLARATION OF MICHAEL 1
of Credit, and apply such drawn funds to the full payment and cancellation of the related 2
outstanding Letter of Credit Backed PC Bonds, with the end result that this tax-preferred 3
financing would no longer be outstanding.
4
- 23.
Further, each of the Letters of Credit will expire in accordance with its terms 5
on the expiry date set forth on Schedule 1 attached to the Term Sheet. Pursuant to the terms 6
of each of the Indentures, with respect to each series of Letter of Credit Backed PC Bonds, 7
subject to certain exceptions, unless the Bond Trustee shall have received either (a) a 8
renewal or extension of the existing Letter of Credit for a period of at least one year, or (b) a 9
substitute letter of credit or other credit facility meeting the requirements of the respective 10 Loan Agreement and Indenture at least 35 days prior to the expiration date of the respective 11 Letter of Credit, the Bond Trustee is required to call the series of Letter of Credit Backed PC 12 Bonds for redemption and cancellation on the last business day which is at least five 13 calendar days preceding the expiration date of the respective Letter of Credit. In such event
&,Zx 14 the Bond Trustee would again, in accordance with the terms of the respective Indenture and 15 the respective Letter of Credit, draw upon the respective Letter of Credit, and apply such 16 drawn funds to the full payment and cancellation of the related series of outstanding Letter 17 of Credit Backed PC Bonds, with the end result that this tax-preferred financing would no 18 longer be outstanding.
19
- 24.
As an accommodation to PG&E and relying on the modest concession made 20 to them in the Prior Motion and Order, the Letter of Credit Issuing Banks have thus far 21 refrained from taking the actions described above which would result in the redemption of 22 the Letter of Credit Backed PC Bonds.
However, absent a further consensual agreement 23 between PG&E and the Letter of Credit Issuing Banks, the Letter of Credit Issuing Banks 24 have no obligation either to (i) continue to forbear from the exercise of their remedies under 25 their respective Reimbursement Agreements and the related Indentures (which could result 26 in the redemption of the related series of Letter of Credit Backed PC Bonds), or (ii) provide 27 an extension of the stated expiration of their Letters of Credit (which may be necessary to 28 avoid the redemption of the related series of Letter of Credit Backed PC Bonds).
DECLARATION OF MICHAEL 1
- 25.
PG&E (and, I believe, the Letter of Credit Issuing Banks and the Banks) 2 always intended that the interim stipulation approved by the Prior Motion and Order would 3
be a "bridge" to allow PG&E time to try and obtain the Letter of Credit Issuing Banks' and 4
the Banks' concurrence to a long-term solution via negotiated provisions in a plan of 5
reorganization. Accordingly, once the Plan was filed in September 2001, PG&E and the 6
Letter of Credit Issuing Banks began negotiating in earnest for such a long-term solution to 7
be incorporated into the Plan via an amendment, plus whatever additional short-term 8
provisions the parties might deem appropriate.
9
- 26.
The Letter of Credit Banks have indicated to PG&IE that, subject to certain 10 conditions, they would agree to continue to forbear from exercising their remedies under 11 their respective Reimbursement Agreements and the related Indentures and would agree to 12 extend the terms of their Letters of Credit in order to provide PG&E with more time to 13 confirm and effectuate a plan of reorganization that would permit the reorganized Debtor to RIcE14 retain the benefits of the tax-exempt exempt financing offered by the continued existence of
,_A*,C-.15 the Letter of Credit Backed PC Bonds. Consistent with such position of the Letter of Credit 16 Issuing Banks, during the past several months PG&E has engaged in discussions with the 17 Letter of Credit Issuing Banks, culminating in the proposed Term Sheet.
18
- 27.
Because either expiration of the Letters of Credit or the exercise by the Letter 19 of Credit Issuing Banks of their remedies under their respective Reimbursement Agreements 20 and the related Indentures could result in the redemption of the Letter of Credit Backed PC 21 Bonds, which in turn could result in the permanent loss to PG&E and its bankruptcy estate 22 of the significant benefits of the tax-exempt financing afforded by the respective Letter of 23 Credit Backed PC Bonds, and because the Letter of Credit Issuing Banks have offered 24 certain financial incentives to PG&E if PG&E's execution of and performance under the 25 Term Sheet is approved by the Bankruptcy Court on or prior to May 7, 2002, PG&E has 26 determined that it is in the best interests of the estate and its creditors for PG&E to enter into 27 the Term Sheet and to seek this Court's approval of PG&E's execution of, and performance 28 under, the terms of the Term Sheet on or before May 7, 2002.
DECLARATION OF MICHAEL 1
- 28. At any time there is an "Event of Default" under the terms of a 2
Reimbursement Agreement, the applicable Letter of Credit Issuing Bank has the 3
continuing right, pursuant to the terms of its Reimbursement Agreement and related 4
Indenture, to notify the Bond Trustee of the occurrence or existence of one or more "Events 5
of Default" under its Reimbursement Agreements and to direct the Bond Trustee to declare 6
an "Event of Default" under the related Indenture, notwithstanding the Letter of Credit 7
Issuing Bank's failure to exercise such right at any time. In addition, so long as a Letter of 8
Credit Issuing Bank is not reimbursed in full for drawings properly honored by such Letter 9
of Credit Issuing Bank under the Letter of Credit issued by it, such Letter of Credit Issuing 10 Bank has, among other things, the continuing right (under both its Reimbursement 11 Agreement and its Letter of Credit) to notify the Bond Trustee of such failure to be 12 reimbursed in full and to state that the amount available to be drawn under the Letter of 13 Credit to pay interest on such Letter of Credit Backed PC Bonds has not been reinstated, RICE CAN 14 notwithstanding the failure of the Letter of Credit Issuing Bank to exercise such right
&R'J/ABaN APý ý 15 previously.
