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Pacific Gas & Electric Co. modified its bankruptcy reorganization plan late Monday in a move that some say represents a significant change from its previous plan. The new version of the plan calls for a stock sale of up to $700 million and gives parent company PG&E Corp. a potentially bigger role in the utility’s reorganization. It also threatens to further bog down the plan confirmation trial currently under way. The hearings are to determine whether PG&E’s plan and a competing plan advanced by state regulators and the creditors’ committee are confirmable. When the trial phase of the Chapter 11 case got under way in November, U.S. Bankruptcy Judge Dennis Montali blocked off his calendar through February. His calendar now has dates dedicated to the trial through the end of April. “I wouldn’t be surprised if this were the longest trial ever in a bankruptcy court,” said Roberta Kaplan, a partner at Paul, Weiss, Rifkind, Wharton & Garrison who is representing the California Public Utilities Commission and its alternative reorganization plan. The latest twist in the case comes as a result of a letter by credit-rating agency Standard & Poor’s. The letter indicates that the four companies created by PG&E’s plan would be capable of garnering investment-grade ratings of at least BBB- if the plan met a number of conditions, including significant changes to the way creditors are repaid. While many details of the plan modifications are still unclear, the key difference is that the plan now calls for the PG&E Corp. parent company to raise up to $700 million in a sale of common equity. The resulting money would be used to reduce the debt levels at the four companies. The S&P letter lists a total of 37 conditions for an investment grade rating, ranging from switching some PG&E debt into secured debt to guaranteeing water levels at PG&E hydroelectric facilities. According to Kaplan, the changes effectively constitute a new plan. “It’s a completely different plan,” said Kaplan. “The capital structure is completely different.” But PG&E is casting the changes as more modest in nature. “We’ve been making modifications in plans all along,” said James Lopes, a partner at Howard, Rice, Nemerovski, Canady, Falk & Rabkin who is representing PG&E. “It’s something that happens in virtually every Chapter 11 case — plans get modified as you move through the confirmation process.” It’s clear that PG&E’s latest plan modifications are turning a lot of heads. Judge Montali has put the plan confirmation trial on hold until Thursday in order to give all the parties time to analyze the extent and ramifications of the changes. Since PG&E’s plan modifications might require a new round of discovery, the changes raise a new degree of uncertainty about when the trial will finally conclude. The complexity of the issues in the case and the sheer number of parties involved have already caused the trial to drag on for months. A seemingly endless parade of witnesses has appeared at the bankruptcy court, each one cross-examined by three or four lawyers representing the various parties involved in the case. “We were certainly hopeful that it would be completed more quickly than it appears it’s going to be,” acknowledged Howard, Rice’s Lopes. Complicating matters further is the fact that two rival plans are on the table. In the event that both plans are deemed confirmable by the court, Judge Montali will have to pick one using — among other criteria — the public interest. That means issues that don’t usually factor into a bankruptcy confirmation hearing have been deemed relevant. “I can’t even think of anything that’s come close to this one,” says Orrick, Herrington & Sutcliffe bankruptcy attorney Frederick Holden Jr., who’s not involved in the case. “I’ve been involved in two-day trials; and that’s a pretty hotly contested confirmation if you have a two-day trial.”

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