ML023400136

Conditional Objection and Request for Clarification of Deutsche Bank Trust Company Americas, as Indenture Trustee, with Respect to the California Public Utilities Commission'S and Official Committee of Unsecured Creditors' Second Amended Pl

ML023400136
Person / Time
Site:	Diablo Canyon
Issue date:	11/27/2002
From:	Kolod A Moses & Singer, LLP
To:	Office of Nuclear Reactor Regulation, US Federal Judiciary, Bankruptcy Court, Northern District of California
References
01-30923 DM, 94-0742640
Download: ML023400136 (6)

Text

r 1 ALAN KOLOD MARK N. PARRY 2 MOSES & SINGER LLP, 1301 Avenue of the Americas 3 New York, NY 10019 Telephone: 212.554.7800 4 Facsimile: 212.554.7700 5 Attorneys for Deutsche Bank Trust Company Americas, As Indenture Trustee 6

UNITED STATES BANKRUPTCY COURT 7

NORTHERN DISTRICT OF CALIFORNIA 8

SAN FRANCISCO DIVISION 9

10 In re Case No. 01-30923 DM 11 PACIFIC GAS AND ELECTRIC Chapter 11 Case 12 COMPANY, a California corporation, Date: December 2, 2002 13 Debtor. Time: 9:30 a.m.

Place: 235 Pine Street, 2 2nd Floor 14 Federal I.D. No. 94-0724640 San Francisco, CA 15 16 CONDITIONAL OBJECTION AND REQUEST FOR CLARIFICATION OF DEUTSCHE BANK TRUST COMPANY AMERICAS, AS INDENTURE i7 TRUSTEE, WITH RESPECT TO THE CALIFORNIA PUBLIC UTILITIES COMMISSION'S AND OFFICIAL COMMITTEE OF UNSECURED CREDITORS' 18 SECOND AMENDED PLAN OF REORGANIZATION UNDER CHAPTER 11 OF 19 THE BANKRUPTCY CODE FOR PACIFIC GAS AND ELECTRIC COMPANY 20 21 Deutsche Bank Trust Company Americas, as Indenture Trustee ("DB"), by its 22 attorneys, Moses & Singer LLP, hereby conditionally objects to, and requests clarification of, 23 The California Public Utilities Commission's And Official Committee of Unsecured 24 Creditors' Second Amended Plan of Reorganization Under Chapter 11 of the Bankruptcy 25 Code For Pacific Gas And Electric Company (the "CPU Second Amended Plan"), as follows:

26 27 28 CONDITIONAL OBJECTION AND REQUEST FOR CLARIFICATION OF DEUTSCHE BANK TRUST COMPANY AMERICAS, AS TRUSTEE 4all xwelllý,4,r_ 161e,-47-(ee

1 BACKGROUND 2 1. The biasis for the conditional objection and the explanation for why it is 3

4 being filed at this time is set forth below. On April 6, 2001 (the "Petition Date"), Pacific Gas 5 and Electric Company, the debtor and debtor in possession in the above-referenced 6 bankruptcy case ("PG&E" or the "Debtor"), filed a voluntary petition for relief under Chapter 7 11 of the Bankruptcy Code in the above-captioned Court. PG&E is a debtor in possession 8

1108.

9 and is operating its business pursuant to Bankruptcy Code §§ 1107 and as of April 10 2. Pursuant to the terms of that certain Indenture of Trust, dated 11 1, 1992 (the "Indenture"), by and between California Pollution Control Financing Authority 12 (the "Issuer") and Deutsche Bank Trust Company Americas f/k/a Bankers Trust Company, 13 Authority, Pollution 14 the Issuer issued those certain California Pollution Control Financing Company) 1992 Series A in the 15 Control Refunding Revenue Bonds (Pacific Gas and Electric