16
- 29. As a Chapter 11 debtor in possession, PG&E has not reimbursed the Letter 17 of Credit Issuing Banks for any of the payments they have made pursuant to the several 18 post-petition draws on their Letters of Credit. Accordingly, each of the Letter of Credit 19 Issuing Banks has the right upon the passage of time, the giving of notice or both, to either 20 (i) declare an "Event of Default" under their respective Reimbursement Agreements and to 21 direct the Bond Trustee to call an Event of Default under the terms of the respective 22 Indenture, and/or (ii) during certain periods following the monthly draws on each of the 23 Letters of Credit to pay interest on the Letter of Credit Backed PC Bonds, to notify the 24 Bond Trustee that the Interest Portion of the Letter of Credit will not be reinstated. In such 25 event the Bond Trustee would, in accordance with the terms of the respective Indentures 26 and the respective Letters of Credit, declare the respective series of Letter of Credit Backed 27 PC Bonds immediately due and payable, draw upon the respective Letter of Credit, and 28 apply such drawn funds to the full payment and cancellation of the related outstanding DECLARATION OF MICHAEL 1
Letter of Credit Backed PC Bonds, with the end result that the tax-preferred financing 2
would no longer be outstanding.
3
- 30. Under the terms of the Term Sheet, each of the Letter of Credit Issuing 4
Banks has agreed to forbear, for a limited period, from taking such action or taking any 5
other action which would result in the mandatory tender or redemption of any of the 6
outstanding Letter of Credit Backed PC Bonds without the prior written consent of PG&E.
7 This concession by the Letter of Credit Issuing Banks allows PG&E to maintain the 8
benefits of the tax-exempt financing during the forbearance period at a significant savings 9
to the estate.
10
- 31. Further, pursuant to the Term Sheet, provided that no Termination Event II shall have occurred and remain uncured, each of the Letter of Credit Issuing Banks has 12 agreed that prior to April 18, 2002, it shall extend the expiration date of its Letter of Credit 13 to the first business day subsequent to the one-year anniversary of the existing expiration RICE 14 date of such Letter of Credit. This is desirable to the Debtor because each of the Letters of YIAflIN 15 Credit will expire in accordance with its terms on the expiry date set forth on Schedule 1 16 attached to the Term Sheet. Unless each of the Letters of Credit is renewed or replaced in 17 accordance with the terms of the Indentures at least 35 days prior to its expiration date, the 18 Bond Trustee will be required to call the related series of Letter of Credit Backed PC 19 Bonds for redemption and cancellation. The Letter of Credit Issuing Banks have the right 20 to refuse to extend the terms of their Letters of Credit beyond their respective maturities.
21
- 32. The agreement by the Letter of Credit Banks in the Term Sheet to extend the 22 terms of their Letters of Credit allows PG&E to maintain the benefits of the tax-exempt 23 financing for up to one additional year, at a significant savings to the estate. Moreover, 24 given that certain of the Letters of Credit will expire in the near future, the Letter of Credit 25 Issuing Banks' agreement to extend the maturities of the Letters of Credit provides PG&E 26 with necessary additional time in which to gain approval of the Amended Plan while still 27 preserving the Letter of Credit Backed PC Bonds.
28
- 33.
The fees payable by PG&E under the terms of the Term Sheet and the timing DECLARATION OF MICHAEL 1
of the payment of such fees are, in the opinion of PG&E, fair compensation to the Letter of 2
Credit Issuing Banks for their agreements under the provisions of the Term Sheet to, among 3
other things, forbear from the exercise of remedies under their respective Reimbursement 4
Agreements and for their agreement to extend the maturities of their respective Letters of 5
Credit as described above. Even after the payment of the increased fees set forth in the Term 6
Sheet, PG&E will continue to realize substantial interest cost savings by maintaining the 7
benefits of the outstanding tax-exempt financing provided by the Letter of Credit Backed PC 8
Bonds, which cost savings more than offset the cost of the fees. Furthermore, it is 9
customary in connection with the extension of the term of a letter of credit for the borrower 10 or account party and the issuing bank to renegotiate the terms under which the letter of credit 11 would be extended given the prevailing market conditions and the creditworthiness of the 12 borrower. Under the current circumstances, the Debtor believes that the increased total letter HCVARD 13 of credit fees are a reasonable and necessary component of any agreement to extend the ckax 14 maturities of the Letters of Credit.
EALK 15
- 34.
The Debtor believes that, given the additional administrative responsibilities 16 that Deutsche Bank will have to perform as agent for its bank group in order to maintain its 17 Letter of Credit, it is reasonable and necessary for the Debtor to pay Deutsche Bank the 18 additional agency fee set forth in the Term Sheet.
19
- 35.
The Term Sheet provides that commencing on a date not more than 10 days 20 after the Bankruptcy Court approves the Motion, PG&E will pay the reasonable fees and 21 expenses of unrelated third party professionals retained by the Letter of Credit Issuing Banks 22
("Professional Fees"), to the extent incurred subsequent to April 6, 2001 in connection with 23 the Chapter 11 case of PG&E, and shall thereafter pay such additional Professional Fees as 24 may be incurred by the Letter of Credit Issuing Banks no later than 30 days subsequent to 25 each date reimbursement requests therefor (with appropriate backup) are made in writing by 26 the Letter of Credit Issuing Bank to PG&E. PG&E is obligated under the terms of the 27 respective Reimbursement Agreements to reimburse the Letter of Credit Issuing Banks for 28 the reasonable fees and expenses of unrelated third party professionals retained by the Letter DECLARATION OF MICHAEL 1
of Credit Issuing Banks. Moreover, under the stipulation approved by the Prior Motion and 2
Order, subject to certain conditions, such attorneys' fees constitute allowed claims against 3
PG&E and its estate. Thus, this provision of the Term Sheet does not expand PG&E's 4
obligations, but, in light of the full payment of creditors proposed in the Amended Plan, only 5
serves to accelerate the timing of the Letter of Credit Issuing Banks' reimbursement for such 6
costs. Again, given the substantial benefits to PG&E from this deal, PG&E believes that 7
such a concession is minor and well justified.
