ML033170177
| ML033170177 | |
| Person / Time | |
|---|---|
| Site: | Diablo Canyon  |
| Issue date: | 10/31/2003 |
| From: | Nexon J 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: ML033170177 (11) | |
Text
1 JAMES L. LOPES (No. 63678)
JANET A. NEXON (No. 104747) 2 BARBARA GORDON (No. 52424)
HOWARD, RICE, NEMEROVSKI, CANADY, 3 FALK & RABKIN A Professional Corporation 4 Three Embarcadero Center, 7th Floor San Francisco, California 94111-4024 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. 01-30923 DM HONED 13 PACIFIC GAS AND ELECTRIC Chapter 11 Case NEME~Q~ COMPANY, a California corporation, FAIX 14 Date: November 21, 2003
&KABKIN Debtor. Time: 1:30 p.m.
"' ' 15 Place: 235 Pine Street, 22nd Floor San Francisco, California 16 Federal I.D. No. 94-0742640 Judge: Hon. Dennis Montali 17 18 NOTICE OF MOTION AND MOTION FOR AUTHORITY TO INCUR PLAN 19 IMPLEMENTATION EXPENSES IN CONNECTION WITH CERTAIN FINANCINGS; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF 20 21 [SUPPORTING DECLARATION OF MICHAEL J. DONNELLY FILED SEPARATELY]
22 23 24 25 26 27 28 MOTION FOR AUTHORITY TO INCUR IMPLEMENTATION EXPENSES
1 JAMES L. LOPES (No. 63678)
JANET A. NEXON (No. 104747) 2 BARBARA GORDON (No. 52424)
HOWARD, RICE, NEMEROVSKI, CANADY, 3 FALK & RABKIN A Professional Corporation 4 Three Embarcadero Center, 7th Floor San Francisco, California 94111-4024 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. 01-30923 DM HoWAKD 13 PACIFIC GAS AND ELECTRIC Chapter 11 Case NEM COMPANY a California corporation, cFAK 14 Date: November 21, 2003
& F Debtor. Time: 1:30 p.m.
15 Place: 235 Pine Street, 22nd Floor San Francisco, California 16 Federal I.D. No. 94-0742640 Judge: Hon. Dennis Montali 17 18 NOTICE OF MOTION AND MOTION FOR AUTHORITY TO INCUR PLAN 19 IMPLEMENTATION EXPENSES IN CONNECTION WITH CERTAIN FINANCINGS; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF 20 21 [SUPPORTING DECLARATION OF MICHAEL J. DONNELLY FILED SEPARATELY]
22 23 24 25 26 27 28 MOTION FOR AUTHORITY TO INCUR IMPLEMENTATION EXPENSES
I PLEASE TAKE NOTICE that on November 2 1, 2003 at 1:30 p.m., or as soon 2 thereafter as the matter may be heard, in the Courtroom of the Honorable Dennis Montali, 3 located at 235 Pine Street, 22nd Floor, San Francisco, California, Pacific Gas and Electric 4 Company, the debtor and debtor in possession in the above-captioned Chapter 11 case 5 ("PG&E" or the "Debtor"), will and hereby does move the Court for entry of an order 6 authorizing PG&E to incur implementation expenses of up to approximately $15 million (the 7 "Motion") in connection with the planning and preparation for the financings and 8 reinstatement of obligations contemplated pursuant to the Plan of Reorganization under 9 Chapter 11 of the Bankruptcy Code for Pacific Gas and Electric Company proposed by 10 Pacific Gas and Electric Company, PG&E Corporation and the Official Committee of 11 Unsecured Creditors Dated July 31, 2003 (the "Plant).
12 This Motion is based on this Notice of Motion and Motion, the accompanying HOWARD Ria 13 Memorandum of Points and Authorities, the Declaration of Michael J. Donnelly filed NEMEDk CAuK 14 concurrently herewith, the record of this case and any evidence presented at or prior to the RABN 15 hearing on this Motion.
16 PLEASE TAKE FURTHER NOTICE that pursuant to Rule 9014-1(c)(2) of the 17 Bankruptcy Local Rules for the Northern District of California, any written opposition to the 18 Motion and the relief requested herein must be filed with the Bankruptcy Court and served 19 upon appropriate parties (including counsel for PG&E, the Office of the United States 20 Trustee and the Official Committee of Unsecured Creditors) at least five (5) days prior to the 21 scheduled hearing date. If there is no timely objection to the requested relief, the Court may 22 enter an order granting such relief without further hearing.
