ML040370606
| ML040370606 | |
| Person / Time | |
|---|---|
| Site: | Diablo Canyon  |
| Issue date: | 01/29/2004 |
| From: | Schaffer 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: ML040370606 (25) | |
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9 10 JAMES L. LOPES (No. 63678)
JEFFREY L. SCHAFFER (No. 91404)
GARY M. KAPLAN (No. 155530)
HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN A Professional Corporation Three Embarcadero Center, 7th Floor San Francisco, California 94111-4024 Telephone:
415/434-1600 Facsimile:
415/217-5910 Attorneys for Debtor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION 11 12 HoamD 13 NEM~tv cvAm 14 A--
15 16 17 18 In re PACIFIC GAS AND ELECTRIC COMPANY, a California corporation, Debtor.
Federal I.D. No. 94-0742640 Case No. 01-30923 DM Chapter 11 Case Date:
Time:
Place:
Judge:
February 26, 2004 1:30 p.m.
235 Pine Street, 22nd Floor San Francisco, California Hon. Dennis Montali 19 20 21 22 23 24 25 26 27 28 NOTICE OF MOTION AND MOTION FOR AUTHORITY TO ESTABLISH CASH-COLLATERALIZED LETTER OF CREDIT PROGRAM AND FACILITY TO SECURE GAS PURCHASES, AND TO INCUR SECURED DEBT RELATED THERETO; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF
[SUPPORTING DECLARATIONS OF MICHAEL J. DONNELLY AND RAYMOND X.
WELCH FILED SEPARATELY]
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MOTION FOR AUTHORITY TO EST. CASH-COLLATERALIZED LC FACILITY AND INCUR SECURED DEBT RELATED THERETO [ETC.]
1 TABLE OF CONTENTS 2
Page 3
NOTICE OF MOTION AND MOTION 1
4 MEMORANDUM OF POINTS AND AUTHORITIES 2
5 I.
INTRODUCTION AND OVERVIEW 2
6 I.
RELEVANT FACTS 8
7 A.
Background of GSSA 8
8 B.
Security/Payment Mechanics Under GSSA 10 9
C.
Rationale For Requested Maximum Amount Of Gas LC Program And Interim LC Facility To Replace GSSA 12 10 D.
Substituting The Interim LC Facility For The GSSA Will Not 11 Prejudice PG&E Or Its Estate, And On The Contrary Will Benefit PG&E, Its Estate And Its Creditors 13 12 E.
Terms of Proposed Interim LC Facility 15 HWaeRm 13 F.
Lien Of Indenture Trustee Under 1920 Indenture 16
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PG&E SHOULD BE AUTHORIZED TO SUBSTITUTE THE 15 GAS LC PROGRAM FOR THE GSSA PROGRAM AND TO ENTER INTO THE INTERIM LC FACILITY PURSUANT TO 16 BANKRUPTCY CODE SECTION 363(b)(1) 16 17 IV.
PG&E SHOULD BE AUTHORIZED TO INCUR SECURED DEBT PURSUANT TO BANKRUPTCY CODE SECTION 364 18 18 19 CONCLUSION 20 20 21 22 23 24 25 26 27 28 MOTION FOR AUTHORITY TO EST. CASH-COLLATERALIZED LC FACILITY AND INCUR SECURED DEBT RELATED THERETO [ETC.]
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TABLE OF AUTHORITIES 2
Page(s) 3 4
Cases 5
Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063 (2d Cir. 1983) 17 6
In re Ames Dep't Stores, Inc., 115 B.R. 34 (Bankr. S.D.N.Y. 1990) 20 7
In re Crouse Group, Inc., 71 B.R. 544 (Bankr. E.D. Pa. 1987) 20 8
In re Simasko Prod. Co., 47 B.R. 444 (D. Colo. 1985) 20 9
In re Tenney Village Co., Inc., 104 B.R. 562 (Bankr. D.N.H. 1989) 20 1 0 Norris Square Civic Ass'n v. St. Mary Hosp. (In re St. Mary Hosp.), 86 B.R.
11 393 (Bankr. E.D. Pa. 1988) 20 12 Official Comm. of Subordinated Bondholders v. Integrated Res., Inc. (In re Integrated Res., Inc.), 147 B.R. 650 (S.D.N.Y. 1992) 17 Hm 13 14t9 Pistole v. Mellor (In re Mellor), 734 F.2d 1396 (9th Cir. 1984) 19 C&NAA'w 14
____N Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985) 17 15 Stephens Indus., Inc. v. McClung, 789 F.2d 386 (6th Cir. 1986) 17 16 Travelers Ins. Co. v. Plaza Family P'ship (In re Plaza Family P'ship), 95 B.R.
17 166 (E.D. Cal. 1989) 19 18 19 Statutes and Rules 20 11 U.S.C.
361 16 21 363 16 363(b 1,17 22 3634 (b1) 2, 17 364 20 23 364(d) 1,16,20 364(d)(1) 2,7, 18 24 Fed. R. Bankr. P. 4001 16 25 B.L.R. 9014-1(c)(1) 1 26 27 28 MOTION FOR AUTHORITY TO EST. CASH-COLLATERALIZED LC FACILITY AND INCUR SECURED DEBT RELATED TIERETO [ETC.]
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Other Authorities 3 Lawrence P. King, Collier on Bankruptcy 1363.02[1][g] (15th ed. rev.
1998) 17 MOTION FOR AUTHORITY TO EST. CASH-COLLATERALIZED LC FACILITY AND INCUR SECURED DEBT RELATED THERETO [ETC.)
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9 10 11 12 How&4D 13 cokwK 14 A.-0 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NOTICE OF MOTION AND MOTION PLEASE TAKE NOTICE that on February 26,2004 at 1:30 p.m., or as soon thereafter as the matter may be heard, in the Courtroom of the Honorable Dennis Montali, located at 235 Pine Street, 22nd Floor, San Francisco, California, Pacific Gas and Electric Company, the debtor and debtor in possession in the above-captioned Chapter 11 case
("PG&E" or the "Debtor"), will and hereby does move the Court for authority to establish a cash-collateralized letter of credit program and to enter into a cash-collateralized letter of credit facility for the purpose of providing credit support for the Debtor's (i) gas purchases for its core customers in lieu of the existing pledge of certain gas-related accounts and assets, and (ii) purchase of gas transportation services on interstate gas transmission pipelines, and to incur secured debt related thereto (the "Motion"), all as more particularly described in the accompanying Memorandum of Points and Authorities, which is incorporated by reference herein. The Motion is based on this Notice of Motion and Motion, the accompanying Memorandum of Points and Authorities, the Declarations of Michael J. Donnelly and Raymond X. Welch filed concurrently herewith, the record of this case and any evidence or argument presented at or prior to the hearing on this Motion.
