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Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Jeff Dasovich X-To: Alan Comnes, Angela Schwarz, Beverly Aden, Bill Votaw, Brenda Barreda, Carol Moffett, Cathy Corbin, Chris H Foster, Christina Liscano, Craig H Sutter, Dan Leff, Debora Whitehead, Dennis Benevides, Don Black, Dorothy Youngblood, Douglas Huth, Edward Sacks, Eric Melvin, Erika Dupre, Evan Hughes, Fran Deltoro, Gayle W Muench, Ginger Dernehl, Gordon Savage, Harold G Buchanan, Harry Kingerski, Iris Waser, James D Steffes, James W Lewis, James Wright, Jeff Messina, Jeremy Blachman, Jess Hewitt, Joe Hartsoe, Karen Denne, Kathy Bass, Kathy Dodgen, Ken Gustafson, Kevin Hughes, Leasa Lopez, Leticia Botello, Mark S Muller, Marsha Suggs, Marty Sunde, Meredith M Eggleston, Michael Etringer, Michael Mann, Michelle D Cisneros, mpalmer@enron.com, Neil Bresnan, Neil Hong, Paul Kaufman, Paula Warren, Richard L Zdunkewicz, Richard Leibert, Richard Shapiro, Rita Hennessy, Roger Yang, Rosalinda Tijerina, Sandra McCubbin, Sarah Novosel, Scott Gahn, Scott Stoness, Sharon Dick, skean@enron.com, Tanya Leslie, Tasha Lair, Ted Murphy, Terri Greenlee, Tim Belden, Tony Spruiell, Vicki Sharp, Vladimir Gorny, Wanda Curry, William S Bradford, Kathryn Corbally, Jubran Whalan, triley@enron.com, Richard B Sanders, Robert C Williams, Greg Wolfe, James Wright, Dirk vanUlden, Steve Walker, Jennifer Rudolph, Martin Wenzel, Douglas Condon, wgang@enron.com, Scott Govenar <sgovenar@govadv.com<, Hedy Govenar <hgovenar@govadv.com< @ ENRON, jklauber@llgm.com, Mike D Smith, John Neslage, Janel Guerrero, Eric Letke, Richard B Sanders, gfergus@brobeck.com, Michael Tribolet, Robert Frank, Richard B Sanders, gfergus@brobeck.com, Susan J Mara, Mercy Gil, Jennifer Thome X-cc: X-bcc: X-Folder: \Steven_Kean_June2001_4\Notes Folders\Discussion threads X-Origin: KEAN-S X-FileName: skean.nsf NEWSMAKER PROFILE Dennis Montali Bankruptcy Judge Faces Challenge of His Career Well-known expert in complex cases Harriet Chiang, Chronicle Legal Affairs Writer Saturday, April 7, 2001 ,2001 San Francisco Chronicle URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/04/07/M N180032.DTL A veteran federal bankruptcy judge in San Francisco now is calling the shots in California's long, drawn-out power crisis. Judge Dennis Montali has spent eight years helping financially ailing dot- coms, consumers and corporations get back on their financial feet. Now he is about to take on the biggest case of his career, and lawyers say that he is relishing the challenge. "He's one of the best judges in the country," said Lawrence Goldberg, a San Francisco bankruptcy lawyer with Goldberg, Stinnett, Meyers & Davis. "He loves his job and he loves this kind of combat when lawyers come to court." Montali, 60, has built a reputation as a hard-working, enthusiastic judge who often knows the facts of a case better than the lawyers. He is a scholar of bankruptcy law, having lectured and written law review articles. The more complicated the case, lawyers say, the more energized he becomes. On a personal level, he can strike the fine balance between the demands of the commercial world and the plight of the consumer trying to overcome a mountain of credit card debts, lawyers say. "He's an excellent draw for the case," said bankruptcy lawyer Shawn Christianson, with Buchalter, Nemer, Fields & Younger. She said that Montali has a combination of pragmatism, intellect and experience that will help him understand the problems of all those involved in this statewide crisis. Tall and lanky with a handle-bar mustache, Montali is a native of the Bay Area. Born in San Francisco, his father worked as a liquor distributor and later founded Montali Winery -- later Audubon Cellars -- in Berkeley. The young Montali earned his undergraduate degree from Notre Dame University and then entered the Navy to fulfill a Reserve Officers Training Corps commitment. After his discharge in 1965, he entered the University of California's Boalt School of Law in Berkeley and earned his law degree in 1968. He joined the law firm of Rothschild and Phelan in San Francisco and quickly developed a specialty in bankruptcy law. By the time he joined the legal giant Pillsbury, Madison & Sutro in 1980 he was an established expert. While he represented debtors early on in his career, he became a creditor's attorney at Pillsbury and quickly built a national reputation for his knowledge and his active role in the bankruptcy