ML021000038

Debtor'S Notice of Motion and Motion for Order Modifying Stipulation: (I) Authorizing Use of Cash Collateral Pursuant to II U.S.C. 363 and Bankruptcy Rule 4001 and (II) Granting Adequate Protection Pursuant to II U.S. C. 361 and 363; Suppor

ML021000038
Person / Time
Site:	Diablo Canyon
Issue date:	02/01/2002
From:	Kaplan G Howard, Rice, Nemerovski, Canady, Falk & Rabkin, 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: ML021000038 (6)

Text

1 JAMES L. LOPES (No. 63678)

JEFFREY L. SCHAFFER (No. 91404) 2 GARY M. KAPLAN (No. 155530)

HOWARD, RICE, NEMEROVSKI, CANADY, 2( 12-3 FALK & RABKIN A Professional Corporation 4 Three Embarcadero Center, 7th Floor San Francisco, California 94111-4065 5 Telephone: 415/434-1600 Facsimile: 415/217-5910 6

Attorneys for Debtor and Debtor in Possession 7 PACIFIC GAS AND ELECTRIC COMPANY 8

9 UNITED STATES BANKRUPTCY COURT 10 NORTHERN DISTRICT OF CALIFORNIA 11 SAN FRANCISCO DIVISION 12 In re Case No. 0 1-30923 DM HOWARD 13 RICE PACIFIC GAS AND ELECTRIC Chapter 11 CANEMt1 FAUK 14 COMPANY, a California corporation, HEARING

,.C.~ 15 Debtor.

Date: February 26, 2002 16 Time: 9:30 a.m.

Federal I.D. No. 94-0742640 Place: 235 Pine Street, 22nd Floor 17 San Francisco, California 18 DEBTOR'S NOTICE OF MOTION AND MOTION FOR ORDER 19 MODIFYING STIPULATION: (I) AUTHORIZING USE OF CASH COLLATERAL PURSUANT TO 11 U.S.C. § 363 AND BANKRUPTCY 20 RULE 4001 AND (II) GRANTING ADEQUATE PROTECTION PURSUANT TO 11 U.S.C. §§ 361 AND 363; 21 SUPPORTING MEMORANDUM OF POINTS AND AUTHORITIES 22 [SUPPORTING DECLARATION OF KENT HARVEY FILED HEREWITH]

23 24 25 26 #0/1 ý /),,/, (ý(,e?ý 27 28 MOTION TO MODIFY STIPULATION RE USE OF MORTGAGE BONDHOLDERS' CASH COLLATERAL 1 NOTICE OF MOTION AND MOTION 2

3 PLEASE TAKE NOTICE that on February 26, 2002, at 9:30 a.m., or as soon 4 thereafter as the matter may be heard, in the Courtroom of the Honorable Dennis Montali, 5 located at 235 Pine Street, 22nd Floor, San Francisco, California, Pacific Gas and Electric 6 Company, the debtor and debtor in possession in the above-captioned Chapter 11 case (the 7 "Debtor" or "PG&E"), will and hereby does move the Court (the "Motion") for entry of an 8 order authorizing modification of the Stipulation: (I) Authorizing and Restricting Use of 9 Cash Collateral Pursuant to 11 U.S.C. § 363 and Bankruptcy Rule 4001 and (II) Granting 10 Adequate Protection Pursuant to 11 U.S.C. §§ 361 and 363 (the "Stipulation") previously 11 approved by this Court's Order of May 9, 2001. By this Motion, PG&E seeks approval from 12 the Court to modify the Stipulation with BNY Western Trust Company, as successor trustee 13 pursuant to a certain indenture with respect to certain mortgage bonds issued by PG&E, to HOWA.RD RKE N-" 14 provide for PG&E's timely payment of the principal amount of the bonds maturing on

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, 15 March 1, 2002, in the approximate amount of $333 million. As discussed in greater detail 16 below, PG&E's obligations are substantially oversecured, and PG&E submits that such 17 payment will benefit the estate financially because the bonds accrue interest at a rate 18 significantly in excess of the rates currently earned by PG&E on its cash balances.

19 The Motion is based on this Notice of Motion and Motion, the supporting 20 Memorandum of Points and Authorities (set forth below) and Declaration of Kent Harvey 21 (submitted herewith), the record of this case and any admissible evidence presented to the 22 Court at or prior to the hearing on this Motion.

23 PLEASE TAKE FURTHER NOTICE that pursuant to Rule 9014-1 (c)(2) of the 24 Bankruptcy Local Rules of the United States District Court for the Northern District of 25 California, any opposition to the Motion and the relief requested herein must be filed with 26 the Bankruptcy Court and served upon appropriate parties (including counsel for PG&E) at 27 least five (5) days prior to the scheduled hearing date. If there is no timely objection to the 28 requested relief, the Court may enter an order granting such relief without further hearing.