This Motion is made pursuant to Sections 363(b) and 364(d) of the United States Bankruptcy Code, 11 U.S.C. §§363(b) & 364(d).
PLEASE TAKE FURTHER NOTICE that pursuant to Rule 9014-l(c)(1) of the Bankruptcy Local Rules of the United States District Court for the Northern District of California, any written opposition to the Motion and the relief requested herein must be filed with the Bankruptcy Court and served upon appropriate parties (including counsel for PG&E, the Office of the United States Trustee and the Official Committee of Unsecured Creditors) at least 14 days prior to the scheduled hearing date. If there is no timely opposition to the requested relief, the Court may enter an order granting such relief by default and without further hearing.
MOTION FOR AUTlHORITY TO EST. CASH-COLLATERALIZED LC FACILITY AND INCUR SECURED DEBT RELATED THERETO [ETC.]
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1 5 16 17 18 19 20 21 22 23 24 25 26 27 28 MEMORANDUM OF POINTS AND AUTHORITIES' INTRODUCTION AND OVERVIEW By this Motion, PG&E requests authority, pursuant to Sections 363(b)(1) and 364(d)(1) of the Bankruptcy Code, to establish a cash-collateralized letter of credit program (as described more fully below, the "Gas LC Program") and a cash-collateralized letter of credit facility with one or more banks (as described more fully below) for the purpose of providing credit support and thereby facilitating PG&E's gas purchases for its core customers in the ordinary course of PG&E's business and gas transportation related thereto, and to incur secured debt in favor of the letter of credit issuing bank(s) in connection therewith, up to a maximum of $400 million face amount of cash-collateralized letters of credit outstanding under such letter of credit facility at any one time. For the reasons explained herein, this proposed Gas LC Program and facility is a salutary equivalent and substitute for the existing Court-approved security device now in place to provide necessary credit support for PG&E's core gas purchases, and will facilitate PG&E's emergence from Chapter 1 1.
Commencing shortly before its Chapter 11 filing in April 2001 (and, with the approval of this Court shortly after the Chapter 11 filing, continuing through the present date), PG&E has made ongoing and substantial use of what it calls its "GSSA Program" to provide credit support for its gas purchases for core customers. In broad outline, under the GSSA Program, with the approval of the California Public Utilities Commission (the "Commission") and this Court at appropriate junctures, PG&E entered into a master Gas Supplier Security Agreement (the "GSSA") with a group of gas suppliers, pursuant to which PG&E granted a security interest in most of its gas customer accounts receivable and various gas-related assets (collectively, the "Gas Accounts"), to secure PG&E's payments for gas The evidentiary basis and support for the facts set forth in this Motion are contained in the Michael J. Donnelly and Raymond X. Welch Declarations filed concurrently herewith.
MOTION FOR AUTHORITY TO EST. CASH-COLLATERALIZED LC FACILITY AND INCUR SECURED DEBT RELATED THERETO [ETC.]
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- 22 23 24 25 26 27 28 purchases from the gas suppliers that are parties to the GSSA (such gas suppliers are hereinafter referred to as the "Existing Gas Suppliers," and the Existing Gas Suppliers, together with any additional gas suppliers that PG&E may elect to purchase from to procure efficient pricing and meet its core customers' needs, are hereinafter collectively referred to as the "Gas Suppliers").
While the GSSA Program has worked relatively smoothly to facilitate the uninterrupted flow of gas to PG&E's customers throughout the Chapter 11 case to date, it is now time for PG&E to prepare for its emergence from Chapter 11 and, in connection therewith, to replace the GSSA Program with the proposed Gas LC Program. More specifically, PG&E is now preparing for the implementation of the "Plan Of Reorganization Under Chapter 11 Of the Bankruptcy Code For Pacific Gas And Electric Company Proposed By Pacific Gas And Electric Company, PG&E Corporation And the Official Committee of Unsecured Creditors Dated July 31, 2003, As Modified" (the "Plan"), which was confirmed by Order of this Court dated December 22, 2003. Section 7.3 of the confirmed Plan provides that as of the Effective Date of the confirmed Plan, PG&E, as the Reorganized Debtor, shall establish one or more credit facilities for a wide range of purposes, including funding operating expenses, providing letters of credit or other forms of credit support, and, to the extent PG&E deems it appropriate, to perform its obligations under the Plan. Section 7.3 also authorizes PG&E, as the Reorganized Debtor, to establish one or more customer accounts receivable securitization programs for the same purposes. Accordingly, consistent with the confirmed Plan, PG&E intends, as of the Effective Date, to have in place various financings, including, without limitation, (1) a conventional credit facility that allows for revolving credit borrowings and for the issuance of letters of credit under the facility, which may be secured by various assets of the company, and (2) one or more accounts receivable securitization programs, to be secured by gas and electric customer accounts.
However, in order for the transition to these new facilities provided for in the confirmed Plan to occur smoothly on or about the Effective Date, PG&E believes that it is appropriate from both a cost and efficiency standpoint to begin transition to the proposed MOTION FOR AUTHORITY TO EST. CASH-COLLATERAUZED LC FACILITY AND INCUR SECURED DEBT RELATED THERETO [EMC~l 1
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& KJAMU(N 1 5 16 17 18 19 20 21 22 23 24 25 26 27 28 Gas LC Program in early March 2004, so that the process of obtaining and recording the termination of the Gas Suppliers' security interest in the Gas Accounts can be completed before the Effective Date of the Plan. This will ensure that the Gas Accounts are freed up to be pledged in connection with one or more of the facilities contemplated under the confirmed Plan as of the Effective Date. Because PG&E anticipates an Effective Date for the Plan at approximately the end of the first quarter of this year, and because of the somewhat arcane way the cycle of gas purchases and payments works as explained more fully below, PG&E believes that migration to the new Gas LC Program commencing in early March 2004, with the aim of having fully terminated the GSSA by the end of March 2004, will facilitate the earliest possible Effective Date.
