A California bankruptcy court has sided with electric utility PG&E Corp. in its fight with bondholders over the interest rate that it must pay on its debts while under bankruptcy court protection.
Judge Dennis Montali of the U.S. Bankruptcy Court in San Francisco on Tuesday ruled that the bondholders are owed the federal rate of 2.59%, a decision expected to reduce the company’s interest burden by about $550 million when it exits bankruptcy.
A committee of bondholders including Elliott Management Corp. and Pacific Investment Management Co. argued they were owed accrued interest at the original contract interest rate — as much as 6.05% on bonds due in 2034. Prices of the company’s 2034 bonds fell about 1.6% to 104.75 cents on the dollar after the decision, according to data form MarketAxess.
Bondholders also contend that PG&E
must pay them a premium if it retires debt they own early, or leave the bonds outstanding at the contract interest rate. Such an interpretation would make the 2034 bonds worth over 120 cents on the dollar and increase overall bondholder recoveries by about $1.5 billion. A hearing on the issue is scheduled for January.
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