MOTION TO MODIFY STIPULATION RE USE OF MORTGAGE BONDHOLDERS' CASH COLLATERAL 1 MEMORANDUM OF POINTS AND AUTHORITIES 2 I.

3 INTRODUCTION1 4 By this Motion, PG&E seeks the Court's approval to modify the Stipulation with BNY 5 Western Trust Company, as successor trustee (the "Indenture Trustee") pursuant to that 6 certain indenture dated December 1, 1920 with respect to mortgage bonds (the "Bonds")

7 issued by PG&E, which indenture has been supplemented by fourteen supplemental 8 indentures (collectively, the "Indenture"). In particular, the proposed modification would 9 provide for the timely payment by PG&E of the principal amount of the Bonds (1992 Series 2

10 A) scheduled to mature on March 1, 2002, in the approximate amount of $333 million.

11 II.

12 FACTUAL BACKGROUND 13 1. On April 6, 2001, PG&E filed a voluntary petition under Chapter 11 of the HOARD RKE cEAmI14 Bankruptcy Code. PG&E continues to manage and operate its business and property as a MJ(

&RABOIN APt,,c 15 debtor in possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code.

16 2. On May 9, 2001, this Court issued its Order on Debtor's Motion for Order 17 Approving Stipulation: (I) Authorizing and Restricting Use of Cash Collateral Pursuant to 11 18 U.S.C. § 363 and Bankruptcy Rule 4001 and (II) Granting Adequate Protection Pursuant to 19 11 U.S.C. §§ 361 and 363 (the "Order Approving Stipulation"), approving PG&E's entry 20 into and performance under the Stipulation. The Stipulation provides for PG&E's continued 21 use of cash collateral in which the Indenture Trustee has an interest (on behalf of the holders 22 of the Bonds) pursuant to certain conditions and restrictions. Among other things, the 23 Stipulation provides for the timely payment of interest and sinking fund payments as 24 provided under the Indenture. The annual amount of interest and sinking fund payments 25 1 The evidentiary basis and support for the facts set forth in this Motion are contained 26 in the Declaration of Kent Harvey filed concurrently herewith.

2 The current amount outstanding of the 1992 Series A Bonds is approximately $340 27 million. Approximately $7 million of these Bonds that are held in treasury by PG&E will be satisfied by a sinking fund payment scheduled to be made on February 1, 2002.

28 MOTION TO MODIFY STIPULATION RE USE OF MORTGAGE BONDHOLDERS' CASH COLLATERAL 1 currently accruing on the Bonds is approximately $300 million.

2 3. PG&E and the Indenture Trustee have continued to perform their respective 3 obligations under the Stipulation since the entry of the Order Approving Stipulation.

4 4. PG&E's obligations under the Indenture are substantially oversecured. The total 5 unpaid indebtedness under the Bonds is approximately $3.7 billion. Such indebtedness is 6 secured by a first-priority lien on substantially all of PG&E's assets. PG&E reported total 7 assets of approximately $25 billion as of November 30 2001 on its most recently filed 8 Operating Report. In addition, PG&E is solvent and expects to pay all allowed claims 9 against the Debtor's estate in full. Thus, there is little doubt that the Bonds will eventually 3

10 be satisfied in full.

11 5. The 1992 Series A Bonds, which are scheduled to mature on March 1, 2002, 12 accrue interest at 7-7/8% (7.875%) per annum.4 If PG&E is authorized to make the March HOWARD 13 2002 principal payment on the Bonds, it expects to do so using cash currently held by the N NAi.

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14 estate. As reported on PG&E's most recent Operating Report, PG&E had a cash balance of

&PANIN AY~,_C* .15 approximately $4.9 billion as of November 30, 2001. PG&E submits that such payment will 16 benefit the estate financially because the Bonds accrue interest at a rate significantly in 17 excess of the rates currently being earned by PG&E on its cash balances. By contrast, if 18 PG&E fails to timely make the March 2002 principal payment, it risks being in default under 19 the Indenture, and the negative consequences that may flow from such a default (e.g., the 20 potential acceleration of all series of the Bonds).

21 III.

22 THE PROPOSED MODIFICATIONS TO THE STIPULATION 23 The Stipulation currently provides (in paragraph 21) as follows:

24 "As additional adequate protection hereunder, the Indenture Trustee and the 25 PG&E's proposed Chapter 11 plan currently before the Court provides for payment 26 of the Bonds in full in cash (except for a small portion of the Bonds which secure the 27 Debtor's pollution control bonds, which are to be replaced by new bonds).