.16 aggregate principal amount of $35,000,000 (the "1992 PC Bonds"). PG&E obligated itself 17 through a bond loan agreement with the Issuer to pay the 1992 PC Bonds. DB is the 18 19 indenture trustee with respect to the 1992 PC Bonds.

order to secure 20 3. In connection with the issuance of the 1992 PC Bonds, in 21 its obligation under the bond loan agreement to repay the bond loan made by the Issuer to the 22 Debtor of the proceeds from the sale of the 1992 PC Bonds, the Debtor delivered to DB its 23 first and refunding mortgage bonds (the "Collateral Bonds") in an aggregate principal amount 24 Bonds delivered to DB to secure 25 equal to the related series of 1992 PC Bonds. The Collateral 26 the 1992 PC Bonds provide for payments on such Collateral Bonds at the times and in the 27 amounts necessary to allow DB to distribute full and timely payment of the principal of, 28

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1 premium, if any, and interest on the 1992 PC Bonds.

2 4. The dCollateral Bonds securing the 1992 PC Bonds were issued under 3

4 and secured by the Debtor's First and Refunding Mortgage dated December 1, 1920, as 5 supplemented and amended (defined in the CPU Second Amended Plan as the "Mortgage"),

6 which constitutes a first mortgage lien upon all real property and a security interest in 7 substantially all personal property of the Debtor. The Mortgage secures, paripassu,(i) a total 8

of approximately $345 million of bonds (the "Mortgage Bonds") issued as collateral to 9

10 various indenture trustees, such as DB, for various pollution control bonds (the "PC Bonds"),

11 and (ii) other bonds (the "First and Refunding Mortgage Bonds") in the current face amount 12 of $2.699 billion.

13 as a 14 5. As indenture trustee for the 1992 PC Bonds, DB has standing both 15 holder of Collateral Bonds and as indenture trustee with respect to the 1992 PC Bonds.

16 6. On or about May 17, 2002, the California Public Utilities Commission 17 (the "CPU") filed its Plan of Reorganization Under Chapter 11 of the Bankruptcy Code For 18 19 Pacific Gas And Electric Company (the "CPU Plan"). The CPU Plan classified the First and 20 Refunding Mortgage Bonds in Class 3 and the 1992 PC Bonds in Class 4a. Pursuant to the 21 terms of the CPU Plan, both the First and Refunding Mortgage Bonds and the 1992 PC Bonds 22 were to remain outstanding and be-reinstated and rendered unimpaired in accordance with 23 Section 1124(2) of the Bankruptcy Code.

24 25 7. On or about November 6,2002, the CPU and the Official Committee of 26 Unsecured Creditors filed the CPU Second Amended Plan. The CPU Second Amended Plan 27 continues to provide for the 1992 PC Bonds in Class 4a to be reinstated and unimpaired. The 28 CONDITIONAL OBJECTION AND REQUEST FOR CLARIFICATION OF DEUTSCHE BANK TRUST COMPANY AMERICAS, AS TRUSTEE

1 Disclosure Statement confirmed this and no disclosure was made of any attempt to impair the 2 1992 PC Bonds. No provision was made for a vote by Class 4a, and DB, in reliance thereon, 3

4 did not object to the CPU Second Amended Plan.

5 8. However, the CPU Second Amended Plan provides for $2.699 billion of 6 the First and Refunding Mortgage Bonds in Class 3 to be paid in full and for all liens securing 7 them to be extinguished as of the Effective Date. The CPU Second Amended Plan provides 8

9 no specific treatment for the $345 million of Mortgage Bonds, including the Collateral 10 Bonds, that secure the 1992 PC Bonds and the other PC Bonds that were also issued under 11 and secured by the Mortgage. The CPU Second Amended Plan defines these as "Mortgage 12 Bonds," a term separate and distinct from the term "First and Refunding Mortgage Bonds,"

13 14 although both are secured, paripassu, by the Mortgage.