The last (and for purposes of this Motion, most important) piece of this introductory overview is that in order to terminate the GSSA prior to the Effective Date of the Plan and have the Existing Gas Suppliers' security interest in the Gas Accounts terminated, PG&E will need to provide an alternative form of credit support for the Existing Gas Suppliers for all amounts then owed under the GSSA, as well as for new gas purchases that take place between the time the GSSA is terminated and the Effective Date of the Plan.
PG&E has determined that the issuance of irrevocable standby letters of credit ("LCs") for the benefit of the Gas Suppliers is the most efficient and practicable alternative form of credit support that will be acceptable to the Gas Suppliers. Thus, PG&E is proposing to replace the GSSA Program with the Gas LC Program, such that the Gas Suppliers will receive LCs as credit support for amounts owed them by PG&E, in lieu of the Gas Accounts pledged under the GSSA.
This, in turn, requires PG&E to establish an interim LC facility. (the "Interim LC Facility") with one or more banks (the `LC Banks"), so that LCs can be issued thereunder for the benefit of Gas Suppliers until the Effective Date of the confirmed Plan, in the amounts that are owed Existing Gas Suppliers under the GSSA at the time the GSSA is terminated, plus the amount of PG&E's new gas purchases from Gas Suppliers between the time the Gas LC Program is put in place and the Effective Date of the Plan. Once the MOTION FOR AUTHORITY TO EST. CASH-COUATERAI1ED LC FACILMIY AND INCUR SECURED DEBT RELATED THERETO E1TC.]
1 Effective Date of the Plan occurs, to the extent credit support is required for post-Effective 2
Date gas purchases, PG&E will post letters of credit issued under a new credit facility 3
established pursuant to Section 7.3 of the Plan.
4 PG&E has determined that in light of its current credit rating (which will not be 5
upgraded to investment grade until the Effective Date), it cannot establish the requisite 6
Interim LC Facility without posting cash collateral with the LC Banks in an amount 7
approximately equal to the face amount of the LCs issued under the facility. Based on 8
PG&E's experience over the past several years, PG&E believes that it may need to cause up 9
to $400 million of LCs to be issued under the Interim LC Facility. PG&E by this Motion 10 therefore seeks authority to establish the Interim LC Facility and pledge up to $420 million 11 in cash or cash equivalents to the LC Banks to secure PG&E's obligations to the LC Banks 12 under the Interim LC Facility.2 In connection with such Interim LC Facility, PG&E expects HJvqw 13 that, consistent with market standards, PG&E will be required to pay a small percentage fee NEM~O c^N^a 14 for such facility, based on the maximum amount of the LCs issued thereunder, and may be
_RAXKN 15 required to reimburse certain expenses of the LC Banks, and also seeks approval therefor.
16 PG&E emphasizes that the substitution of the proposed Interim LC Facility for 17 the GSSA is a salutary exchange that in no way prejudices the estate or its unsecured 18 creditors pending the Effective Date. This is for the simple reason that all of PG&E's 19 obligations to the Existing Gas Suppliers under the GSSA have remained oversecured 20 pursuant to the terms of the GSSA, and have always been paid and continue to be paid in full 21 on time. Thus, by effectively substituting cash collateral for PG&E's outstanding 22 obligations to the Existing Gas Suppliers under the Gas LC Program for the oversecured 23 security interest in Gas Accounts under the GSSA Program, PG&E is actually freeing up 24 2 Banks that require cash collateral as a condition of issuing letters of credit typically require a small cushion over the face amount of the issued letters of credit, to cover interest, 26 fees and costs, to the extent applicable. Accordingly, PG&E needs discretion to post this 26 slight cushion, which PG&E estimates would not exceed five percent of the face amount of the issued letters of credit and may be less. The $420 million cash collateral limit sought by 27 1 this Motion includes a maximum 5% cushion on $400 million of maximum face amount of 28 outstanding letters of credit.
MOTION FOR AUTHORITY TO EST. CASH-COLLATERALIZED LC FACILITY AND INCUR SECURED DEET RELATED THERETO (ETC 1
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.9 10 11 12 HammD 13 cAFAm14 CODY 1A5 16 17 18 19 20 21 22 23 24 25 26 27 28 estate assets, more closely matching the amount of security/credit support with the amount of the outstanding secured obligations. Further, the amounts PG&E owes the Gas Suppliers are a function solely of the gas purchases that PG&E makes, and thus are in no way driven or influenced by whether the credit support device is a security interest in Gas Accounts, on the one hand, or an LC, on the other.
As long as PG&E is establishing the Gas LC Program and Interim LC Facility for the principal purpose of replacing the GSSA Program, PG&E, as an ancillary matter, also believes it appropriate and prudent to be able to use the new program and facility to provide necessary credit support for related purchases of gas transportation services on interstate gas transmission pipelines. While in Chapter 11 PG&E has provided credit support for such gas transportation purchases by prepaying or depositing cash when necessary. Having the option of using LCs going forward until the Effective Date will have risk management benefits to PG&E and the estate. The estimated maximum need for gas transportation purchases outstanding at any one time is $50 million, so PG&E by this Motion, as part of the proposed Gas LC Program, requests authority to use up to a maximum of $50 million of the Interim LC Facility for the issuance of LCs to support the purchase of gas transportation services.3 Assuming the proposed Gas LC Program and Interim LC Facility are approved by the Court, they will be in place as a-transitional mechanism for only a limited period of time. This is because pursuant to the terms of the confirmed Plan, it is a condition concurrent to the Effective Date that PG&E emerge on such date with an investment grade 3 Thus, of the $400 million maximum face amount of LCs that can be outstanding under the Interim LC Facility proposed by this Motion, up to $50 million of LCs outstanding at any one time could be used to support the purchase of gas transportation services. But such $50 million "sublimit" for gas transportation services is not intended or proposed to be exclusively for gas transportation services, but rather can be used for core gas purchases to the extent not used for the purchase of gas transportation services. For example, under the Gas LC Program and Interim LC Facility proposed by this Motion, if PG&E had caused $25 million of LCs to be issued and outstanding to support the purchase of gas transportation.
services, PG&E could cause up to $375 million to be issued and outstanding to support the purchase of core gas supplies.
MOTION FOR AUTHORITY TO EST. CASH-COLLATERALIZED LC FACILITY AND INCUR SECURED DEBT RELATED THERETO [ETC.]
