ML022830283

Declaration of Michael J. Donnelly in Support of Debtor'S Motion for Authority to Pay Fees of Designated Underwriter'S Counsel

ML022830283
Person / Time
Site:	Diablo Canyon
Issue date:	10/01/2002
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: ML022830283 (5)

Text

1 JAMES L. LOPES (No. 63678)

JANET A. NEXON (No. 104747) 2 JULIE B. LANDAU (No. 162038)

HOWARD, RICE, NEMEROVSKI, CANADY, 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

UNITED STATES BANKRUPTCY COURT 9

NORTHERN DISTRICT OF CALIFORNIA 10 SAN FRANCISCO DIVISION 11 12 In re Case No. 01-30923 DM HoWR 13 PACIIFIC GAS AND ELECTRIC Chapter 11 Case RiCE NqEMER£tK COIY.[PANY, a California corporation, October 21, 2002 cANDY FAIK 14 Date:

&*RAI3KIN Debtor. Time: 1:30 p.m.

"A"'%-- 15 Place: 235 Pine Street, 22nd Floor Fedelral I.D. No. 94-0742640, San Francisco, California 16 Judge: Hon. Dennis Montali 17 18 19 DECLARATION OF MICHAEL J. DONNELLY IN SUPPORT OF DEBTOR' S MOTION FOR AUTHORITY TO PAY FEES OF DESIGNATED 20 UNDERWRITER' S COUNSEL 21 22 23 24 cC 25 26 27 28 DONNELLY DECL. ISO DEBTOR'S MOT. FOR AUTHORITY TO PAY FEES OF DESIGNATED UNDERWRITER'S COUNSEL

1 I, Michael J. Donnelly, declare as follows:

2 1. I am the Assistant Treasurer of Pacific Gas and Electric Company, a position that 3 I have held since September of 2000. Except as otherwise indicated, I make this declaration 4 based upon my personal knowledge concerning the matters stated herein. If called as a 5 witness, I could and would testify competently to the facts stated herein.

6 2. I make this declaration in support of PG&E's Motion for Authority to Pay Fees of 7 Designated Underwriter's Counsel (the "Motion").

8 3. PG&E, together with its parent corporation, PG&E Corporation, has proposed a 9 Plan of Reorganization (as amended from time to time, the "Plan"), which has recently been 10 voted on by creditors, along with the competing plan of reorganization proposed by the 11 California Public Utilities Commission. The confirmation hearing has been scheduled to 12 commence on November 18, 2002.

HAKI)CE 13 4. The Plan provides for the creation of three new companies, ETrans LLC, GTrans NEMEBkIa cFNAD FAIX 14 LLC and Electric Generation LLC (collectively, the "New Entities"), whereby PG&E will

& RABKIN S15 separate according to its four historical lines of business and functions. Thus, the 16 Reorganized Debtor (referred to herein as "PG&E") will continue to operate the retail gas 17 and electric distribution business, ETrans LLC ("ETrans") will operate the electric 18 transmission business, GTrans LLC ("GTrans") will operate the gas transmission business, 19 and Electric Generation LLC ("Gen") will operate the electric generation business.

20 5. A significant component of the Plan involves the issuance of various types of 21 debt securities by the New Entities as part of the distributions to be made to holders of 22 Allowed Claims (as defined in the Plan) and by PG&E and the New Entities as a means of 23 financing the implementation of the Plan. PG&E and the New Entities will utilize the 24 services of one or more underwriters (the "Underwriter") in connection with the financing.

25 The Underwriter's services will include assisting in the structuring and pricing of the debt 26 securities, and marketing the New Money Notes (as defined in the Plan) to be sold to 27 investors, and facilitating potential initial sales of Long-Term Notes (as defined in the Plan) 28 by holders of Allowed Claims (as discussed in the Plan). As is customary in public offerings DONNELLY DECL. ISO DEBTOR'S MOT. FOR AUTHORITY TO PAY FEES OF DESIGNATED UNDERWRITER'S COUNSEL 1 of securities and in order to satisfy certain statutory requirements under the federal securities 2 laws, the Underwriter, together with its counsel, will conduct a due diligence investigation of 3 each of the issuers of the securities. The Underwriter has not yet been selected, although 4 PG&E anticipates that Lehman Brothers may serve as an Underwriter.