23 24 25 26 27 28 MOTION FOR AUTHORITY TO INCUR IMPLEMENTATION EXPENSES 1 MEMORANDUM OF POINTS AND AUTHORITIES 2 Pacific Gas and Electric Company ("PG&E" or the "Debtor"), the debtor and 3 debtor in possession in the above-captioned Chapter 11 case, requests authority to incur 4 expenses in connection with the implementation of the Plan jointly proposed by PG&E, its 5 parent corporation, PG&E Corporation ("Parent"), and the Official Committee of Unsecured 6 Creditors (the "Committee"). This request is made pursuant to Bankruptcy Code Section 7 363(b)(1).
8 I.
9 FACTUAL BACKGROUND' 10 On July 31, 2003, PG&E filed the Plan, which provides for payment in full of all 11 allowed claims and enables the Debtor to emerge from Chapter 11 with a financially sound 12 and sustainable business. The Disclosure Statement for the Plan (the "Disclosure HOWARD 13 Statement") was approved by the Court on July 31, 2003. The confirmation hearing is MJE NEMEROV5 cANFAACy 14 scheduled to commence on November 10, 2003.
BUWN 15 The principal source of funding for the payment of allowed claims under the Plan 16 will be the issuance and sale by the Reorganized Debtor of New Money Notes (as defined in 17 the Plan) in the original principal amount of up to approximately $8.7 billion, subject to 18 adjustment. In addition, the Plan provides for the reinstatement of certain indebtedness. The 19 Plan also provides for the Reorganized Debtor to establish one or more credit facilities and 20 one or more customer accounts receivable financing programs for the purpose of (i) funding 21 operating expenses and seasonal fluctuations in working capital; (ii) providing letters of 22 credit or other forms of credit support and (iii) to the extent the Reorganized Debtor deems 23 appropriate or necessary, to perform the Reorganized Debtor's obligations under the Plan.
24 See Plan §7.2-7.3.
25 Section 8.2 of the Plan provides that it is a condition precedent to the Plan that 26 27 'The evidentiary basis and support for the facts set forth in this Motion are contained 28 in the Declaration of Michael J. Donnelly filed concurrently herewith.
MOTION FOR AUTHORITY TO INCUR IMPLEMENTATION EXPENSES I "all actions, documents and agreements necessary to implement the Plan shall have been 2 effected or executed." Further, the Effective Date must have occurred on or before March 3 31, 2004. Plan §8.2. These conditions precedent require the efforts described below to 4 commence immediately so that the Debtor will be in a position to issue the New Money 5 Notes, access the above-referenced credit facilities and customer accounts receivable 6 programs and reinstate certain indebtedness on the Effective Date.
7 PG&E previously filed an ex parte application and obtained an order authorizing 8 miscellaneous implementation expenses in a sum not to exceed $600,000 relating to certain 9 financing expenses including initial fees and costs of indenture trustees, consisting of 10 trustees' counsel fees and related expenses, and the fees and costs of certain consultants.
11 This implementation motion now covers additional financing expenses in the sum of 12 approximately $15 million.
Hamvum 13 II.
N' 14 CATEGORIES OF IMPLEMENTATION FINANCINGS THAT MUST BE AL1 STRUCTURED AND ARRANGED PRIOR TO THE EFFECTIVE DATE 15 16 In order to implement the Plan, certain expenses related to the various financings 17 and reinstatement of debt must be paid by PG&E, as the issuer or borrower. Since the 18 financings described herein and the reinstatement of debt are expected to take place on or 19 before the Effective Date of the Plan, or must be structured and arranged before the Effective 20 Date, work must commence, and certain fees and costs necessary to implement the 21 financings and reinstatement of debt must be incurred, well before the Effective Date of the 22 Plan. The categories of new or reinstated debt obligations and credit facilities or devices that 23 are to be in place prior to the Effective Date may include the following:
24 A. New Money Notes.
25 Pursuant to Section 7.2 of the Plan, on or before the Effective Date PG&E will 26 sell and issue new debt securities (the "New Money Notes") in an original principal amount 27 of up to approximately $8.7 billion, subject to adjustment, for the primary purpose of 28 satisfying allowed claims.