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.9 10 11 12 W1AJMD 13 RCE NEMED CANADY FAUC. 14 S RAEIK N 15 16 17 18 19 20 21 22 23 24 25 26 27 28 credit rating. Once so restored to investment grade status, PG&E not only expects demands for credit support to diminish, but PG&E expects that it will not be restricted to cash-collateralized LCs for LCs issued under one or more of its post-Effective Date credit facilities, but rather will have the ability under one or much of such facilities to issue LCs up to some material dollar amount that are unsecured or secured by non-cash assets. Thus, for any gas purchases made after the Effective Date that require credit support, PG&E will cause LCs to be issued under a new credit facility established pursuant to Section 7.3 of the Plan. And while PG&E also may seek to transfer to a post-Effective Date credit facility any LCs that may then be outstanding under the Interim LC Facility (thereby hastening the termination of the Interim LC Facility), even if that proves to be impractical, all such outstanding LCs issued under the Interim LC Facility prior to the Effective Date will mature within some reasonable period after the Effective Date based on their respective expiry dates. Thus, under all circumstances, the Interim LC Facility will phase out and be fully supplanted by a post-Effective Date LC facility within a limited period of time after the Effective Date.
Finally, PG&E notes that BNY Western Trust Company, in its capacity as the successor trustee (the "Indenture Trustee") under that certain Indenture dated December 1, 1920 as amended to date (the "1920 Indenture"), presently has a lien on substantially all of PG&E's real and personal property assets, and therefore has an interest in the cash that PG&E proposes be pledged to secure its obligations to the LC Banks under the Interim LC Facility. However, as explained more fully below, the Indenture Trustee's interests are more than adequately protected, and the Indenture Trustee's interest is therefore not an impediment to granting the LC Banks a senior lien on the cash collateral to be pledged to them pursuant to Section 364(d)(1) of the Bankruptcy Code.
MOTION FOR AUTHORITY TO EST. CASH-COLLATERALIZED LC FACILITY AND INCUR SECURED DEBT RELATED THERETO [ETC.]
1 A,
2 RELEVANT FACTS 3
A.
Background of GSSA 4
PG&E provides gas service to approximately 3.9 million "core" residential and 5
small business customers ("core customers") by purchasing approximately I billion cubic 6
feet of gas each day from gas suppliers, most of whom are located outside of California.
7 Without such purchases, PG&E cannot provide sufficient gas for heating and other essential 8
uses for its core customers.
9 In the months prior to February 2001, due to PG&E's deteriorating credit 10 situation resulting from the California energy crisis and fears that PG&E would be unable or 11 unwilling to pay for gas supplies on a timely basis, gas suppliers refused to sell gas to PG&E 12 on an unsecured credit basis, even under existing gas supply contracts. Gas suppliers instead HomD 13 insisted on either prepayment or other form of payment assurance as a condition to RJCE
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- - 15 Based on PG&E's inability to secure and maintain a sufficient supply of gas for 16 its core customers on an unsecured credit basis, the Commission, in response to an 17 application of PG&E, issued its Decision 01-01-062 on January 31, 2001, granting PG&E 18 authorization to pledge its Gas Accounts to Gas Suppliers for PG&E's purchases of gas for 19 core customers. Pursuant to such Commission decision, on or about February 7, 2001, 20 PG&E entered into the GSSA with a number of its then-existing Gas Suppliers. This 21 allowed for the uninterrupted flow of gas purchases and deliveries, ensuring PG&E's timely 22 payment of amounts owed to Gas Suppliers for core gas supplies delivered in January 2001 23 and future months.
24 Given the importance of the GSSA to the provision of one of PG&E's essential 25 utility services, immediately after PG&E filed its Chapter 11 petition in April 2001, PG&E, 26 by an emergency motion dated April 6,.2001 (Docket No. 18 ) and a follow-on motion 27 dated June 26, 2001 (Docket No. 1128) sought this Court's approval of the GSSA and the 28 GSSA Program. This Court granted PG&E's request by interim and final orders dated April MOTION FOR AUTHORITY TO EST. CASH-COLLATERALIZED LC FACILITY AND INCUR SECURED DEBT RELATED THERETO [ETC.I
1 9,2001, May 10, 2001, and July 30,2001 (docket nos. 49,493 and 1686), respectively.
2 Although the Commission's initial authorization of the GSSA was time-limited, 3
the Commission has extended the authorization each year without interruption in the GSSA.
4 The most recent extension expires on the earlier of (i) May 1, 2004, (ii) PG&E's return to an 5
investment grade credit rating, (iii) provision of letters of credit to the gas suppliers to secure 6
PG&E's gas purchase obligations, and (iv) expiration of specified notice periods.4 The 7
Bankruptcy Court's authorization allowing PG&E to pledge its Gas Accounts to Gas 8
Suppliers pursuant to the GSSA did not specify a termination date.
9 While cash prepayment of Gas Suppliers is a potential alternative means of 10 procuring core gas requirements, the GSSA has been very important in minimizing PG&E's 11 credit exposure to its counterparties in a gas market that has seen both significant reductions 12 in the numbers of suppliers and concurrent deterioration in the credit ratings of those 13 suppliers who have survived. Among PG&E's current core Gas Suppliers, a number have NEMIODy coZw 14 experienced credit rating downgrades and now present a credit risk in situations where S RAMN 15 PG&E is otherwise required to pay prior to the gas flowing. Thus, the ability to rely on the 16 GSSA has been an important element in securing adequate core gas supplies, while at the 17 same time minimizing PG&E's credit exposure to Gas Suppliers.
18 19 4 While the expiration of the Commission's current authorization on May 1, 2004 20 would seem to provide PG&E with several more months of purchasing ability under the GSSA, in fact the current authorization to May 1, 2004 only allows PG&E to buy core gas under the GSSA until March 2004 as a practical matter. This is because of the three-month 21 cycle of purchases, deliveries and payments, as described further in Part II.B below. For this 2 reason, PG&E as a precautionary matter recently has filed a petition with the Commission 22 for modification of its prior decisions respecting the GSSA, to extend the expiration date for the GSSA authorization from May 1,20 4 to August 1,2004 which as a practical matter 23 would allow gas purchases to be made under the GSSA until June 2004. Nonetheless, as 24 explained more fully in the text of this Motion, PG&E far prefers, for both administrative and cost-efficiency reasons, to start transition to the Gas LC Program and Interim LC Facility in March 2004; with the aim of fully terminating and replacing the GSSA with LCs 25 issued pursuant to the Interim LC Facility by the end of the first quarter of 2004.