5 6. PG&E has designated Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden")

6 to act as underwriter's counsel ("Underwriter's Counsel"). In this capacity, Skadden's 7 services may include: (i) reviewing, drafting and/or negotiating the legal documentation, 8 including the registration statements and related prospectuses to be filed with the Securities 9 and Exchange Commission ("SEC") by PG&E and each of the New Entities for the offerings 10 of New Money Notes to the public and the resale of Long-Term Notes by holders of 11 Allowed Claims to the public, and (ii) conducting the due diligence investigation of the 12 issuers of the debt securities being sold to the public. Specifically, Skadden will be Ho tfl 13 KICE responsible for reviewing and assisting in revising the registration statements and W 14 prospectuses for the offerings of New Money Notes for, among other things, compliance "15 with federal and state laws, rules and regulations relating to registered securities offerings as 16 well as the descriptions of the debt securities and the underwriting arrangements. In 17 connection with the preparation of the registration statements, Skadden will assist with the 18 due diligence investigation of each of the issuers, which will consist of a review of the 19 issuers' material contracts, financing arrangements, materials relating to pending or 20 threatened litigation, environmental reports and assessments and other materials, and will 21 meet with members of the issuers' management and external auditors to discuss their 22 business, legal and financial affairs. Skadden will also be responsible for drafting, reviewing 23 and/or negotiating the underwriting agreements, indentures and other legal documents 24 relating to issuance and sale of the New Money Notes and Long-Term Notes. I am informed 25 and believe and thereupon allege that in connection with the offerings, Skadden will also 26 provide the Underwriter with customary legal opinions with respect to matters relating to the 27 offerings as well as a "negative assurance" letter providing the Underwriter with assurance 28 that Skadden has no reason to believe that the registration statements or the prospectuses DONNELLY DECL. ISO DEBTOR'S MOT. FOR AUTHORITY TO PAY FEES OF DESIGNATED UNDERWRITER'S COUNSEL 1 contain any untrue statement or omission of a material fact. Skadden will also be 2 responsible for reviewing the "comfort letters" provided by the issuers' auditors, covering 3 the audited and unaudited financial information to be included in the registration statements.

4 7. Skadden will not represent PG&E in an attorney/client relationship with respect 5 to its services as Underwriter's Counsel, although Skadden will continue to act as special 6 regulatory counsel to PG&E.

7 8. As conditions precedent to the effectiveness of the Plan, (i) the registration 8 statements for the New Money Notes and the Long-Term Notes must be declared effective 9 by the SEC, and (ii) PG&E must have consummated the sale of its New Money Notes and 10 the New Money Notes of each of the New Entities shall have been priced and their trade 11 dates shall have occurred. Preparing registration statements for securities offerings, 12 particularly for new issuers, involves substantial legal work to ensure that the disclosure

,wm 13 contained therein is fair and accurate and complies with the securities laws, rules and FICE

,A,, 14 regulations. Once the registration statements are filed, there may be a lengthy SEC review

& RAWKN "15 process for the securities offerings before the registration statements are declared effective.

16 In order to meet the foregoing conditions precedent to the effectiveness of the Plan, the legal 17 work by Underwriter's Counsel must begin promptly. This legal work will include the time 18 consuming and complex process of participating in the preparation of the registration 19 statements and conducting the due diligence investigation, which will also require 20 substantial coordination with the issuers and their counsel 21 9. To date, Skadden has performed limited services as Underwriter's Counsel and 22 has incurred approximately $390,000 in fees and expenses, which have not been paid.

23 10. It is customary for the issuer to pay for the underwriter's legal fees in connection 24 with complex debt offerings such as those involved under the Plan.

25 11. I am informed and believe that sound business justifications support PG&E's 26 request to pay the legal fees of Underwriter's Counsel. It is necessary that the time 27 consuming and complex legal work to be performed by Underwriter's Counsel be done 28 promptly in order for PG&E to ensure that it can timely meet the conditions precedent to the DONNELLY DECL. ISO DEBTOR'S MOT. FOR AUTHORITY TO PAY FEES OF DESIGNATED UNDERWRITER'S COUNSEL f

1 effectiveness of the Plan. Because the issuer's payment of such fees is a common business 2 practice for complex debt offerings, PG&E believes that it is necessary to pay these costs in 3 furtherance of implementation of the Plan. PG&E is soivent and has sufficient cash to pay 4 these expenses without causing any detriment to its creditors. Furthermore, PG&E will 5 attempt to negotiate a partial or full reimbursement of any fees paid at such time as the 6 Underwriter is selected.

7 I declare under penalty of perjury under the laws of the United States of America that 8 the foregoing is true and correct. Executed this i day of October, 2002, at San Francisco, 9 California.

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- 15 16 17 18 19 20 21 22 23 24 25 26 27 28 WD 100102/F-14199051Yl/10251101v3 DONNELLY DECL. ISO DEBTOR'S MOT. FOR AUTHORITY TO PAY FEES OF DESIGNATED UNDERWRITER'S COUNSEL