MOTION FOR AUTHORITY TO INCUR IMPLEMENTATION EXPENSES 1 These notes would be issued in maturities of up to thirty (30) years from 2 issuance, depending upon market conditions on the date of issuance and PG&E's need or 3 desire to stagger maturities. It is anticipated that some or all of these New Money Notes 4 would be issued pursuant to a registration statement filed with the Securities and Exchange 5 Commission (the "Registration Statement").
6 B. Pollution Control Bonds.
7 PG&E currently has outstanding obligations with respect to various series of 8 Pollution Control Bonds ("PC Bonds"). The tax-exempt status of the PC Bonds offers lower 9 cost financing than other indebtedness of comparable maturity. PG&E has determined that it 10 must take certain actions on or prior to the Effective Date in order to preserve the benefits of 11 the low-cost tax exempt financing afforded by the PC Bonds. Due to the current structure of 12 the obligations and their treatment under the Plan, it may be necessary for certain actions to HOwARD 13 be taken with respect to the PC Bonds in various classes of claims, including the following:
NEME1D-cANc 14 1. Class 4a - Mortgage Backed PC Bonds. Under Section 4.7 of the 15 Plan, the Mortgage-Backed PC Bonds will be redeemed, or purchased in lieu of redemption, 16 if any of the New Money Notes are secured. In order to give PG&E the ability to preserve 17 the benefits of the lower cost Mortgage-Backed PC Bond financing by purchasing the 18 Mortgage-Backed PC Bonds in lieu of redemption, before the Effective Date certain 19 amendments must be approved by the Bond Trustee and the California Pollution Control 20 Financing Authority. In addition, prior to the Effective Date, PG&E may determine to 21 arrange a bridge loan and subsequent refinancing for such transaction which must be 22 appropriately documented.
23 2. Class 4b - MBIA-insured PC Bonds. Under Section 4.9 of the Plan, if 24 any of the New Money Notes are secured, MBIA, the bond insurer, will receive a contingent 25 note as additional security for PG&E's obligations under its reimbursement agreement with 26 MBIA. The possible conveyance of this security and any necessary documentation must be 27 arranged with MBIA before the Effective Date.
28 3. Class 4d - Letter of Credit Backed PC Bonds. Under Section 4.10 of MOTION FOR AUTHORITY TO INCUR IMPLEMENTATION EXPENSES 1 the Plan, these bonds will remain outstanding in the public markets if the necessary credit 2 support is available on the Effective Date. If such credit support is not available, these 3 bonds will be purchased and either subsequently credit-enhanced and remarketed or 4 refunded on or after the Effective Date. Prior to the Effective Date, new credit support or a 5 bridge loan and subsequent refinancing must be arranged and documented in order to 6 complete these transactions.
7 4. Class 4f- Prior Bond Claims. As described more fully in Section 8 4.12 of the Plan, either PG&E will pay off, or PG&E or its assignee will purchase, the 9 outstanding reimbursement obligations related to the Prior Bonds. Prior to the Effective 10 Date, a bridge loan and/or refunding must be arranged and documented.
11 C. Credit Facilities.
12 Pursuant to Section 7.3 of the Plan, as of the Effective Date, PG&E shall HOWARD 13 establish one or more credit facilities for the purpose of (i) funding operating expenses and NEMESES~
CANAIDY 14 seasonal fluctuations in working capital (ii) providing letters of credit or other forms of FA1JC 148
&RADKIN 15 credit suport, and (iii) to the extent necessary or appropriate, to perform the Reorganized 16 Debtor's obligations under the Plan. These facilities may be secured in whole or in part, and 17 may include revolving and term loan credit facilities. The Reorganized Debtor may also 18 establish one or more customer accounts receivable financing programs for the same 19 purpose.
20 D. Other Potential Facilities.
21 1. Class 3b (PC-Related Mortgage Bonds). As described more fully in 22 Sections 4.6 and 4.7 of the Plan, the PC-Related Mortgage Bonds back the Mortgage Backed 23 PC Bonds, which are classified in Class 4a. If the Class 4a bonds remain outstanding, the 24 Class 3b bonds will be replaced with New Mortgage Bonds issued pursuant to the new 25 mortgage indenture. Prior to the Effective Date, the new mortgage indenture and New 26 Mortgage Bonds must be arranged and documented.