8
- 36.
For United States federal income tax purposes, Letter of Credit Backed PC 9
Bonds which have been purchased, rather than redeemed or cancelled, remain outstanding.
10 However, the cooperation of the Letter of Credit Issuing Banks and the Banks is necessary in 11 order to provide a mechanism by which the Letter of Credit Backed PC Bonds can be 12 purchased. Thus, pursuant to the terms of the Term Sheet, PG&E and the Letter of Credit HARD 13 Issuing Banks have agreed to cooperate in a mutual attempt to amend the related bond I'
.v14 documents to permit the Letter of Credit Issuing Banks to purchase the Letter of Credit 15 Backed PC Bonds under certain circumstances in which the Letter of Credit Backed PC 16 Bonds would otherwise be subject to redemption and cancellation. PG&E believes that such 17 amendments to the respective Loan Agreements and Indentures would not be adverse to the 18 interests of the holders of Letter of Credit Backed PC Bonds and would enhance PG&E's 19 ability to maintain the benefits of the tax-exempt financing provided by the Letter of Credit 20 Backed PC Bonds by facilitating the orderly purchase of outstanding Letter of Credit Backed 21 PC Bonds in certain circumstances.
22
- 37.
The amendments to the bond documents proposed in the Term Sheet would 23 also grant the Letter of Credit Issuing Banks the right, but not the obligation, to cause a 24 purchase of Letter of Credit Backed PC Bonds on or after June 30, 2002 if a plan of 25 reorganization which provides for the treatment of Allowed Letter of Credit Bank Claims in 26 the manner described in the Term Sheet or for alternative treatment of Allowed Letter of 27 Credit Bank Claims which is acceptable to the Letter of Credit Issuing Banks is not 28 confirmed on or before such date. This would allow the Letter of Credit Issuing Banks to DECLARATION OF MICHAEL 1
limit their ever increasing credit exposure to PG&E which results from the currently 2
unreimbursed monthly draws on their respective Letters of Credit for the payment of interest 3
on the Letter of Credit Backed PC Bonds, while keeping the Letter of Credit Backed PC 4
Bonds outstanding and, accordingly, preserving PG&E's ability to subsequently remarket 5
the Letter of Credit Backed PC Bonds on a tax-exempt basis, which may otherwise be lost if 6
the Letter of Credit Backed PC Bonds were redeemed and cancelled.
7
- 38.
The proposed treatment of the Allowed Letter of Credit Bank Claims as set 8
forth in the Amended Plan with the refinements set forth in the Term Sheet are intended to, 9
among other things, allow PG&E and the Reorganized Debtor the ability to maintain the 10 benefits of the tax-exempt financing provided by the Letter of Credit Backed PC Bonds 11 through and after the Effective Date of the Amended Plan.
12
- 39.
Under the terms of the Term Sheet, if a plan of reorganization were to be 13 confirmed in this case which did not provide for either (i) the treatment of Allowed Letter of RKE Ma 14 Credit Bank Claims in the manner set forth in the Amended Plan with the refinements set FAU(
&tPAMIN AFf
. 15 forth in the Term Sheet, or (ii) alternative treatment of Allowed Letter of Credit Bank 16 Claims which was acceptable to the Letter of Credit Issuing Banks, then a Termination 17 Event would be deemed to have occurred and the Letter of Credit Issuing Banks would no 18 longer be required to forbear from the exercise of remedies under their Reimbursement 19 Agreements that could result in the redemption and cancellation of the Letter of Credit 20 Backed PC Bonds and the concomitant loss to PG&E of the valuable tax-free financing 21 provided by such bonds.
22
- 40.
The Court should approve PG&E's execution of and performance under the 23 Term Sheet because there is little hope or prospect of keeping the tax-exempt Letter of 24 Credit Backed PC Bonds outstanding without such approval. The tax-exempt financing 25 provided by the Letter of Credit Backed PC Bonds provide a substantial interest cost savings 26 to PG&E (and will provide such savings to the Reorganized Debtor) over the cost of 27 alternative conventional taxable financing. As such, the tax-exempt bond financing is an 28 asset of the bankruptcy estate that, in the opinion of PG&E, is best preserved through the DECLARATION OF MICHAEL 1
2 3
4 5
6 7
8 9
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 HOWARD REE
&RAHlN transactions contemplated in the Term Sheet.
- 41.
PG&E believes that the benefits of the forbearance offered by the Letter of Credit Issuing Banks, the extension of the terms of the Letters of Credit, and the other agreements by the Letter of Credit Issuing Banks set forth in the Term Sheet outweigh any concessions made by PG&E in the Term Sheet.
DECLARATION OF MICHAEL 1
2 3
4 5
6 7
8 9
10 11 12 HOWARD 13 RICE cAxv 14
&.IRAMN(
A.
15 16 17 18 19 20 21 22 23 24 25 26 27 28 I declare under penalty of perjury under the Federal laws of the United States of America that the foregoing is true and correct, and that this declaration was executed on March D,2002 at San Francisco, California.