26 Accordingly, there is no inconsistency in PG&E's filing of this Motion, on the one hand, and its filing of such petition with the Commission, on the other, as the latter is simply a 27 responsibleback-up measure in the event this Motion is not granted or, even if it is granted, the proposed Interim LC Facility cannot be finalized and put in place as quickly as PG&E 28 anticipates.
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- 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Accordingly, while PG&E wants to terminate the GSSA Program and the GSSA in early March in order to facilitate the financings contemplated to be in place on the Effective Date of the Plan, PG&E does not wish to replace the GSSA with cash prepayments for gas purchases because of the materially increased credit risk to PG&E and its estate that widespread cash prepayments would entail.5 Rather, PG&E by this Motion seeks to replace the GSSA with LCs issued pursuant to the proposed Gas LC Program and Interim LC Facility, with the LCs serving the same credit-risk-management function as the GSSA arrangement.
B.
Securitv/Payment Mechanics Under GSSA Since its inception, the GSSA has provided security for at least three months of gas supply at any given time. The monthly cycle of buying, taking delivery and paying for core gas delivered for a given month spans at least three calendar months. This time span results because contracting, receipt and payment for baseload gas supplies occur in different months. For instance, much of the contracting activity for a specific month's gas supply occurs in the month prior to the actual deliveries, during a concentrated period known as "bid week." Thus, to obtain gas for April delivery, PG&E will contract for the gas in the March bid week. Gas suppliers, however, will not contract with PG&E in March bid week unless they are comfortable with the security PG&E can provide to support its payments for the April gas deliveries. Since normal payment for gas deliveries occurs around the 25h of the month after delivery has occurred, PG&E must provide the gas suppliers with security for April gas deliveries during the entire period from March bid week until the May payment date. Consequently, in a given month, the GSSA has provided security to suppliers for (i) the prior month's gas delivery, (ii) gas purchases being delivered within the month, and 5 In some instances, where it makes sense to PG&E, PG&E has prepaid for core gas or escrowed payments for the benefit of a Gas Supplier rather than utilizing the GSSA, and likely will continue to do so on a limited basis. But in the current environment where core gas suppliers will not extend unsecured credit to PG&E, PG&E considers it prudent to manage its risk exposure by providing alternative credit enhancement devices acceptable to the Gas Suppliers, such as the GSSA or LCs.
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15 16 17 18 19 20 21 22 23 24 25 26 27 28 (iii) gas under contract for delivery in the next month.
The dollar-amount of the collateral needed for core gas purchases is primarily based on this three-month gas contracting, delivery and payment cycle, because that cycle determines the amount of PG&E's payment obligation for past and near-term gas deliveries.
In some instances, however, PG&E contracts several months in advance for core gas to be delivered later in the year. An example of this situation would be multi-month contracts executed in spring that also include some gas supply needed to meet higher core needs in the upcoming winter. At present, a gas supplier would not enter into a multi-month contract unless PG&E provides credit assurance that extends for the term of the multi-month commitment. In addition, many of PG&E's month-to-month gas purchases have been with the same suppliers. So PG&E has needed to maintain ongoing credit assurance with that important pool of suppliers willing to do business with PG&E. Under the GSSA, the term of the PG&E's credit assurance has not been an issue because the GSSA has continued in effect since February 2001 without interruption.
The Interim LC facility that replaces the GSSA, then, will need to provide continuity in credit assurance for the Gas Suppliers, to accommodate PG&E's repeat month-to-month contracting and some multi-month contracts for core gas needed later in the year.6 For this reason, in place of the GSSA, PG&E under the proposed Interim LC Facility will need to use LCs, with terms potentially extending through March 31, 2005, both for existing contracts and for new core gas purchase commitments that take place between the time the Gas LC Program is implemented pursuant to this Motion and the Effective Date. Once the Effective Date occurs, no additional LCs will be issued under the authorization requested in this Motion, but rather, if and to the extent LCs are required for core gas purchase commitments made after the Effective Date, they will be issued under a post-Effective Date 6 As of January 23,2004, PG&E has several multi-month contracts for-core gas*
supplies, with the longest one ending in October 2004. At thispoint in the year, PG&E would normally begin initial contracting activity to begin acquiring core gas supply for the 2004-2005 winter. Early planning and procurement for winter is especially important in an environment of volatile gas prices and supply, such as North America currently faces.
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Rationale For Requested Maximum Amount Of Gas LC Program And Interim LC Facility To Replace GSSA Based on the foregoing, ending the GSSA Program by terminating the GSSA, and replacing it with LCs issued pursuant to the proposed Gas LC Program and Interim LC Facility, will require PG&E to post LCs in a sufficient dollar amount to cover approximately three months of core gas purchases. Thus, for example, for those Gas Suppliers whose security interest in Gas Accounts is replaced by LCs under the new Interim LC Facility during the transition month of March 2004, LCs will be needed to cover not only the not-yet-due amount for already-contracted-for February and March core gas deliveries, but also contracting activity in March bid week for April gas deliveries. Accordingly, the LCs would need to cover the three-month period of February through April 2004. As payment for February gas deliveries is made, March gas deliveries are completed, and April bid week contracting for May gas deliveries occurs, the three-month period would roll forward by a month, and this cycle of LC issuances under the Interim LC Facility would continue until the Effective Date of the Plan.
Based on its experience respecting core gas purchases, PG&E estimates that the amount reasonably needed for this rolling three-month period will be approximately $350 to
$400 million, depending on gas prices.7 After taking into account the "cushion" that may be required by the LC Banks,8 PG&E by this Motion therefore seeks to establish a Gas LC Program and to enter into an Interim LC Facility that permits PG&E to pledge cash collateral to the LC Banks of up to $420 million to secure up to $400 million face amount of LCs outstanding at any one time that are issued to Gas Suppliers as credit support for 7 Since the GSSA Program was instituted, the aggregate amount of gas purchases secured by the GSSA during each rolling three-month period has ranged from a high of approximately $600 million to a low of approximately $30 million. These material swings are a function of seasonal demand factors, as well as pricing changes. The $400 million authorization sought by this Motion represents PG&E's three-month estimate based on probability analysis and near-term forward demand and pricing estimates.
