1 RICHARD W. ESTERKIN (70769) MORGAN, LEWIS & BOCKIUS LLP 2 300 South Grand Avenue Twenty-Second Floor 3 Los Angeles, CA 90071-3132 Tel.: 213.612.2500 4 Fax: 213.612.2554 5 Attorneys for RABOBANK NEDERLAND 6 7 COURT 8 UNITED STATES BANKRUPTCY 9 NORTHERN DISTRICT OF CALIFORNIA 10 SAN FRANCISCO DIVISION 01-30923 11 In re Case No. Chapter 11 PACIFIC GAS AND ELECTRIC CO., 12 RABOBANK NEDERLAND'S OBJECTIONS STATEMENT; AND 13 Debtor. TO DISCLOSURE MEMORANDUM OF POINTS AND IN SUPPORT THEREOF 14 AUTHORITIES Date: December 19, 2001 15 Time: 9:30 a.m. Place: 235 Pine Street 16 22nd Floor Francisco, CA 17 San Judge: Hon. Dennis Montali 18 19 20 II 21 /III 22 II 23 II 24 /III 25 II 26 /11/ 27 II 28 I 1-L1./59235-6.2 7 /K 1 TABLE OF CONTENTS 2 Page 1 3 I. RABOBANK'S CLAIM ........................................... CLAIM .......... 1 4 II. THE PROPOSED PLAN'S TREATMENT OF RABOBANK'S 3 III. OBJECTIONS TO DISCLOSURE STATEMENT .......................... 5 A. Introduction .......................................... 3 6 B. The Disclosure Statement Fails to Provide Sufficient Information so as to Enable Creditors the Plan ..... 4 7 to Evaluate the Credit Risks Inherent in 4 8 1. Introduction ..................................... 2. The Disclosure Statement Fails to Provide Assets 9 Sufficient Information Regarding the to be Retained by the Reorganized Debtor ......... 5 10 3. The Disclosure Statement Fails to Provide Sufficient Information Regarding the Debtor's II Liabilities to be Assumed by the LLCs ............ 7 12 4. The Disclosure Statement Fails to Provide Sufficient Information Regarding the Debtor's 8 13 Post-Confirmation Operations ..................... C. The Disclosure Statement's Description of the 14 Plan's Treatment of the Class 4f Claims is 10 ............................. 15 Inadequate and Ambiguous D. The Disclosure Statement Fails to Adequately of the 16 Describe the Terms of the Proposed "Sale" Debtor's Assets to its Parent ......................... 13 17 E. The Disclosure Statement's Description of the Third Party Releases to be Provided Under the Plan 18 is Incomplete and Ambiguous ........................... 16 18 19 IV. CONCLUSION ................................................ 20 21 22 23 24 25 26 27 28 i AUTHORITIES 1 TABLE OF Page(s) 2 Inc., 3 In re Adana Mortgage Bankers, 5 14 B.R. 29 (Bankr. N.D. Ga. 1981) .......................... 4 Inc., In re Allied Gaming Management, W.D. La. 1997) .................. 13 5 209 B.R. 201, 203 (Bankr. 6 In re American Hardwoods, 4 885 F.2d 621 (9th Cir. 1989) ............................... 7 In re Andy Frain Services, Inc., ............................. 13 8 798 F.2d 1113 (7th Cir. 1986) 9 In re Apex Oil Co., 13 92 B.R. 847 (Bankr. E.D. Mo. 1988) ......................... 10 Street Partnership Bank of America v. 203 North LaSalle 11 (In re 203 North LaSalle Partnership), 526 U.S. 434, 5 12 119 S.Ct. 1411 (1999) ...................................... 13 In re Dakota Rail, Inc., 5 104 B.R. 138 (Bankr. Minn. 1989) ........................... 14 Donovan & Schuenke v. Sampsell, .............................. 13 15 226 F.2d 804 (9th Cir. 1955) 16 In re Joseph A. Ferretti, 6 128 B.R. 16 (Bankr. N.H. 1991) ............................. 17 In re Ligon, 1985) ........................ 4 18 50 B.R. 127 (Bankr. M.D. Tenn. Services, Inc., 19 In re Metrocraft Publishing 14 1984) ......................... 39 B.R. 567 (Bankr. N.D. Ga. 20 In re W.A. Mallory Co., Inc., Va. 1997) ........................ 13 21 214 B.R. 834 (Bankr. E.D. 22 STATUTES 23 ........... 11 U.S.C. § 1125(a) (1).................................. 24 3 11 U.S.C. § 1125(b) ............ .................................. 25 11 U.S.C. § 1129(b) (2) (B) (ii) ................................... 26 27 28 ii B.A., 1 Cooperative Centrale Raiffeisen-Boerenleenbank objects to the 2 "Rabobank Nederland" ("Rabobank") hereby Under Chapter 3 "Disclosure Statement for Plan of Reorganization and Electric Company 4 11 of the Bankruptcy Code for Pacific Gas and PG&E 5 proposed by Pacific Gas and Electric Company as follows: 6 Corporation" (the "Disclosure Statement") 7 I. 8 RABOBANK'S CLAIM of Pacific Gas and 9 Rabobank is an unsecured creditor of 10 Electric Company, holding a claim in the amount as described 11 $160,834,630.14, plus interest, fees and expenses 12 in Rabobank's proof of claim filed herein. of its issuance of 13 Rabobank's claim arises as a result with the 1996 Series B 14 a standby letter of credit in connection Pollution 15 Pollution Control Bonds issued by the California Pacific Gas and 16 Control Financing.Authority at the behest of of credit was paid 17 Electric Company (the "Debtor"). That letter on May 3, 2001. The 18 by Rabobank to the beneficiaries thereof Rabobank for 19 Debtor has defaulted on its obligation to reimburse plus interest 20 the amount advanced under its letter of credit, 21 fees and expenses due thereunder. 