DMICHTRAEL J. MRNNS DEBTOR'S MOTION FOR ORDER A-PPROVINIG TERM SHEET WD 031402/1-141991 l/gff/981672/vl
SUMMARY
OF TERMS WITH RESPECT TO FORBEARANCE AND PROPOSED REVISED TREATMENT OF LETTER OF CREDIT BANK CLAIMS IN THE PLAN OF REORGANIZATION In connection with the overall restructuring of the debt of Pacific Gas and Electric Company (the "Debtor"), the treatment of the Debtor's obligations with respect to the outstanding Letter of Credit Backed Pollution Control Bonds set forth on Schedule 1 attached hereto and the credit enhancement facilities issued with respect thereto, will be revised as follows.
All initially capitalized terms, unless otherwise defined herein, shall have the meanings assigned to such terms in the Proposed Plan of Reorganization Under Chapter 11 of the Bankruptcy Code For Pacific Gas and Electric Company, dated September 20, 2001 (the "Plan"), filed by the Debtor together with the Debtor's parent company, PG&E Corporation, with the United States Bankruptcy Court for the Northern District of California (the "Bankruptcy Court").
Letter of Credit Backed PC Bonds:
Letters of Credit MUM
- \\1I 1644\\13\\2#5813!.DOC\\67615.0010 The Pollution Control Bonds identified on Schedule 1 attached hereto (collectively, the "Letter of Credit Backed PC Bonds") remain outstanding as of the date hereof.
No modifications will be made to the Letter of Credit Backed PC Bonds or to any of the documents executed in connection therewith except as described herein.
The Letters of Credit identified on Schedule 1 attached hereto (each a "Letter of Credit" and collectively, the "Letters of Credit") securing the payment of the principal of and interest on the related series of Letter of Credit Backed PC Bonds remain outstanding on the date hereof in the stated amount set forth on Schedule 1 attached hereto.
1
Forbearance by Letter of Credit Issuing Banks:
Forbearance Period Termination Event During the "Forbearance Period" (as hereinafter defined),
unless a "Termination Event" (as hereinafter defined) occurs, the Letter of Credit Issuing Banks shall (i) maintain each of the Letters of Credit outstanding in the stated amounts set forth on Schedule 1 attached hereto, and (ii) not provide the Trustee with notice of any default under any of the Reimbursement Agreements or non-reinstatement of any of the Letters of Credit or take any other action which would result in the mandatory tender or redemption, either in whole or in part, of any of the outstanding Letter of Credit Backed PC Bonds without the prior written consent of the Debtor.
The "Forbearance Period" shall mean the time period commencing upon the "Term Sheet Approval Date" (as hereinafter defined) and ending, with respect to each Letter of Credit, upon the earlier of: (i) the last interest payment date on the related series of Letter of Credit Backed PC Bonds immediately preceding the expiration date of such Letter of Credit, as such expiration date shall be extended in accordance with the terms hereof; and (ii) the occurrence of a "Termination Event" (as hereinafter defined).
Each and any of the following constitutes a "Termination Event":
The Debtor shall fail to file a motion (the "Motion") with the Bankruptcy Court on or before the tenth day following the Term Sheet Approval
- Date, in form and substance reasonably acceptable to the Debtor and the Letter of Credit Issuing Banks, implementing the terms of the forbearance by the Letter of Credit Issuing Banks as described herein with only such modifications as shall be reasonably acceptable to the Debtor and each of the Letter of Credit Issuing Banks, or the Debtor shall fail to pursue such Motion in good faith and with all reasonable M11:\\I 1644\\13\\2#58I3!.DOC\\67615.0010 2
diligence (a "Motion Termination Event");
The Debtor shall fail to timely remit any of the "Pre-Confirmation Date Payments" (as hereinafter defined), the "Confirmation Date Payments" (as hereinafter defined),
and the "Post-Confirmation Date Payments" (as hereinafter defined) to the Letter of Credit Issuing Banks (a
"Payment Termination Event");
A Plan which provides for the treatment of Allowed Letter of Credit Bank Claims in the manner described herein or for alternative treatment of Allowed Letter of Credit Bank Claims which is acceptable to the Letter of Credit Issuing Banks is not confirmed on or before September 30, 2002 (a "Confirmation Deadline Event");
A Plan is confirmed in the Debtor's chapter 11 case which does not provide for the treatment of Allowed Letter of Credit Bank Claims in the manner described herein or for alternative treatment of Allowed Letter of Credit Bank Claims which is acceptable to the Letter of Credit Issuing Banks (a
"Plan Treatment Termination Event");
The "Effective Date" as defined in the Plan (the "Effective Date") occurs; or The chapter 11 case of the Debtor is dismissed or converted to chapter 7
(a "Conversion Termination Event").
Expiration Date:
On or before the date thirty (30) days subsequent to the date the Debtor and each of the Letter of Credit Issuing Banks execute the Consent to Term Sheet attached hereto (the "Term Sheet Approval Date"), provided that no Termination Event has occurred and remains uncured, each of the Letter of Credit Issuing Banks shall extend the expiration date of its Letter of Credit to the first MI1:\\1 11644\\13\\2#58l3!.DOC\\67615.0010 3
business day subsequent to the one-year anniversary of the existing expiration date of such Letter of Credit.
Purchase in Lieu of Redemption:
Provided that no Termination Event shall have occurred and remain uncured, prior to the Effective Date upon written request of the Debtor, each Letter of Credit Issuing Bank shall cause the related series of Letter of Credit Backed PC Bonds to be tendered for purchase through a draw upon the respective Letter of Credit and instruct the respective Bond Trustee to either register the purchased Letter of Credit Backed PC Bonds in the name of the Letter of Credit Issuing Bank or in the name of the Debtor subject to a first lien security interest in favor of the respective Letter of Credit Issuing Bank to additionally secure the obligations of the Debtor under the related Reimbursement Agreement.