8 See footnote 2, supra.
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1 PG&E's core gas purchases.9 2
As already noted above, in addition to contracting with gas suppliers for core gas, 3
PG&E also has rights to gas transportation services on interstate gas transmission pipelines, 4
which PG&E utilizes to move gas purchased in the American southwest or in Canada to its 5
core gas load in California. Under their tariffs and applicable law, the transmission pipelines 6
have required PG&E to provide credit assurance adequate to cover up to three months of its 7
obligations to them. PG&E has provided such credit assurance to the transmission pipelines 8
either through pre-payment or cash deposits. At this point, PG&E estimates its requirements 9
in connection with the purchase of gas transmission services at $50 million. In order to 10 reduce counter-party credit exposure, PG&E would prefer to provide LCs instead of pre-11 payment to certain transmission pipelines. Thus, as part of this Motion, the requested $400 12 million authorization for aggregate face amount of LCs outstanding (and the corresponding HaeRD 13 requested $420 million authorization for use of cash collateral to secure such LCs) includes CADy 14
$50 million of face amount authorization and $52.5 million of corresponding cash collateral 15 authorization to support the purchase of gas transportation services.' 0 16 D.
Substituting The Interim LC Facilitv For The GSSA Will Not Preludice PG&E Or Its Estate. And On The Contrary Will Benefit PG&E, Its Estate 17 And Its Creditors 18 Assuming the proposed Gas LC Program and Interim LC Facility are approved as 19 a substitute for the GSSA Program and GSSA, then once the LCs under the Interim LC 20 Facility are issued to the Gas Suppliers in the respective amounts then outstanding and 21 secured under the GSSA, the GSSA will terminate and the Gas Accounts will no longer be 22 subject to the Gas Suppliers' security interest.11 Based on experience, PG&E anticipates 23 24 9 PG&E emphasizes that the $400 million figure represents the maximum amount of LCs that can be outstanding.at any time. Based on a variety of factors, PG&E may choose to 25 use a combination of cash and LC issuances to transition from the present secured balances under the GSSA to the new Gas LC Program (for example, by paying one month of the 26 three-money cycle in cash and providing an LC for the other two months).
lo This $52.5 million includes the $50 million sublimit for the purchase of gas 27 transportation services, plus the up-to-5% "cushion" described in footnote 2, supra.
l l While the actual mechanics of obtaining the termination of the Gas Suppliers' 28 (continued...
)
MOTION FOR AUTHORITY TO EST. CASH-COLLATERALIZED LC FACILITY AND INCUR SECURED DEBT RELATED THERETO (ETC.J 1
that the amount of LCs to be issued (and, accordingly, the amount of cash collateral that will 2
need to be posted as security with the LC Banks) will be substantially less than the Gas 3
Accounts pledged under the GSSA because the obligations owing to the Gas Purchasers 4
have at all times been oversecured via the GSSA. Thus, there is no prejudice to the estate in 5
substituting LCs issued under the Interim LC Facility for the Gas Accounts under the GSSA.
6 More important, the substitution of the Gas LC Program for the GSSA Program 7
commencing in early March 2004 should allow PG&E to transition fully to the Gas LC 8
Program and make a full and clean break from the lien under the GSSA by around the end of 9
the first quarter of 2004, thereby maximizing the amount of its Gas Accounts that can be 10 included in PG&E's contemplated accounts receivable securitization program put in place 11 on the Effective Date of the Plan as one of the financing devices contemplated in Section 7.3 12 of the Plan. This is beneficial to PG&E, its estate and its creditors because the accounts Hamm 13 receivable financing contemplated under Section 7.3 of the Plan will help PG&E access c-',IN 14 commercial paper markets for working capital, commencing on the date the Plan goes 15 effective and continuing thereafter. This helps PG&E achieve an Effective Date by 16 approximately the end of the first quarter of 2004, and, because creditors with allowed 17 claims are paid on the Effective Date, this is in the interests of PG&E, its estate and creditors 18
(... continued) security interest under the GSSA are still being worked out, PG&E is relatively confident 19 that if it can start issuing LCs under the proposed Interim LC Facility in early March 2004, 20 PG&E will be able to fully terminate the GSSA and free up the Gas Accounts thereunder by around March 31, 2004 so that they are available for financings on the Effective Date. The 21 mechanics for obtaining and recording the termination of the security interest perfected in favor of the Existing Gas Suppliers' agent under the GSSA is somewhat technical. Suffice it to say, if PG&E can use most of the month of March for issuing LCs under the new Interim 22 LC Facility to obtain, on a supplier-by-supplier basis, acknowledgments of termination of 23 the GSSA by the Existing Gas Suppliers, PG&E believes it will have the requisite acknowledgments in hand by around late March 2004 to cause the agent under the GSSA to 24 terminate of record the security interest in Gas Accounts under the GSSA, which PG&E considers to be the point in time that the GSSA is fully terminated. PG&E notes that as the 25 Gas Accounts are so freed fromnthe Gas Suppliers' security interest under the GSSA, the Gas Accounts, pending the Effective Date of thePlan, remain subect to the lien of the Indenture 26 Trustee under the 1920 Mortgage, to the extent the Indenture Trustee already has a lien on the Gas Accounts. However, pursuant to the terms of the Plan, as of the Effective Date of 27 the Plan the Gas Accounts will no longer be subject to any lien or security interest of the Indenture Trustee and will therefore be available as of the Effective Date for the financings 28 contemplated under Section 7.3 of the Plan.
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E.
Terms of Proposed Interim LC Facility As already indicated, PG&E, based on its due diligence, believes and represents that prior to the Effective Date of the Plan, it cannot obtain a letter of credit facility without securing such facility with cash collateral in an amount at all times approximately equal to the outstanding face amount of LCs issued under any such facility. Because PG&E will be required to post cash collateral to secure its obligations under any such facility, there will be little or no credit risk to the LC Banks that provide such facility. Thus, assuming a cash-collateralized letter of credit facility, and based on its due diligence to date, PG&E anticipates that the pricing and other terms of such facility will be on relatively standard and commercially reasonable terms, with PG&E being required to execute a reimbursement agreement and related documentation pertaining to the facility, to pay a small percentage fee based on the amount of the LCs issued under the facility, and also potentially to reimburse certain expenses of the LC Banks.
Accordingly, by this Motion PG&E seeks authority (i) to establish an Interim LC Facility with one or more LC Banks of PG&E's choice, on commercially reasonable terms for such a facility that is fully cash collateralized, to be used for the gas procurement purpose specified in this Motion, (ii) to enter into a reimbursement agreement in favor of the LC Banks pertaining to the Interim LC Facility and other documentation customary for a facility of this nature, (iii) to pledge cash or cash equivalents to the LC Banks who provide such facility (or their designated agent, subject to PG&E's satisfaction with any such agent's reputation and creditworthiness) in an amount equal to the outstanding face amount of the LCs issued under the Interim LC Facility (plus a small cushion as described in footnote 2 above), which pledged cash or cash equivalents shall secure PG&E's reimbursement and other obligations to the LC Banks under the documentation pertaining to the Interim LC Facility, and (iv) to pay such commercially reasonable fees and expenses of the LC Banks as PG&E agrees to in the documentation for the Interim LC Facility.
