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June 4, 2020, 10:16 p.m. EDT

Fire victims challenge PG&E bankruptcy plans

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By Peg Brickley

PG&E Corp. heads into a third and final day of court fights Friday, with concerns a last-minute protest from fire victims could upend plans by the utility to raise $9 billion in fresh capital to get it out of bankruptcy.

Demands for an examiner to probe the voting process are before U.S. Bankruptcy Judge Dennis Montali, who must rule on PG&E's chapter 11 plan.

If he grants the request, investors that PG&E is counting on to provide bankruptcy exit financing will be rattled, Stephen Karotkin, lawyer for PG&E, warned Thursday.

Speaking in a San Francisco bankruptcy court, Mr. Karotkin said the "overhang" of concern about what an examiner might do would trouble PG&E's trip to the capital markets, the final piece of a long slog through chapter 11.

"We have come too far, here. We have come too far," Mr. Karotkin told the judge.

Judge Montali is expected to wrap up confirmation hearings on PG&E's $59 billion bankruptcy exit plan Friday, and rule shortly. The plan is an effort to address damages from years of wildfires linked to its equipment, and PG&E is trying to hit a June 30 deadline to qualify to participate in a new California utility wildfire fund.

The call for an examiner comes from a splinter group of victims of the fires that pushed California's largest utility into chapter 11 protection last year. They say tens of millions of victims were left out of the polling process on PG&E's chapter 11 plan, and an examiner needs to conduct an investigation to figure out why.

Judge Montali has brushed aside allegations of unfair voting practices in past courtroom battles, but the bid to have him appoint an examiner could present a different challenge. He said on Thursday he would think about the issue before ruling.

Bankruptcy law doesn't give the judge much choice when a creditor asks for an examiner, according to the splinter group of fire victims who don't like the plan. PG&E and its allies, including fire victims that voted for the plan, say the demand for an examiner came too late, so Judge Montali should find the clock had run out.

Nothing an examiner could turn up is likely to reverse the vote in favor of PG&E's plan, the judge said. He asked Mr. Karotkin what harm would befall PG&E's capital-raising effort if he decided to appoint an examiner after PG&E exits bankruptcy, just to document what happened in the process of polling.

"People will be worried about a collateral attack after the fact," Mr. Karotkin said. "You know how litigious this case has been."

PG&E's chapter 11 plan is a collection of deals with people, businesses, towns and other government bodies harmed by the fires. All in, PG&E has to come up with $25.5 billion in cash and stock to cover the damages.

Lawyers for the large contingent of fire victims that voted to accept PG&E's plan added their voices to Mr. Karotkin's on Thursday and warned the appointment of an examiner threatens to damage their clients.

The $13.5 billion trust PG&E is establishing to pay fire victims will be funded half in stock and half in cash. Protecting the value of PG&E's shares is essential to making sure fire damages are covered in full, the lawyers said.

Write to Peg Brickley at peg.brickley@wsj.com

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