27 2. Structured Letters of Credit. It may be more efficient to supplement or 28 substitute traditional letters of credit with cash collateralized letters of credit, where such MOTION FOR AUTHORITY TO INCUR IMPLEMENTATION EXPENSES 1 collateral is funded by a debt placement. Before the Effective Date these financings and the 2 letters of credit would have to be structured and arranged.
3 3. Other Credit Devices. In addition, the Reorganized Debtor may be 4 required to arrange for other credit devices, such as surety bonds and credit insurance (which 5 may be secured in whole or in part).
6 III.
IMPLEMENTATION EXPENSES RELATING TO FINANCINGS THAT MUST BE 7
INCURRED PRIOR TO THE EFFECTIVE DATE 8
9 The expenses set forth below are associated with the analysis, compilation and 1o presentation of complex due diligence materials and negotiating, drafting and reviewing 11 documents related to the financings, reinstatement of debt and related activities described 12 above. The brief summaries herein are not intended to describe the entire scope of the services. The fees and cost estimates set forth herein are based on PG&E's estimates of the HOWARD 13 NEMOTQW scope of the services and costs and, as such, are difficult to estimate in advance.
FAI(m
&RAUKN 14
`'_ 15 Accordingly, PG&E requests the ability to re-allocate the expenses among the categories 16 below, as necessary.
17 PG&E anticipates incurring the following categories of expenses (all amounts are 18 approximate):
A. Counsel Fees (Estimate-$6000,000). This category includes (i) bank 19 20 counsel fees and costs for negotiating and drafting agreements with respect to the facilities 21 described above, and due diligence review; (ii) bond counsel fees and costs for negotiating 22 and drafting documentation for the PC Bond amendments; (iii) trustees' counsel fees and 23 costs related to the preparation of the new mortgage indenture, PC Bond amendments and 24 new debt issuances, including the New Money Notes; (iv) underwriters' counsel in connection with drafting an indenture and due diligence for offerings of debt issuances 25 (other than the New Money Notes which are issued pursuant to the Registration Statement), 2 26 27 2 PG&E previously obtained approval to pay underwriters' counsel fees relating to the New Money Notes (see Motion for Authority to Pay Fees of Designated Underwriters' 28 (continued....)
MOTION FOR AUTHORITY TO INCUR IMPLEMENTATION EXPENSES 1 which may-be necessary or appropriate in connection with the debt facilities described in the 2 Plan; (v) counsel to credit providers in connection with drafting amendments and other 3 documents related to PC Bonds and (vi) opinion counsel for foreign banks.
4 B. Trustee Related Expenses (Estimate-$200.000). Fees and costs related to 5 indenture trustees include acceptance fees and administrative service fees related to the new 6 debt offerings described above and to PC Bond document amendments; out of pocket 7 expenses for overnight mail, couriers, outside fax services, conference call services and 8 similar services; and escrow fees and fees for documentation and servicing of escrow 9 accounts.
10 C. CPUC Fees (Estimate-$1.950,000). The Debtor expects to incur 11 substantial fees required by CPUC regulations in connection with new debt financings.
12 D. Banks (Estimate-$3500000). The Debtor expects to incur fees and FARED 13 expenses of various financial institutions, including commitment fees to reserve the lenders' NEERO~
NAA 14 commitments from the time of the syndication process until closing, and fees and expenses 15 relating to disclosure documentation, as well as expenses relating to the syndication process, 16 and costs for "road shows," including travel and meeting room rentals.
17 E. Printing Fees (Estimate-$550.000). Debtor expects to incur substantial 18 costs for the printing of offering documents. 3 19 F. Pollution Control Bond Fees (Estimate-$600,000). Fees and costs to be 20 incurred in connection with pollution control bonds include application and filing fees, and 21 refundable performance deposit fees.
22
(. . . continued) 24 Counsel (Docket No. 13460), approved by Order entered on September 10, 2003 (Docket No. 13605)). The expenses sought herein were not covered in the previous Motion.
