ML032521345

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Declaration of Walter Hulse in Support of Motion for Authority to Enter Into Certain Hedging Transactions in Connection with Financing Under Proposed Plan of Reorganization, and to Incur Secured Debt Related Thereto
ML032521345
Person / Time
Site: Diablo Canyon  Pacific Gas & Electric icon.png
Issue date: 08/29/2003
From: Hulse W
UBS Warburg
To:
Office of Nuclear Reactor Regulation, US Federal Judiciary, Bankruptcy Court, Northern District of California
References
01-30923 DM, 94-0742640
Download: ML032521345 (5)


Text

M I

1 JAMES L. LOPES (No. 63678)

JEFFREY L. SCHAFFER (No. 91404) 2 GARY M. KAPLAN (No. 155530) 3 HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN I 4 A Professional Corporation 5 Three Embarcadero Center, 7th Floor San Francisco, California 94111-4065 6 Telephone: 415/434-1600 Facsimile: 415/217-5910 7

8 Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY 9

10 UNITED STATES BANKRUPTCY COURT 11 NORTHERN DISTRICT OF CALIFORNIA 12 SAN FRANCISCO DIVISION HowmD 13 CAWK 14 In re Case No. 01-30923 DM 15 16 PACIFIC GAS AND ELECTRIC Chapter 11 Case COMPANY, a California corporation, 17 Date: September 26, 2003 Debtor. Time: 10:30 a.m.

18 Place: 235 Pine Street, 22nd Floor 19 San Francisco, California Federal I.D. No. 94-0742640 Judge: Hon. Dennis Montali 20 21 22 DECLARATION OF WALTER HULSE IN SUPPORT OF MOTION FOR AUTHORITY TO ENTER INTO CERTAIN HEDGING TRANSACTIONS IN 23 CONNECTION WITH FINANCING UNDER PROPOSED PLAN OF 24 REORGANIZATION. AND TO INCUR SECURED DEBT RELATED THERETO 25 26 27 28 /K ba~o0l

1. I am a Managing Director of UBS Securities LLC (including any reference 2 to its prior name of UBS Warburg LLC, hereinafter referred to as "UBS Securities"), an 3

affiliate of UBS AG, which is a proposed counterparty with respect to the Interest Rate 4

5 Hedges that Pacific Gas and Electric Company, the debtor in the above-captioned 6 bankruptcy case ("PG&E"), seeks authority to enter into pursuant to PG&E's Motion For 7 Authority To Enter Into Certain Hedging Transactions In Connection With Financing Under 8

9 Proposed Plan Of Reorganization, And To Incur Secured Debt Related Thereto (the 10 "Motion').' I make this declaration (this "Declaration") in support of the Motion and in 11 support of a finding that UBS AG has acted in "good faith," as such term is defined in 12 Section 364(e) of the Bankruptcy Code, in entering into Interest Rate Hedges and Hedge How 13 CA 14, Agreements with PG&E as described in the Motion. This Declaration is based on my 15 personal knowledge (except as to any matters stated on information and belief, and as to 16 such matters, I am informed and believe they are true) and upon my review of the Motion. If 17 called as a witness, I could and would testify competently to the facts stated herein.

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2. UBS Securities, an affiliate of UBS AG, and certain other affiliates of UBS 19 20 AG (collectively, "UBS"), have provided and may in the future provide investment banking 21 and other services to PG&E Corporation (the "Corporation"). In addition, UBS Securities 22 has been retained to provide services as financing and capital markets arranger by the 23 24 California Public Utilities Commission (the "Commission") and Official Committee of 25 Unsecured Creditors (the "Committee" or the "OCC") in connection with their joint plan, 26 27 1 Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Motion.

28 DECLARATION OF WALTER HULSE

I now as amended the Commission's and Committee's Third Plan of Reorganization Under 2 Chapter 11 of the Bankruptcy Code for Pacific Gas and Electric Company dated November 3

6, 2002 (the "Joint Plan"). The terms of UBS Securities' retention by the OCC and the 5 Commission were set forth in the October 2, 2002 engagement letter (the "Engagement 6 Letter") signed by UBS Securities, the OCC and the Commission. The Bankruptcy Court 7

authorized UBS Securities' retention under the Engagement Letter in the October 30, 2002 Order Granting Application of Official Committee of Unsecured Creditors and California 9

10 Public Utilities Commission for Order Authorizing Retention and Employment of UBS 11 Warburg LLC as Financing and Capital Markets Arranger (the "UBS Retention Order").