15 CONDITIONAL OBJECTION 16 9. DB, and apparently the other trustees for the mortgage backed PC 17 Bonds, interpreted the CPU Second Amended Plan to provide that the Mortgage Bonds, 18 19 including the Collateral Bonds, and the lien of the Mortgage securing them, would not be Mortgage Bonds issued to the 20 extinguished. DB concluded that only the First and Refunding 21 public in the amount of $2.699 billion would be repaid and that lien extinguished. Any other 22 interpretation would presume that the Second Amended Plan intended to deprive Class 4a of 23 the benefits of its Mortgage Bond collateral with no compensation. This would impair Class 24 Class 4a of its collateral 25 4a and entitle it to vote. There is no legal justification for depriving 26 without compensation.

27 10. On November 26, 2002, however, the Debtor advised DB that it 28 AS TRUSTEE CONDITIONAL OBJECTION AND REQUEST FOR CLARIFICATION OF DEUTSCHE BANK TRUST COMPANY AMERICAS,

1 interpreted the CPU Second Amended Plan differently. The Debtor believes that the 2 Mortgage Bonds, including the Collateral Bonds, fall within the definition of the First and 3

will 3 and that the lien created by the Mortgage Refunding Mortgage Bonds, are within Class 5 be extinguished as of the Effective Date, depriving the PC Bonds of their Mortgage Bond 6 security. However, the $2.699 billion provided to be paid is insufficient to cover both the 7 First and Refunding Mortgage Bonds and the $345 million of the Mortgage Bonds, if those 8

bonds are included in Class 3. If the Debtor is correct, then confirmation of the CPU Second 9

10 Amended Plan will deprive the 1992 PC Bonds of their collateral and Class 4a will be 11 impaired under the CPU Second Amended Plan with no opportunity to vote or object and 12 with inadequate and misleading disclosure.

13 14 11. When a secured creditor is deprived of its collateral in a plan of In re Barakat,99 15 reorganization, the secured creditor's claim is impaired. 11 U.S.C. § 1124; 16 F.3d 1520, 1527 (9th Cir. 1996). Moreover, if the secured creditor is deprived of its collateral 17 without being given the collateral's "indubitable equivalent" in exchange, the plan cannot be 18 19 confirmed over the secured creditor's objection. 11 U.S.C. § 1129(b)(2); In re Ambanc La extinguishment of 20 Mesa Limited Partnership,115 F.3d 650, 653 (9 'hCir. 1996). Obviously, 21 the Mortgage Bonds as part of Class 3, while providing no recovery to their holders, is 22 discriminatory in violation of Section 1129(b).

23

12. The Debtor's position regarding the CPU Second Amended Plan 24 of the CPU 25 compels DB to conditionally object to confirmation and to seek clarification 26 Second Amended Plan. In the event that the proponents of the CPU Second Amended Plan 27 confirm that the Collateral Bonds securing the 1992 PC Bonds are to be extinguished with no 28 CONDITIONAL OBJECTION AND REQUEST FOR CLARIFICATION OF DEUTSCHE BANK TRUST COMPANY AMERICAS, AS TRUSTEE

1 payment, then the CPU Second Amended Plan cannot and should not be confirmed.

2 CONCLUSION 3

4 For the foregoing reasons, DB conditionally objects to confirmation of the CPU 5 Second Amended Plan and requests clarification. The CPU Second Amended Plan provides 6 that the 1992 PC Bonds are unimpaired, and the collateral securing such bonds remains in full 7 force and effect. In the event that the 1992 PC Bonds are impaired, and the PC Bonds, 8

including the Collateral Bonds, are extinguished, then the CPU Second Amended Plan should 10 not be confirmed.

11 12 DATED: November 27,2002 MO SINGER LLP 13 14 Alan Kolod 15 Mark N. Parry 16 1301 Avenue of the Americas New York, New York 10019 17 Telephone: 212.554.7800 Facsimile: 212.554.7700 18 19 20 21 22 23 24 25 26 27 28

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