Upon written request of the Debtor or the Letter of Credit Issuing Banks delivered by either party to the other on or after the date the Bankruptcy Court approves the Motion, the Debtor and each of the Letter of Credit Issuing Banks shall take any action as shall be reasonably necessary to amend the Loan Agreement and/or Indenture pursuant to which each series of Letter of Credit Backed PC Bonds were issued to add the right of the Letter of Credit Issuing Bank or the Debtor to purchase any Letter of Credit Backed PC Bonds in lieu of redemption and to cause such purchased Letter of Credit Backed PC Bonds to be registered in the name of the respective Letter of Credit Issuing Bank or in the name of the Debtor subject to a first lien security interest in favor of the respective Letter of Credit Issuing Bank to secure the related reimbursement obligation of the Debtor; provided that, in the event that a Motion Termination
- Event, a Payment Termination Event, a Plan Treatment Termination Event or a Conversion Termination Event occurs, the Debtor shall not, without the prior written consent of the respective Letter of Credit Issuing Bank, have the MIIA1 11644'\\I3\\2#5813!.DOC\\67615.0010 4
right to convert a mandatory redemption of Letter of Credit Backed PC Bonds into a purchase in lieu of redemption in accordance with the proposed amended Loan Agreement or Indenture.
Such amendments to be in form and content satisfactory to the Debtor and the Letter of Credit Issuing Banks.
Notwithstanding anything contained herein to the contrary, in the event that a Plan which provides for the treatment of Allowed Letter of Credit Bank Claims in the manner described herein or for alternative treatment of Allowed Letter of Credit Bank Claims which is acceptable to the Letter of Credit Issuing Banks is not confirmed on or before June 30, 2002 then each Letter of Credit Issuing Bank shall have the right, but not the obligation to cause the related series of Letter of Credit Backed PC Bonds to be tendered for purchase through a draw upon the respective Letter of Credit and to instruct the respective Bond Trustee to either register the purchased Letter of Credit Backed PC Bonds in the name of the Letter of Credit Issuing Bank or, at the direction of the Letter of Credit Issuing Bank, in the name of the Debtor subject to a first lien security interest in favor of the respective Letter of Credit Issuing Bank to additionally secure the obligations of the Debtor under the related Reimbursement Agreement, and shall not thereafter take any action which would cause the related series of Letter of Credit Backed PC Bonds to be called for redemption unless a Confirmation Deadline
- Event, a
Motion Termination
- Event, a Payment Termination Event, a Plan Treatment Termination Event or a Conversion Termination Event occurs.
Required Payments:
The Debtor shall remit the following payments to each of the Letter of Credit Issuing Banks with respect to its Letter of Credit to the extent permitted by order of the Bankruptcy Court (together, the "Required Payments"):
Pre-Confirmation Date: If the Bankruptcy Court approves the
- Motion, then MI1 :\\1 1644\\13\\2#5813 !.DOC\\67615.0010 5
commencing upon, or within ten (10) days after, the date an order is entered by the Bankruptcy Court approving the Motion (the "Motion Approval Date"), and continuing until the Confirmation Date, the following amounts (the "Pre-Confirmation Date Payments"):
The Approved Forbearance, Extension and Letter of Credit Fees (as hereinafter defined); and The reasonable fees and expenses of unrelated third party professionals retained by the Letter of Credit Issuing Banks
("Professional Fees"), to the extent incurred subsequent to April 6, 2001 in connection with the Chapter 11 case of the Debtor, which with respect to each Letter of Credit Issuing Bank for the period prior to the Term Sheet Approval Date shall be in a aggregate amount not to exceed the amount mutually agreed to by the Debtor and each Letter of Credit Issuing Bank on or prior to the Term Sheet Approval Date.
Such Professional Fees shall be payable no later than thirty (30) days subsequent to each date such reimbursement requests (with appropriate backup) are made in writing by the Letter of Credit Issuing Bank to the Debtor.
Confirmation Date: On, or within ten (10) days after, the date an order is entered confirming a
Plan (the "Confirmation Date"), and irrespective of the existence of conditions which must be satisfied prior to the occurrence of the Effective Date of the Plan, the Debtor shall pay to the Letter of Credit Issuing Banks the following amounts (the "Confirmation Date Payments"):
MI 1:\\I 1644\\13\\2#5813!.DOC\\67615.001 0 6
MuI :\\111644\\13\\2#5813!.DOC\\67615.0010 All outstanding reimbursement claims under the applicable Reimbursement Agreements with respect to Letter of Credit draws for payment of interest on the related series of Letter of Credit Backed PC Bonds
("Interest Reimbursement Claims");
All accrued and unpaid interest at the non-default rate due on the Interest Reimbursement Claims to the extent provided in the applicable Reimbursement Agreement
("Reimbursement Interest");
If the Motion Approval Date does not occur within 49 days after the date the Motion is filed, all accrued and unpaid Unapproved Forbearance, Extension and Letter of Credit Fees, if any; and All other amounts (other than reimbursement for principal drawings on the.respective Letter of Credit, if any, or the principal portion of purchase drawings on the respective Letter of Credit, if any) then due and owing to the respective Letter of Credit Issuing Bank under the terms of the respective Reimbursement Agreement through the Confirmation Date; Post-Confirmation Date:
During the time period subsequent to the Confirmation Date and prior to the Effective Date, the Debtor shall pay to each Letter of Credit Issuing Bank the following amounts (the "Post Confirmation Payments"):
The accrued and unpaid Approved 7
Forbearance, Extension and Letter of Credit Fees or the accrued and unpaid Unapproved Forbearance, Extension and Letter of Credit Fees, as applicable; All accrued and unpaid reasonable Professional Fees to the extent incurred in connection with the Chapter 11 case of the Debtor, which shall be payable no later than thirty (30) days subsequent to each date such reimbursement requests (with appropriate backup) are made in writing by the Letter of Credit Issuing Bank to the Debtor; and All Interest Reimbursement Claims and Reimbursement Interest, which shall be payable when due pursuant to the terms of the applicable Reimbursement Agreement.