22 CLAIM 23 THE PROPOSED PLAN'S TREATMENT OF RABOBANK'S of Reorganization 24 Pursuant to the terms of the Plan Pacific Gas and 25 Under Chapter 11 of -he Bankruptcy Code for "Plan"), 26 Electric Company dated September 20, 2001 (the claim (Prior Bond 27 Rabobank's claim is classified as a Class 4f 28 I//I I-LA/592356.2 1 1.1 (definition of "Prior Bond 1 Claims). See Plan at Article 2 Claims,") and Article III. holders terms of the Plan, unless the 3 Pursuant to the the a new letter of credit to support 4 of Prior Bond claims issue Bonds!, holders of Class 4f claims 5 Debtor's issuance of Refunding distributions on account of their 6 are to receive the following 7 claim: to the all interest and other sums due 8 a. Payment of with the terms of the 9 holder of such claims in accordance 10 applicable Reimbursement Agreement; of the principal amount due under 11 b. Payment of 60% and 12 the Reimbursement Agreement; 40% of the principal amount 13 c. As to the remaining Agreement, the Reimbursement 14 due under the Reimbursement such that "the Reorganized Debtor 15 Agreement is to be modified thereunder for the remaining forty 16 shall remain solely liable Reimbursement Obligation which 17 percent (40%) of the respective same years and bear interest at the 18 shall be payable in ten (10) notes with a ten (10) year 19 rate as the Reorganized Debtor's § 4.12(b). 20 maturity . .- Plan at foregoing plan treatment, the 21 As a result of the the 4f are exposed to the risk that 22 holders of claims in Class principal repay the deferred 40% of the 23 Debtor will be unable to the end of the ten year restructure 24 amounts of their claims at this Plan. In the case of Rabobank, 25 period contemplated by the $64,000,000. 26 obligation amounts to approximately herein have the meanings ascribed 27 1 Capitalized terms not defined and Plan. them in the Disclosure Statement 28 to 1-LA/592356".22 2 OBJECTIONS TO DISCLOSURE STATEMENT 3 A. Introduction approve 4 The Bankruptcy Code requires that this Court 5 the Disclosure Statement as containing "adequate information" the Plan. 6 prior to it being utilized to solicit acceptances of Court's 7 11 U.S.C. § 1125(b). The standard applicable to this 8 determination as to whether or not the Disclosure Statement 9 contains "adequate information" is clearly articulated by the 10 Bankruptcy Code: 11 "[A]dequate information means information of a kind, and in sufficient detail as far as is 12 reasonably practical in light of the nature and history of the debtor and the condition 13 of the debtor's books and records, that would enable a hypothetical reasonable investor 14 typical of holders of claims or interests of the relevant class to make an informed 15 judgment about the plan 16 11 U.S.C. § 1125(a) (1). as it 17 The Disclosure Statement is materially defective 18 pertains to the holders of Class 4f claims in at least four 19 respects. First, the Disclosure Statement does not contain 20 sufficient information to enable any holder of a Class 4f claim 21 to evaluate the credit risk that the Plan proposes to impose 22 upon holders of Class 4f claims. Second, the Disclosure 23 Statement's description of the proposed treatment of Class 4f 1 24 claims is ambiguous and incomplete.2 Third, the Disclosure 25 Statement fails to provide adequate information pertaining to 26 the Plan's proposed "sale" of what appears to be a substantial 27 2/ The Plan's description of the treatment accorded to Class 4f claims is similarly ambiguous and incomplete. 28 I-LA/592356 .2 -3 controlled by its 1 portion of the Debtor's assets to entities discussion of the 2 parent. Fourth, the Disclosure Statement's is ambiguous and the 3 release to be provided to PG&E Corporation the claims being released 4 Disclosure Statement fails to describe creditors can determine 5 with sufficient particularity so that claims in exchange for 6 whether or not they wish to release those 7 the treatment proposed under the Plan.•/ Sufficient The Disclosure Statement Fails to Provide 8 B. Evaluate the Information so as to Enable Creditors to 9 Credit Risks Inherent in the Plan. 10 i. Introduction. a claim in Class 4f 11 In order to permit the holder of Plan proposes to impose 12 to evaluate the credit risk that the require information 13 upon that creditor, the creditor would Debtor (as only the 14 concerning (a) the assets of the Reorganized for the deferred portion 15 Reorganized Debtor is to remain liable by Class 4f creditors), (b) 16 of the distribution to be received Debtor will be assuming 17 the liabilities that the Reorganized regarding the Reorganized 18 under the Plan and (c) information operations.