25 3 PG&E previously obtained approval to pay certain printer's costs relating to the registration statement filing with the SEC (see Motion for Authority to Pay Filing Fee and Pinter's Costs in Connection with the Filing of Registration Statement with the Securities and Exchange Commission (Docket No. 13462), approved by Order entered on September 27 10,2003 (Docket No. 13606)). The printing expense for which this Motion seeks 28 authorization was not covered in the previous motion.
MOTION FOR AUTHORITY TO INCUR IMPLEMENTATION EXPENSES 1 G. Miscellaneous (Estimate-$2.200,000).
2 In each case, the fees and costs that the Debtor expects to incur are difficult to 3 estimate in advance, and the actual amount incurred in any given category may vary from 4 the estimates provided, due to variations in the timing of the debt issuances and other 5 unpredictable factors. Accordingly, PG&E seeks authorization to incur up to an additional 6 $2,200,000 in miscellaneous expenses to afford PG&E flexibility to expend greater amounts 7 in certain categories, without the necessity of obtaining additional Court approval.
8 9
IV.
10 PAYMENT OF FEES INCURRED IS APPROPRIATE PURSUANT TO BANKRUPTCY CODE SECTION 363(b)(1) 11 12 The Court has considerable discretion in approving a request pursuant to Section HZammsRD 13 363(b)(1) of the Bankruptcy Code ("[t]he trustee, after notice and a hearing, may use, sell or FJE NEMEKO FALK 14 lease, other than in the ordinary course of business, property of the estate"). See Dai-Ichi
&RIAI3K APT 15 Kangyo Bank. Ltd. v. Montgomery Ward Holding Corp. (In re Montgomerv Ward Holding 16 Corp.), 242 B.R. 147, 153 (D. Del. 1999) (affirming the bankruptcy court's decision to 17 approve expenditure for employee incentive programs, noting that bankruptcy court has 18 considerable discretion in approving a Section 363(b) motion).
19 In determining whether to authorize a transaction under Section 363(b)(1), courts 20 require a debtor to show that a sound business purpose justifies such actions, applying the 21 business judgment test. See,ee.,Stephens Indus. Inc. v. McClung, 789 F.2d 386, 389-90 22 (6th Cir. 1986); Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 23 F.2d 1063, 1071 (2d Cir. 1983); see also 3 Lawrence P. King, Collier on Bankruptcy 24 ¶363.02[1][g] (15th ed. rev. 1998).
25 Once the debtor has articulated a rational business justification, a presumption 26 attaches that the decision was made "on an informed basis, in good faith and in the honest 27 belief that the action taken was in the best interests of the [debtor]." See, e., Official 28 Comm. of Subordinated Bondholders v. Integrated Res.. Inc. (In re Integrated Res.. Inc.),
MOTION FOR AUTHORITY TO INCUR IMPLEMENTATION EXPENSES 1 147 B.R. 650, 656 (S.D.N.Y. 1992) (citing Smith v. Van Gorkom, 488 A.2d 858 (Del.
2 1985)).
3 Sound business justifications support PG&E's request to incur the 4 implementation expenses described above. These costs must be incurred in order to 5 undertake the financings that are necessary to implement the Plan. PG&E believes that the 6 commitment to incur the fees and expenses must be made promptly in order to ensure that 7 PG&E can timely meet the conditions precedent to the effectiveness of the Plan. Finally, 8 PG&E is solvent and has sufficient cash to pay these expenses without causing any 9 detriment to its creditors. 4 10 CONCLUSION 11 For all of the foregoing reasons, PG&E respectfully requests that the Court 12 approve the request to incur the implementation expenses described above in the total HmAFPD 13 amount of $15,000,000, and grant such other and further relief as may be just and r MENDS FAIK 14 appropriate.
&RABKIN A*-~ 15 DATED: October 31, 2003 Respectfully, 16 HOWARD, RICE, NEMEROVSKI, CANADY, 17 FALK & RABKIN A Professional Corporation 18 19 By: X JANET A. NEXON 20 Attorneys for Debtor and Debtor in Possession 21 PACIFIC GAS AND ELECTRIC COMPANY 22 23 24 25 WD 103103/1-1419995/120/1 109512/v4 26 27 4 As reflected in PG&E's August 2003 Monthly Operating Report, PG&E held more than $4 billion in cash reserves as of August 31, 2003.
28 MOTION FOR AUTHORITY TO INCUR IMPLEMENTATION EXPENSES