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Court Rules FirstEnergy Solutions Can’t Just Walk Away From Power Contracts

Bankrupt energy companies can’t rip up power supply deals without taking the public interest into account, a federal appeals court said, ruling against FirstEnergy Solutions Corp. in a dispute stemming from its chapter 11 reorganization, WSJ Pro Bankruptcy reported. The U.S. Court of Appeals for the Sixth Circuit said yesterday that FES can’t reject power purchase agreements with two Ohio fossil-fuel plants and a Maryland solar farm based solely on its “sound business judgment.” Filing for chapter 11 protection gives companies broad freedoms to get out of contracts they consider unfavorable, so long as they convince a bankruptcy judge. But when it comes to electricity contracts, the appeals court said there are other considerations at play, including whether rejecting a contract would force a supplier into bankruptcy and leave the government to cover cleanup costs and pension obligations. Bankruptcy courts should also consider potential effects on consumer costs, service reliability and competition, according to the decision. Under the ruling, bankrupt companies will have a harder time shedding power contracts that are no longer profitable, particularly renewable energy deals that contain above-market prices. The judge overseeing FES’s bankruptcy will have to re-evaluate whether the company can ditch several supply deals.

Americans’ Credit Card Debt Poised to Reach 10-Year High

The share of credit card borrowers who are at least 90 days past due on their accounts will probably tick up to 2.01 percent next year, the highest level since 2010, according to a forecast by TransUnion, Bloomberg News reported. Still, the credit-rating company said that the increase isn’t a cause for concern, noting that bad card debt still remains much lower than the level seen during the last recession. The number of people with access to revolving credit reached a record 200.5 million in the third quarter. That figure was helped by private-label credit card originations, which reversed a 10-quarter slump by posting 2.4 percent growth, according to TransUnion. Major card issuers including American Express Co. and Discover Financial Services have warned they’ve begun to tighten their credit standards in anticipation of a potential economic downturn. Still, lenders say that their customers have continued to keep up with their bills as the U.S. unemployment rate remains near historic lows.

California Power Producer PG&E Files Amended Reorganization Plan

California power producer PG&E Corp. said yesterday that it has filed for an amended reorganization plan, adding that it remains on track to getting the plan confirmed before a June 2020 deadline to exit bankruptcy, Reuters reported. The development comes less than a week after the company said it reached a $13.5 billion settlement with victims of some of the most devastating wildfires in California’s modern history. PG&E has settled all major wildfire claims and resolved disputed release provisions between insurance companies and wildfire victims, it said yesterday. The company also said that its plan can be fully funded through its capital structure, including the $12 billion equity backstop commitments that PG&E received last week. Read more

In related news, Elliott Management Corp. is digging in against a PG&E Corp. shareholder strategy for ending the utility’s bankruptcy, saying key demands of California officials wouldn’t be satisfied under the proposal, WSJ Pro Bankruptcy reported. The hedge-fund manager, part of a group of bondholders seeking to take over PG&E, said yesterday that a restructuring strategy developed by shareholders, management and victims of PG&E-linked wildfires would jeopardize “both the immediate-term and long-term health of the company and its critical infrastructure.” The bondholders are fighting to keep their chapter 11 takeover proposal viable after wildfire victims that had previously backed it reached a $13.5 billion settlement with PG&E and switched to supporting the rival shareholder-backed strategy. By settling with fire victims, PG&E built critical creditor support for its proposal, which would protect the ownership stakes of large shareholders such as Knighthead Capital Management LLC and Abrams Capital Management LP. Read more.

Weinstein Accuser Pushes Back on Proposed Settlement

A lawyer for one of the women who brought lawsuits accusing Harvey Weinstein of sexual misconduct said yesterday that a proposed $25 million settlement for most of the Hollywood producer’s alleged victims was unfair and designed to pressure her into accepting it, Reuters reported. Thomas Giuffra, who represents actress Alexandra Canosa, said after a hearing in Manhattan federal court that the accord set aside just $500,000 for his client, and that the money could be used to pay for Weinstein’s legal defense if she did not accept it. Weinstein has been accused of sexual misconduct dating back decades by more than 70 women, which helped spark the #MeToo movement. He has said any sexual encounters were consensual.

Sears Vendors to Take Haircut While Lawyers Get Paid

Vendors who kept the shelves stocked for last year’s holidays during Sears Holding Corp.’s bankruptcy will finally get paid, the Wall Street Journal reported. Lawyers for Sears’s bankruptcy estate said on Wednesday in court fillings that they would distribute $21 million to vendors ranging from clothing company Levi Strauss & Co. to toy maker Hasbro Inc., starting today. The payout comes to about 33 cents on the dollar for about 270 vendors, court filings show. The vendors are taking a haircut despite supplying goods in the days leading up to Sears’s chapter 11 filing in October 2018. Sears sold off its best stores to Edward Lampert’s ESL Investments for $5.2 billion, and the estate filed a plan to distribute the proceeds to creditors and shut down.

PG&E Judge Skeptical as Bondholders Demand Higher Interest Rate

Bondholders and other creditors struggled to persuade a federal judge to force PG&E Corp. to pay them “hundreds of millions of dollars” more in interest than the bankrupt utility has proposed, Bloomberg News reported. Bankruptcy Judge Dennis Montali appeared to side with PG&E in a court hearing yesterday in which the company and the bondholders argued over what interest rate creditors should earn during the bankruptcy. Montali repeatedly asked creditor lawyers why a ruling by a federal appeals court in a similar case that forced investors to accept the so-called federal judgment rate doesn’t apply. “I realize we’re talking about a lot of money,” Montali said in dismissing a bondholder argument that a Texas court should set the legal precedent instead of a decision by the Ninth Circuit Court of Appeals in California. “They don’t like the Ninth Circuit in Texas. We have to periodically straighten them out.” Montali didn’t immediately rule on the request by bondholders and other creditors. California federal courts have long held that creditors can only collect the federal judgment rate of interest while a company is in bankruptcy. The bondholders want to collect the higher rates listed in their debt contracts. Texas federal courts have allowed the higher rates. PG&E filed bankruptcy in January in San Francisco. At the time, the federal judgment rate was 2.59 percent, which is what creditors would get paid while the company remains under court protection should Judge Montali side with PG&E. Read more

In related news, an analysis by researchers at Georgia Tech found that sustained power outages caused by electric-wire failures in Northern California could double or even quadruple in years to come unless PG&E Corp. steps up its replacement of aging equipment, the Wall Street Journal reported. PG&E’s current rate of electric-line replacement falls far short of what’s needed to prevent a surge of failures due to the effects of aging, according to the researchers. The analysis suggests the current focus on upgrading distribution lines in areas of extreme fire risk fails to solve a more basic problem of age-related deterioration, especially in coastal areas where gear often ages faster. If electric-wire replacement continues at the rate currently proposed by the utility, PG&E customers should expect a doubling of sustained power outages in 15 years and a fourfold increase in 30 years, according to the analysis by the National Electric Testing, Research and Applications Center at Georgia Tech, which did the analysis for PG&E last year. Read more. (Subscription required.) 

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