Letter of Credit Fees If the Motion Approval Date occurs within forty nine (49) days after the date the Motion is filed, then the Debtor shall remit the following payments to each of the Letter of Credit Issuing Banks with respect to its Letter of Credit to the extent permitted by order of the Bankruptcy Court (together, the "Approved Forbearance, Extension and Letter of Credit Fees"):
During the period after the Motion Approval Date and continuing until the Confirmation
- Date, quarterly, in arrears, the Letter of Credit fee as set forth in the respective Reimbursement Agreement (the "Original Letter of Credit Fee"), together with an amount equal to the positive difference, if any, of an amount per annum equal to two (2%)
8 M I A1 ! 1644\\13\\2#5813!.DOC\\67615.0010
MII:\\1 11644\\13\\2#581306.DOC\\7615.0010 percent of the Stated Amount of the Letter of Credit, less the Original Letter of Credit Fee (together, the "Initial Letter of Credit Fee"), which total fee shall accrue from and after December 1, 2001 and until the Confirmation Date, and shall be payable on the same dates as are set forth for payment of Letter of Credit Fees in the applicable Reimbursement Agreement.
During the period from and after the Confirmation Date and continuing until the Effective Date, quarterly, in arrears, the Original Letter of Credit Fee, together with an amount equal to the positive difference, if any, of an amount per annum equal to three (3%)
percent of the Stated Amount of the Letter of. Credit, less the Original Letter of Credit Fee, which total fee shall accrue from and after the Confirmation Date until the Effective Date, and shall be payable on the same dates as are set forth for payment of Letter of Credit fees in the applicable Reimbursement Agreement.
If the Motion Approval Date does not occur within forty-nine (49) days after the Motion is filed, then the Debtor shall remit the following payments to each of the Letter of Credit Issuing Banks with respect to its Letter of Credit to the extent permitted by order of the Bankruptcy Court (together, the "Unapproved Forbearance, Extension and Letter of Credit Fees"):
During the period from and after the Confirmation Date and continuing until the Effective Date, quarterly, in arrears, the Original Letter of Credit Fee, together with 9
an amount equal to the positive difference, if any, of an amount per annum equal to three (3%)
percent of the Stated Amount of the Letter of Credit, less the Original Letter of Credit Fee, which total fee shall accrue from and after December 1, 2001 until the Effective Date, and shall be payable on the same dates as are set forth for payment of Letter of Credit fees in the applicable Reimbursement Agreement.
Agency Fee Treatment of Allowed Letter of Credit Bank Claims M11:\\1 I1644\\13\\2#5813 !.DOC\\67615.00l0 On the Confirmation Date, the Debtor shall pay to Deutsche Bank AG New York Branch, an agency fee in the amount of $250,000 as additional compensation for acting as the administrative agent under the terms of its Reimbursement Agreement during the period from and after December 1, 2001 through the Effective Date; provided that no Termination Event shall have occurred prior to June 30, 2002 and Deutsche Bank AG shall not be in default hereunder, such agency fee shall be deemed fully earned on the earlier of the Confirmation Date or June 30, 2002.
The revised Plan shall provide that, on the Effective Date one of the following shall occur with respect to each series of Letter of Credit Backed PC Bonds and its respective Letter of Credit, at the option of the Debtor separately for each series of Letter of Credit Backed PC Bonds:
Purchase Option: The respective series of Letter of Credit Backed PC Bonds shall be called for mandatory tender in accordance with the terms of the respective Indenture and shall be purchased by the respective Bond Trustee through a draw on the related Letter of Credit and, at the option of the respective Letter of Credit Issuing Bank, shall either be registered in the name of the respective Letter of Credit Issuing Bank or in the name of the Debtor subject to a first lien security interest in 10
M11:\\1 I 1644\\13\\2#5813!.DOC\\67615.0010 favor of the respective Letter of Credit Issuing Bank to additionally secure the obligations of the Debtor under the related Reimbursement Agreement.
On the Effective Date, the Letter of Credit Issuing Bank will receive Cash in an amount equal to the sum of (i) the interest portion of the purchase price of the tendered Letter of Credit Backed PC Bonds paid out of a draw on the respective Letter of Credit, and (ii) the aggregate amount paid by the respective Letter of Credit Issuing Bank to the respective Bond Trustee under the terms of the applicable Letter of Credit with respect to the payment of the interest on the respective Letter of Credit Backed PC Bonds during the period from the Confirmation Date to and including the last scheduled interest payment date on such Letter of Credit Backed PC Bonds preceding the Effective Date, together with interest at the non-default rate due on such amounts to the extent provided in the respective Reimbursement Agreement.
On the Effective Date, the Letter of Credit Issuing Bank shall transfer the related Letter of Credit Backed PC Bonds in the aggregate principal amount as set forth on Schedule 1 attached hereto to the Debtor free and clear of all liens.
The Letter of Credit Issuing Bank will receive (i) Cash in an amount equal to sixty percent (60%) of the principal portion of the purchase price of the tendered Letter of Credit Backed PC Bonds paid out of a draw on the respective Letter of Credit, and (ii) Long Term Notes (as defined in the Plan) having an aggregate face value equal to forty percent (40%) of the principal portion of the purchase price of the tendered Letter of Credit Backed PC Bonds paid out of a 11
M1 :\\1 I 1644\\13k2#5813!.DOC\\67615.0010 draw on the respective Letter of Credit, plus a placement fee in an amount equal to 1.5% of the aggregate principal amount of such long-term notes. Alternatively, at the option of the Letter of Credit Issuing Bank, the reimbursement for the principal portion of the purchase price of the tendered Letter of Credit Backed PC Bonds paid out of a draw on the respective Letter of Credit shall be paid on the Effective Date through a combination of Cash and long term notes upon terms equivalent to the Cash, long term notes and other consideration provided for treatment of unsecured creditors generally in the confirmed Plan.