4 The next series of Bonds scheduled to mature is in August 2003.

28 MOTION TO MODIFY STIPULATION RE USE OF MORTGAGE BONDHOLDERS' CASH COLLATERAL 1 Bondholders shall be entitled to the payment of accrued and unpaid interest and sinking fund payments due and payable under the Indenture (the "Pre-Petition 2 Indebtedness') on or prior to the Petition Date at the prevailing rate (with respect to interest payments) in effect under the'Indenture. Additionally, interest on the 3 Pre-Petition Indebtedness shall continue to accrue subsequent to the Petition Date at the prevailing rate under the Indenture and shall be payable on the terms set 4 forth therein. Furthermore, any and all sinking fund payments that become due subsequent to the Petition Date shall be payable on the terms set forth in the 5 Indenture."

6 The Indenture Trustee has requested, and PG&E has agreed (subject to this Court's 7 approval) to modify paragraph 21 of the Stipulation to add the following sentence at the end 4

8 of such paragraph:

9 "In addition, the principal amount of the Bonds scheduled to mature on March 1, 2002 in the approximate amount of $333 million shall be payable on the terms set 10 forth in the Indenture."

11 PG&E submits that the proposed modification to the Stipulation is consistent with the 12 Court's Guidelines for Cash Collateral and Financing Stipulations.

H 13 IV.

RCE q 14 THE COURT SHOULD AUTHORIZE THE PROPOSED

____ MODIFICATION OF THE STIPULATION 15 The Stipulation expressly contemplates subsequent modifications to the Stipulation, 16 including modifications to provide different or additional adequate protection. Paragraph 12 17 of the Stipulation provides, in relevant part, as follows:

18

"[T]he grant of adequate protection to the Indenture Trustee and the Bondholders 19 pursuant hereto is without prejudice to the right of the Debtor (subject to the provisions of paragraph 14(c)), the Indenture Trustee and the Bondholders to seek 20 modification of the grant of adequate protection provided hereby so as to provide different or additional adequate protection... .

21 22 In addition to the Court's power to authorize the use of cash collateral under Section 23 363(c)(2) of the Bankruptcy Code, the Court is empowered to authorize the proposed 24 4 A "blacklined" copy of the proposed revised Stipulation is attached as Exhibit 1 to 25 the Declaration of Kent Harvey filed herewith. Exhibit 1 is not attached to the service copies of that Declaration. You may obtain copies of such documents through the "Pacific 26 Gas & Electric Company Chapter 11 Case" link accessible through the Bankruptcy Court's website (www.canb.uscourts.gov), or by written request by mail to Howard, Rice, 27 Nemerovski, Canady, Falk & Rabkin, Attn: Jerome Ferrer, Three Embarcadero Center, 7th 28 Floor, San Francisco, California 94111-4065, or by e-mail request to j ferrer@hrice.com.

MOTION TO MODIFY STIPULATION RE USE OF MORTGAGE BONDHOLDERS' CASH COLLATERAL 1 additional adequate protection pursuant to Section 361 of the Bankruptcy Code. As 2 discussed above, the Debtor submits that the proposed modification to the Stipulation is in 3 the best interests of the Debtor's estate, as the Bonds accrue interest at a rate significantly in 4 excess of the rates currently being earned by PG&E on its cash balances that would be used 5 to fund such payment. In addition, since PG&E's obligations under the Indenture are 6 substantially oversecured, and PG&E is solvent and expects to pay all allowed claims 7 against the Debtor's estate in full, there is little doubt that the Bonds will eventually be 8 satisfied in full. By contrast, if PG&E fails to timely make the March 2002 principal 9 payment, it risks being in default under the Indenture, and the negative consequences that 10 may flow from such a default (e.g., the potential acceleration of all series of the Bonds).

11 V.

12 CONCLUSION HOWAD 13 For all of the foregoing reasons, PG&E respectfully requests that this Court make and cmp" 14 enter its order:

, *O.1 . 15 1. Granting the Motion.

16 2. Authorizing the Stipulation to be modified to provide for timely payment of the 17 principal amount of the bonds maturing on March 1, 2002.

18 3. Providing for such other and further relief as the Court deems just and appropriate.

19 DATED: February J, 2002 Respectfully, 20 HOWARD, RICE, NEMEROVSKI, CANADY, 21 FALK & RABKIN A Professional Corporation 22 23 By: /VAIYP*.KAPLAN By:

24 25 Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY 26 WD 013002/1-1419910/972374/v2 27 28 MOTION TO MODIFY STIPULATION RE USE OF MORTGAGE BONDHOLDERS' CASH COLLATERAL