Through the UBS Retention Order, the Court approved the payment of retainer fees provided HOW4JD 13 AeK/C1A for in the Engagement Letter, including monthly fees and reimbursement of expenses. UBS 14 PRAN 15 Securities also delivered to the OCC a Highly Confident Letter described in Section 2(b) of 16 the Engagement Letter. The compensation received by UBS Securities in connection 17 therewith has been previously disclosed in connection with the applicable applications to the 18 Bankruptcy Court. Each of the foregoing engagements and the fees in connection therewith 19 20 are separate and distinct from the Interest Rate Hedge transactions that are the subject of the 21 Motion.

22 3. As set forth previously in connection with the retention of UBS Securities 23 in this case, UBS has held and may in the future hold debt and/or equity securities issued by 24 25 PG&E, the Corporation, and/or various affiliates.

26 4. Because of the magnitude of PG&E's Chapter 11 case and the relatively 27 large number of parties in interest, it is impractical, if not impossible, for UBS to represent 28 DECLARATION OF WALTER HULSE

I) )

1 that it has disclosed all of its relationships with all of the parties in interest herein; it should 2 be assumed that UBS has or may in the future have substantial commercial relationships 3

with numerous parties in interest in this case that engage in transactions in the financial 4

S markets.

6 5. UBS AG has extensive experience in arranging and engaging in hedging transactions, including transactions of the type defined as "Interest Rate Hedges" in the 8

Motion. Based on such experience, UBS AG is prepared to enter into Interest Rate Hedges 9

10 and Hedge Agreements with PG&E, even though UBS AG is not aware of any substantially 11 similar precedent for the particular Interest Rate Hedges contemplated pursuant to the 12 Motion in view of PG&E's status as a Chapter 11 debtor.

Hs,.A 13 bOVEROM 6. UBS AG has conducted extensive, arms-length negotiations with PG&E A 14 A10 15 regarding the Interest Rate Hedges and the prospective Hedge Agreements, and the final 16 Hedge Agreements that result will be the product of such arms-length negotiations. UBS 17 AG and PG&E have been represented by separate counsel in connection with such 18 negotiations.

19 20 7. UBS believes that any investment-grade-rated financial institution 21 proposed to be a counterparty to any Interest Rate Hedge with PG&E will require (acting on 22 a commercially reasonable basis), as a condition to entering into any Hedge Agreement(s) 23 with PG&E and as a term of such Hedge Agreement(s), the bankruptcy-related terms 24 25 described in the Motion, including, without limitation, (i) that if PG&E requires a 26 counterparty to post collateral to secure PG&E's credit exposure to such counterparty above 27 negotiated threshold levels, PG&E too will be required to post collateral to secure the 28 DECLARATION OF WALTER HULSE

I counterparty's exposure to PG&E and that PG&E will be required to post such collateral on 2 a priming basis under Bankruptcy Code Section 3(d), and (ii) that the counterparty has 3

immediate and self-executing relief from the automatic stay of Bankruptcy Code Section 4,

5 362(a) to enforce its rights and remedies under the Hedge Agreement(s) it enters into with 6 PG&E. UBS believes that the bankruptcy-related provisions that will be included in the 7 Hedge Agreements as described in the Motion arm fair and reasonable based upon the benchmarks and standards for financing transactions with Chapter 11 debtors, and that 9

10 comparable terms would be required by other institutional counterparties (acting on a 11 commercially reasonable basis) if PG&E entered into substantially similar hedge 12 transactions with other institutional counterparties.

13

8. UBS has made andwill make no payment promise or undertaking to any 14

-5 officer or director of PG&E, the Corporation or any of their affiliates as a quidpro quo for 16 entering into any Interest Rate Hedges or Hedge Agreements.

17 I declare under penalty of perjury under the laws of the United States of 18 9 .America and the State of California that the foregoing is true and correct. Executed this 29th 20 day of August, 2003 at Summit, New Jersey.

21 22 //4 /4 e 23 -WALTER HULSE 24 25 26 27 28 WD 0903/1.14t991 1/GFF/1099O9SW2