- or Remarketing Option:
The respective series of Letter of Credit Backed PC Bonds shall be called for mandatory tender in accordance with the terms of the respective Indenture and shall be purchased by the respective Bond Trustee through a draw on the related Letter of Credit.
The Debtor will then either (i) provide or cause to be provided to the respective Bond Trustee an alternative "Credit Facility" pursuant to the terms of the respective Indenture in lieu of the existing Letter of Credit, or (ii) shall obtain the consent of the Issuer to remarket the respective series of Letter of Credit Backed PC Bonds without credit enhancement in accordance with the terms of the applicable Indenture.
In either event the respective series of Letter of Credit Backed PC Bonds shall be remarketed, at par, in accordance with the terms of the Indenture and the other PC Bond Documents.
In such event, on the Effective Date, the Letter of Credit Issuing Bank will receive (i) from the Debtor, Cash in an amount 12
MI1:\\ I 1 6 44 \\13\\2#5813!.DOC\\67615.0010 equal to the sum of (A) the interest portion of the purchase price of the tendered Letter of Credit Backed PC Bonds paid out of a draw on the respective Letter of Credit, and (B) the aggregate amount paid by the respective Letter of Credit Issuing Bank to the respective Bond Trustee under the terms of the applicable Letter of Credit with respect to the payment of the interest on the respective Letter -of Credit Backed PC Bonds during the period from the Confirmation Date to and including the last scheduled interest payment date on such Letter of Credit Backed -PC Bonds preceding the Effective Date, together with interest at the non-default rate due on such amounts to the extent provided in the respective Reimbursement Agreement, and (ii) from the Bond Trustee, an amount equal to the principal portion of the purchase price of the tendered Letter of Credit Backed PC Bonds paid out of a draw on the respective Letter of Credit, which amount shall be paid from the remarketing proceeds of the respective Letter of Credit Backed PC Bonds in accordance with the terms of the respective Indenture.
-or No Bonds Option: With respect to each Letter of Credit Issuing Bank and the related Banks, if any, in the event that neither the Purchase Option nor the Remarketing Option, as applicable, can be consummated or the respective series of Letter of Credit Backed PC Bonds are redeemed on or prior to the Effective Date as the result of the expiration of the respective Letter of Credit or otherwise, then either:
(A) The Class 4e Claim of such Letter of Credit Issuing Bank and the applicable Banks, if any, would be 13
MII:I I 1644\\1312#5813!.DOC\\67615.0010 converted to a Class 4f Claim in an amount equal to the amount due by the Debtor under the terms of the respective Reimbursement Agreement as reimbursement for amounts paid by such Letter of Credit Issuing Bank under its respective Letter of Credit to the Bond Trustee for the payment of the principal portion of the redemption price of the related series of Letter of Credit Backed PC Bonds;
-or (B) If (i) the Letter of Credit Issuing Bank maintains its Letter of Credit outstanding in the stated amount set forth on Schedule 1 attached hereto through the Effective Date and does not provide the Trustee with notice of default under its Reimbursement Agreement or non-reinstatement of its Letter of Credit or take any other action which would result in the redemption, either in whole or in part, of the outstanding Letter of Credit Backed PC Bonds without the prior written consent of the Debtor, and (ii) the Letter of Credit Issuing Bank and each of the related Banks, if any, take all action reasonably required by the Debtor to keep the Letter of Credit Backed PC Bonds outstanding and to facilitate either the Purchase Option or the Remarketing
- Option, as applicable, including, without limitation, giving direction to the Trustee, providing commercially reasonably indemnification to the Issuer and Trustee, and using their best efforts to consummate the proposed amendments to the terms of the Letter of Credit Backed PC Bonds as set forth herein and to consummate either the Purchase Option or the Remarketing Option as applicable, so as to maintain for the 14
Debtor the benefits of the tax-exempt financing provided by the related series of Letter of Credit Backed PC Bonds, then in the event that the Letter of Credit Backed PC Bonds are redeemed on or prior to the Effective Date for reasons beyond the control of the Letter of Credit Issuing Bank, either (1) the Letter of Credit Issuing Bank will receive (i) Cash in an amount equal to sixty percent (60%) of the principal portion of the redemption price of the redeemed Letter of Credit Backed PC Bonds paid out of a draw on the respective Letter of Credit, and (ii)
Long Term Notes having an aggregate face value equal to forty percent (40%)
of the principal portion of the redemption price of the redeemed Letter of Credit Backed PC Bonds paid out of a draw on the respective Letter of Credit, plus a placement fee in an amount equal to 1.5% of the aggregate principal amount of such long-term notes, or (2) at the option of the Letter of Credit Issuing
- Bank, the reimbursement for the principal portion of the redemption price of the redeemed Letter of Credit Backed PC Bonds paid out of a draw on the respective Letter of Credit shall be paid on the Effective Date through a combination of Cash and long term notes upon terms equivalent to the Cash, long term notes and other consideration provided for treatment of unsecured creditors generally in the confirmed Plan.
Except as otherwise set forth
- herein, the confirmed Plan shall not contain other terms which, taken as a whole, are materially adverse to the Letter of Credit Issuing Banks as compared with such other terms as set forth in the Plan as filed with the Bankruptcy Court on September 20, 2001.