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Lien Of Indenture Trustee Under 1920 Indenture As already noted, until the Effective Date of the Plan, the Indenture Trustee has a lien on substantially all of PG&E's real and personal property under the 1920 Indenture.
Such lien is the subject of that certain "Stipulation (I) Authorizing and Restricting Use of Cash Collateral Pursuant to 11 U.S.C. §363 and Bankruptcy Rule 4001 and (II) Granting Adequate Protection Pursuant to 11 U.S.C. §§361 and 363" entered into between PG&E and the Indenture Trustee on May 9, 2001, as amended to date (the "Cash Collateral Stipulation") and approved by the Bankruptcy Court by its Order thereon dated the same date and by subsequent Orders approving the amendments to the Cash Collateral Stipulation.
PG&E has had discussions with the Indenture Trustee concerning this Motion and the use of cash collateral that it entails in order to provide security to LC Banks under the Interim LC Facility pursuant to Bankruptcy Code Section 364(d). The Indenture Trustee has indicated that it has no objection to PG&E's filing of the Motion, but-at the same time, pending its further consideration of the relief requested, the Indenture Trustee has reserved the right to object to the use of cash collateral and to require that PG&E carry its burden of establishing that the Indenture Trustee's interests are adequately protected.
PG&E SHOULD BE AUTHORIZED TO SUBSTITUTE THE GAS LC PROGRAM FOR THE GSSA PROGRAM AND TO ENTER INTOTHE INTERIM LC FACILITY PURSUANT TO BANKRUPTCY CODE SECTION 363(b)(1)
PG&E submits that because purchasing gas for its core customers is a vital utility function and is part of the ordinary course of PG&E's business, the proposed substitution of the GSSA Program and GSSA with the Gas LC Program and the Interim LC Facility is an ordinary-course-of-business decision that does not, in and of itself, require any approval under Bankruptcy Code Section 363.12 Nonetheless, because of the magnitude of its gas "2PG&E of course recognizes the its proposed incurrence of secured debt under the roposed Interim LC Facility requires Court approval pursuant to Bankruptcy Code Section 364(d), which is separately dealt with in Part IV below.
MOTION FOR AUTHORITY TO EST. CASH-COLLATERALZED LC FACILITY AND INCUR SECURED DEBT RELATED THERETO [ETC.]
1 purchases and therefore the proposed Gas LC Program, PG&E is seeking authorization 2
under Section 363(b).
3 In determining whether to authorize the use, sale or lease of property of the estate 4
outside of the ordinary course of business under Bankruptcy Code Section 363(b)(1), courts 5
require a debtor to show that a sound business purpose justifies such actions, applying 6
essentially the same "business judgment" test that is used in determining whether to approve 7
the assumption or rejection of an executory contract. See, Lg.,
Stephens Indus.. Inc. v.
8 McClung, 789 F.2d 386, 389-90 (6th Cir. 1986); Comm. of Equity Sec. Holders v. Lionel 9
Corp. (In re Lionel Corp.), 722 F.2d 1063, 1070-71 (2d Cir. 1983); 3 Lawrence P. King, 10 Collier on Bankruptcy ¶363.02[l][g] (15th ed. rev. 1998).
11 The burden of establishing a valid business purpose for the use of property of the 12 estate outside the ordinary course of business falls upon the debtor. See In re Lionel Corp.,
Hamp 13 722 F.2d at 10-71. Once the debtor has articulated a rational business justification, however, NEMERC~
coAw 14 a presumption attaches that the decision was made on an informed basis, in good faith and in 15 the honest belief that the action was in the best interest of the debtor. See eg, Official 16 Comm. of Subordinated Bondholders v. Integrated Res.. Inc. (In re Integmted Res., Inc.),
17 147 B.R. 650, 656 (S.D.N.Y. 1992) (citing Smith v. Van Gorkom, 488 A.2d 858, 872 (Del.
18 1985)).
19 Sound business justifications support PG&E's decision to terminate the GSSA 20 Program and the GSSA, and to replace it with the proposed Gas LC Program and Interim LC 21 Facility. As discussed at length above, authorizing PG&E to supplant the GSSA with the 22 Interim LC Facility not only does not cause any prejudice to the estate or its creditors, but on 23 the contrary has the net effect of freeing up assets for the benefit of the estate and its 24 creditors. Further, it assists PG&E in managing the credit risk that arises from prepaying 25 suppliers rather than using credit support devices such as the proposed Gas LC Program.
26 Finally, PG&E's substitution of the GSSA with the proposed Interim LC Facility is 27 appropriate planning for the Effective Date because it facilitates the simultaneous financings 28 contemplated to be in place on the Effective Date. In short, the proposed termination of the MOTION FOR AUTHORITY TO EST. CASH-COLLATERA 17ZE LC FACILTY AND INCUR SECURED DEBT REIATED THERETO EETC1]
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IV.
PG&E SHOULD BE AUTHORIZED TO INCUR SECURED DEBT PURSUANT TO BANKRUPTCY CODE SECTION 364 Bankruptcy Code Section 364(d)(1) provides, in pertinent part, as follows:
"The Court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt secured by a senior or equal lien on property of the estate that is subject to a lien only if-(A) the trustee is unable to obtain such credit otherwise; and (B) there is adequate protection of the interest.of the holder of the lien on the property of the estate on which such senior or equal lien is proposed to be granted." (11 U.S.C. §364(d)(1))
Thus, the statutory prerequisites for obtaining credit on a senior secured basis is that the debtor be unable to obtain such credit otherwise, and that there be adequate protection for the existing lienholder. This test is clearly satisfied in this case.
First, as discussed above, PG&E has determined that, in light of its current sub-investment grade status, any banks that are likely to be acceptable to the Gas Suppliers as LC issuers will require, as a condition of establishing an Interim LC Facility for PG&E, that PG&E post cash collateral in which the LC Banks have a senior perfected interest in order to secure PG&E's reimbursement and related obligations to the LC Banks providing the Interim LC Facility. Thus, PG&E, prior to the Effective Date, is unable to obtain a letter of credit facility under which it can issue LCs to Gas Suppliers as a substitute for the Gas Accounts under the GSSA unless PG&E incurs obligations on a senior secured basis to the LC Banks, as described above.
