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U.S. property and casualty insurers have cast the coronavirus pandemic as an unprecedented event whose massive cost to small businesses they are neither able nor required to cover, Reuters reported. The industry has warned it could cost them $255 billion to $431 billion a month if they are required, as some states are proposing, to compensate firms for income lost and expenses owed due to virus-led shutdowns, an amount it says would make insurers insolvent. The estimate, made by the American Property Casualty Insurance Association (APCIA), a trade group, was recently used by the industry to successfully lobby against state and city lawmakers’ efforts to legislate to make the sector pay. Insurers say business interruption policies only apply when actual physical property damage prevents a business from operating and any attempt to apply cover beyond that, for a pandemic, are unconstitutional. The stance has discouraged some policyholders from filing claims and prompted others to take legal action. A Reuters examination of APCIA’s estimate, however, suggests the possible bill may not be so onerous. The APCIA estimate is an industry worst-case scenario based on all small firms with business interruption coverage being able to claim. It also assumes that between 60% and 90% of businesses with fewer than 100 employees will be impacted by Covid-19. Only about 40 percent of small firms have business interruption coverage, according to the Insurance Information Institute, and most of the policies explicitly exclude pandemics, according to Tyler Leverty and Lawrence Powell, professors who specialize in insurance at the University of Wisconsin and the University of Alabama, respectively. Powell has estimated that insurers could be on the hook for a maximum of $120 billion a month in claims on the basis that half of small firms have business interruption insurance.

PG&E Corp. yesterday announced the names of 11 new board members who will help steer the company after the expected conclusion of its bankruptcy case this year, the San Francisco Chronicle reported. The San Francisco parent of Pacific Gas and Electric Co. said that six of the new directors are from California, in keeping with the desires of state officials. PG&E agreed to “substantial modifications” to its board in a bankruptcy deal with Gov. Gavin Newsom this year. PG&E said that the directors will provide “substantial expertise in key areas critical to the company’s work” such as utility operations, safety, risk management, regulatory affairs, engagement with customers and more. New directors will be seated on the board “at or prior” to the end of the bankruptcy, PG&E said. PG&E’s announcement comes more than one month after the company said that only three of its current 13 board members would remain in their roles after the company emerges from chapter 11. It’s part of a series of changes coming to PG&E as its bankruptcy case winds down, including the forthcoming departure of CEO Bill Johnson.

A bankruptcy judge backed USA Gymnastics in its lawsuit to get one of the small business loans created by Congress to cover payroll costs during the coronavirus pandemic, saying that the embattled national body is likely to succeed in defeating the federal government’s rule excluding organizations in bankruptcy from obtaining the loans, the Wall Street Journal reported. USA Gymnastics filed for bankruptcy in December 2018, facing hundreds of lawsuits over its handling of decades of abuse by women’s team physician Larry Nassar, and as the U.S. Olympic & Paralympic Committee sought to revoke its status as the sport’s official governing body. The bankruptcy filing halted depositions and discovery in the lawsuits, for which mediation negotiations have dragged on for more than two years. It also halted the USOPC’s decertification efforts, creating an opportunity for USA Gymnastics to seek a reprieve. But the effort had an unexpected consequence when USA Gymnastics and other national sports governing bodies found themselves on the brink of a new financial crisis — the postponement of several lucrative domestic meets and the windfall expected from the 2020 Olympic Games, which may now be held in 2021. As dozens of its peers rushed to secure the loans from the federal government, USA Gymnastics had its application for the Paycheck Protection Program rejected by the Small Business Administration because it is in bankruptcy. USA Gymnastics then sued the federal government. Dozens of lawsuits challenging the SBA’s rule have been filed across the U.S. by small businesses, rural hospitals and Catholic dioceses arguing Congress never intended to exclude PPP loans from potential borrowers in chapter 11 bankruptcy. Judges who have ruled so far on the SBA’s position have come out both for and against the federal government, prompting appeals to higher courts. Read more. (Subscription required.) 

Be sure to read today's RDW column on recent bankruptcy cases and PPP loans. 

PG&E Corp. wants authority to tap hot corporate debt markets for about $11 billion in financing even as courtroom arguments continue about the company’s bankruptcy exit plan, WSJ Pro Bankruptcy reported. At a court hearing yesterday, the judge presiding over PG&E’s bankruptcy said that he was open to signing such an order if PG&E can get official creditors’ representatives to go along with the move. The financing would help pave PG&E’s path out of bankruptcy, providing money to pay people, businesses and insurers for damages stemming from several wildfires that swept California in 2017 and 2018. To exit bankruptcy, PG&E needs confirmation from Judge Dennis Montali in the U.S. Bankruptcy Court in San Francisco and financing to put the restructuring plan into effect. Conditions in the debt markets are so favorable that California’s largest utility is prepared to take a chance on raising the money even before the confirmation ruling, PG&E lawyer Stephen Karotkin said.

California-based power provider PG&E Corp. said today that it plans to raise $5.75 billion from public offerings as it tries to emerge from chapter 11 protection by the end of this month, Reuters reported. Separately, the company said investors, including Appaloosa and Third Point, have agreed to purchase up to $3.25 billion of its stock once the company exits bankruptcy. PG&E said that up to $1.25 billion of its common stock offering is expected to be reserved for large shareholders, while up to 25 percent will be allocated to individual investors. The private placement will be at a maximum price of $10.50 per share, a discount of over 16 percent to the stock’s last close. Read more. 

In related news, PG&E Corp. is readying an $11 billion debt-financing package that may be sold to investors as soon as this week as the company prepares to exit bankruptcy, Bloomberg News reported. The financing includes $4 billion of high-yield bonds and a $750 million term loan led by JPMorgan Chase & Co. The remaining package consists of an investment-grade bond portion offered by Bank of America Corp., JPMorgan and other banks. The exit financing marks the near-conclusion of a complex chapter 11 protection that’s lasted over a year and seen wildfire victims fight for compensation. The utility company filed for relief from its creditors in January 2019 after its equipment was linked to wildfires that ripped through Northern California in 2017 and 2018. Bankers are targeting a timeline of next week for the debt offering, the people said, adding that PG&E is expected to market a $9 billion equity offering at a later date. The company has said in court papers that it expects to market the debt as soon as it gets confirmation of its plan, which could come as early as this week. Read more. 

PG&E Corp. heads into a third and final day of court fights today, 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, WSJ Pro Bankruptcy reported. 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 yesterday. Judge Montali is expected to wrap up confirmation hearings on PG&E’s $59 billion bankruptcy exit plan today, 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 that 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.

Aurelius Capital Management LP is competing with rival lenders to finance J.C. Penney Co. ’s restructuring strategy, accusing them of “predatory lending” and offering to bankroll potential litigation against them, WSJ Pro Bankruptcy reported. The dispute concerns which investors will finance the company’s turnaround efforts, pitting a group of creditors including Aurelius against a competing faction led by H/2 Capital Partners LLC. Penney, which filed for bankruptcy last month, has proposed tapping H/2, Sixth Street Partners and other top-ranking lenders for a $900 million financing package, half of which would provide fresh capital while the other half pays down debt. Shortly before filing for chapter 11, the company paid $45 million to these lenders for their commitment to finance the bankruptcy and is scheduled to submit the loan proposal for final approval on Thursday to the U.S. Bankruptcy Court in Houston. A rival group with claims crossing over senior and junior debt tranches includes Aurelius. It said on Tuesday it had proposed its own $450 million package with “dramatically lower overall costs” and more flexibility for Penney to try to salvage the business and avert a liquidation of its nearly 850 department stores.