15 MI 111 t644\\13\\2#5813!.DOC\\67615.0010
Tax Exemption:
With respect to each series of Letter of Credit Backed PC Bonds, the Reorganized Debtor and each Issuer, Bond Trustee, and credit enhancer, if any, shall, on the Effective Date, receive an opinion of the original bond counsel to the effect that the transactions contemplated herein do not, in and of themselves, cause interest on such series of Letter of Credit Backed PC Bonds to become includable in the gross income of the holders thereof for federal income tax purposes.
M1:\\1 I 1644\\13\\2#5813!.DOC\\67615.0010 16
This term sheet is intended to summarize certain of the terms presently under discussion with respect to the potential treatment of Letter of Credit Backed PC Bond Claims (Class 4d) and Letter of Credit Bank Claims (Class 4e). The delivery of this term sheet is not intended and shall not be deemed to be a commitment, approval or binding offer of any kind on the part of Debtor, PG&E Corporation, any of the Letter of Credit Issuing Banks, any of the Banks or any of their respective affiliates, and receipt of this term sheet does not in any way constitute a commitment by any of the Letter of Credit Banks, any of the Banks or any of their respective affiliates to make any loan, to enter into any extension or modification of any existing loan or credit facility, or to provide the above described financing or modifications or otherwise. Without limiting the foregoing, it is expressly understood and agreed that the terms hereof require the approval of the Bankruptcy Court, as well as senior credit and other approvals within the Debtor, PG&E Corporation, and each of the Letter of Credit Issuing Banks which has not been, and may never be, obtained. -None of the parties hereto or referred to herein shall be bound by any of the terms hereof unless and until such time as (i) with respect to each of the Letter of Credit Issuing Banks, the Consent to Term Sheet attached hereto has been executed by such Letter of Credit Issuing Bank, and (ii) with respect to the Debtor, the Consent to Term Sheet attached hereto has been executed by the Debtor and the terms hereof shall have been reduced to mutually agreeable formal documents and approved or authorized by final order of the Bankruptcy Court.
Nothing herein shall be construed as a solicitation of, or agreement to vote in favor of, a Plan by any party. Solicitation of votes to accept or reject a Plan may only be made after a Disclosure Statement regarding the Plan has been approved by the Bankruptcy Court and a Disclosure Statement has not been approved as of the date hereof. Except as specifically set forth herein, the Debtor, PG&E Corporation and each of the Letter of Credit Issuing Banks reserve all of their rights and remedies in connection with, or related in any manner to, the Debtor's Chapter 11 bankruptcy proceedings, the Letters of Credit, the Letter of Credit Backed PC Bond Claims, the Letter of Credit Bank Claims and all of the documents, instruments and agreements executed or delivered in connection therewith.
Dated:
MIIAI 1 16 44\\13\\2#5813!.DOC\\67615.0010 17
03-20-02 01:48pm From-PG&E CORPORATION CONSENT TO TERM SHEET Accepted and Approved:
BANK OF AMERICA, N.A.,
as Issuing Agent By:
Name:
Title:
DEUTSCHE BANK AG,.NEW YORK BRANCH, as Issuing and Administrative Agent By:
Name:
Title:
By:
Name:
Title:
BNP PARIBAS, as Issuing Agent By__
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK as Issuing Agent By:
Name:
Title:
PACIFIC GAS AND ELECTRIC COMPANY, as Debtor By:_____________
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Tiller SNP PARIBAS, Name:~~
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v MORGAN? GUARANTY TR.UST CQMPAW( OF NEW YORX iw lamiqrg AV=n Tids:~
PACMWI GAS AND ELEC7`RIC COMPANY, as Deb=o Nme.:______
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T-327 P.02/02 F-700 03-20-02 03:29pm From-PG&E CORPORATION CONSENT TO TERM ShEET Accepted and Approved:
BANK OF AMERICA, N.A.,
as Issuing Agent By:.
Name:
Title:
DEUTSCHE BANK AG, NEW YORK BRANCH, as Issuing and Administrative Agent By:_
By:OI N
Srevein Cohen Name:
Clirk C' Pcrtesc
Title:
Uirectr
Title:
Vice PrCsideni BN-P PARIBAS, as Issuing Agent By:
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK as Issuing Agent By:_
Name:
Title:
PACIFIC GAS AND ELECTRIC COMPANY, as Debtor By:
Name:
Title:
MI
\\1 11 644\\13\\2;5g 13' DOC\\67615 0010
÷4152677268 18
MII :\\I 11644\\13\\2#5813!.DOC\\67615.0010 SCHEDULE1 Original Letter of Credit Stated Letter of Credit Principal Issuing Bank Amount of Expiry Date Amount Letter of Series Credit California Pollution Control
$200,000,000 Bank of America,
$202,191,781 May 23, 2002 Financing Authority, N.A.
Pollution Control Revenue Bonds (Pacific Gas and Electric Company) 1996 Series C (the "96C Bonds")
California Pollution Control
$165,000,000 Morgan Guaranty
$166,808,220 May 23, 2003 Financing Authority, Trust Company of Pollution Control Revenue New York Bonds (Pacific Gas and Electric Company) 1996 Series E (the "96E Bonds")
California Pollution Control
$100,000,000 BNP Paribas
$101,095,891 May 23, 2003 Financing Authority, Pollution Control Revenue Bonds (Pacific Gas and Electric Company) 1996 Series F (the "96F Bonds")
California Pollution Control
$148,550,000 Deutsche Bank
$150,177,945 September 16, Financing Authority, AG 2002 Pollution Control Refunding Revenue Bonds (Pacific Gas and Electric Company) 1997 Series B (the "97B Bonds")
19