Further, the interest of the only existing potential lienholder-the Indenture Trustee-is fully secured and adequately protected by a substantial equity cushion, as has been repeatedly demonstrated in previous motions filed by PG&E in this case. As set forth MOTION FOR AUTHORITY TO EST. CASH-COLLATERALIZED LC FACILITY AND INCUR SECURED DEBT RELATED THERETO [ETC.]
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14322), as of November 30, 2003, the Debtor's total reported assets exceeded $27 billion (including cash on hand of approximately $4 billion), while the Debtor's outstanding obligations under the 1920 Indenture, which are secured by substantially all of the Debtor's assets until the Effective Date, aggregate approximately $3 billion. Further, PG&E, by a separate motion filed January 26, 2004 that is scheduled to be heard at the same time as this Motion, has sought authority to pay timely $310 million in principal amount of the bonds issued and outstanding pursuant to the 1920 Indenture that mature on March 1, 2004, which, assuming such other motion is granted, will reduce the outstanding obligations under the 1920 Indenture to approximately $2.7 billion.
The existence of an "equity cushion" or a "value cushion"-the value of the collateral in excess of the amount of the secured claim at issue-"is the classic form of protection for a secured debt," and it is well settled that "the existence of an equity cushion, standing alone, can provide adequate protection." Pistole v. Mellor (In re Mellor), 734 F.2d 1396, 1400 (9th Cir. 1984). Accord, Travelers Ins. Co. v. Plaza Family P'ship (In re Plaza Family P'ship), 95 B.R. 166, 171 (E.D. Cal. 1989). In In re Mellor, the Ninth Circuit Court of Appeals held that a creditor's 20% value cushion constituted adequate protection as a matter of law, and reversed the lower court's finding to the contrary as "clearly erroneous."
In re Mellor, 734 F.2d at 1401. The Court of Appeals also made clear that a cushion of less than 20% could constitute adequate protection, and cited with approval authorities holding that value cushions of 10% to 20% constituted adequate protection. Id.
Here, by stark contrast, the Indenture Trust has an equity cushion of in excess of 800%. Thus, the Indenture Trustee's interest here is adequately protected by a substantial equity cushion, which will remain equal to many times the value of the Indenture Trustee's lien interest after giving affect to the maximum amount of collateral that PG&E seeks to grant a senior lien on pursuant to this Motion.
In addition,.as already noted above, at the same time PG&E posts cash collateral in favor of the Banks of up to an aggregate amount of $420 million for LCs issued under the MOTION FOR AUTHORITY TO EST. CASH-COLLATERALIZED LC FACILITY AND INCUR SECURED DEBT RELATED THERETO [ETC.]
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In determining whether to approve a transaction under Section 364, courts act in their "informed discretion." In re Ames Dep't Stores. Inc., 115 B.R. 34, 37 (Bankr.
S.D.N.Y. 1990). Courts have established that such discretion is to be utilized to permit the debtor's reasonable business judgment to be exercised so long as the financing agreement does not contain terms that are primarily designed to benefit the secured party at the expense of the estate or leverage the bankruptcy process. Id. at 39-40; In re Simasko Prod. Co., 47 B.R. 444, 449 (D. Colo. 1985). In undertaking such analysis, courts focus on the following principal factors: proposed terms that would tilt the conduct of the bankruptcy case; prejudice, at the early stages, to the powers and rights that the Bankruptcy Code confers for the benefit of all creditors; or terms that leverage the Chapter 11 process by preventing motions by parties in interest from being decided on their merits. In re Tenney Village Co..
Inc., 104 B.R. 562, 567-70 (Bankr. D.N.H. 1989); Norris Square Civic Ass'n v. St. Mary Hosp. (In re St. Mary Hosp.), 86 B.R. 393, 401-02 (Bankr. E.D. Pa. 1988); In re Crouse Group. Inc., 71 B.R. 544, 550-51 (Bankr. E.D. Pa. 1987).
Based on the foregoing, PG&E submits that the Court should authorize PG&E, pursuant to Bankruptcy Code Section 364(d), to incur post-petition secured debt in favor of the LC Banks up to an aggregate of $400 million outstanding at any one time under the proposed Interim LC Facility, and to grant a senior lien in favor of such LC Banks (or their designated agent acceptable to PG&E) in cash or cash equivalents of PG&E up to an aggregate of $420 million at any one time.
CONCLUSION For all of the foregoing reasons, PG&E respectfully requests that the Court make and enter its Order as follows:
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Granting the Motion; MOTION FOR AUTHORITY TO EST. CASH-COLLATERALIZED LC FACILITY AND INCUR SECURED DEBT RELATED THERETO [ETC]
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Authorizing PG&E to terminate the GSSA Program and the GSSA as soon as practicable, with the aim of fully terminating the GSSA by late March 2004;
- 3.
Authorizing PG&E to establish the Gas LC Program, to enter into the Interim LC Facility on terms commercially reasonable to PG&E (including a reimbursement agreement and any other documentation customary for a facility of this nature) and perform its obligations thereunder, and to cause LCs to be issued under the Interim LC Facility in connection with the LC Gas Program described in this Motion, provided that in all events, the aggregate limit of the Interim LC Facility (and the face amount of LCs issued thereunder) shall not exceed $400 million outstanding at any one time;
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Authorizing PG&E to post collateral and grant a senior lien on collateral consisting of cash or cash equivalents, up to a maximum aggregate amount of $420 million outstanding at any one time, in favor of the LC Banks to secure PG&E's obligations under the Interim LC Facility, pursuant to Bankruptcy Code Section 364(d)(1), all as more particularly described above;
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Authorizing PG&E to pay such commercially reasonable fees and expenses of the LC Banks in connection with the Interim LC Facility as PG&E agrees to in the documentation for the Interim LC Facility; and
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Granting such other and further relief as may be just and appropriate.
DATED: January 29,2004 Respectfully, HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN A Professional Corporation By:
l a,U j:EYL.
SCHAFER Attorneys for tor and Debtor in Possession PACIFIC GAS AND ELECTRIC COMPANY MOTION FOR AUTHORITY TO EST. CASH-COLLATERALIZED LC FACILITY AMD INCUR SECURED DEBT RELATED THERETO MEMQ]