law community. In 1993, the U.S. Court of Appeals in San Francisco chose him for an opening on the federal bankruptcy court in Northern California. One of two bankruptcy judges in San Francisco, he has become an expert in doing emergency surgery on companies in critical condition, able to deal with crises quickly and with few complications. He has gained national prominence as a member of the National Conference of Bankruptcy Judges and the American College of Bankruptcy. He also was rewarded with an appointment to the bankruptcy appellate panel. When he's not bailing out a company, he spends his off hours cooking Italian food at his Berkeley home with his wife, Mary. He also loves to sail, walk his dog and spend time with his granddaughter. "He's going to put his heart into this one," said Larry Engel, a veteran bankruptcy lawyer with San Francisco's Brobeck, Phleger & Harrison. "He's got the respect of everyone in terms of his fairness and diligence." "California," he added, "is in really good hands in having the case with him." E-mail Harriet Chiang at hchiang@sfchronicle.com. ,2001 San Francisco Chronicle Page A - 3 When to Hold 'Em, Fold 'Em: It might be a long time before PG&E shares rebound Kathleen Pender Saturday, April 7, 2001 ,2001 San Francisco Chronicle URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/04/07/B U172804.DTL If you own PG&E stock, you really need to ask yourself whether you're prepared to endure the agony of the next few years. When companies go bankrupt, common stockholders are the last to be paid, after trade, secured and unsecured creditors. Because there are usually not enough assets to pay off all those creditors in full, in many cases the creditors give up part of their claims in exchange for stock in the reorganized company that emerges from bankruptcy. This vastly dilutes the ownership stake of existing shareholders. In many cases, the original shareholders end up with a small fraction of stock in the reorganized company. And that's after a protracted court proceeding that could take two to five years. During that period, there's little reason for the stock to rise. Although it was Pacific Gas & Electric -- PG&E Corp.'s utility subsidiary -- that filed for bankruptcy yesterday, stock in the parent company fell $4.18 per share to $7.20, and most Wall Street investors see little hope for a quick rebound. "This is going to be a long, drawn-out process," says Claude Cody, manager of AIM Global Utilities Fund, which owns stock in PG&E. "There is going to be negative news and positive news, and generally the negative news comes out first." Cody explains that when a company is in bankruptcy, the flow of information slows down. Many institutional investors won't own stock in a bankrupt company, and analysts stop following it. All the usual methods of valuing a stock, such as price-earnings ratios, become meaningless. Companies in bankruptcy hardly ever pay dividends. PG&E has already suspended its dividend and won't pay one as long as the utility is in bankruptcy. That's hard on people such as Lee Fischer of San Bruno, who bought PG&E stock 20 years ago. Fischer, 72, says PG&E accounted for about 15 percent of the stock dividends he depends on for retirement income. "Everybody said, 'Buy utilities, buy oil, they're always going to be there, ' " he says. "I'm pretty upset with our governor. I'm mad at PG&E. They're making decisions we have no control over. I'm already losing the money I'm putting into my monthly (utility) bills. It's not fair. My emotions are running rampant at this point." There are some reasons Fischer and other PG&E shareholders could fare better than most stockholders involved in a typical bankruptcy. For one thing, shareholders own stock in the parent company, which has some unregulated energy assets that could provide cash flow and some support for the stock price, provided that creditors of the utility can't seize the assets of the unregulated subsidiary. PG&E has taken steps to prevent that, but those steps are sure to be challenged in court -- a process that could add to the length and complexity of the utility's bankruptcy proceeding. "In most bankruptcy cases, you don't have this two-sided isolation. Shareholders are not getting money from a solvent side while there's an insolvent side," says Lynn LoPucki, a law professor with the University of California at Los Angeles. Given its size, stature, the essential nature of its product and its importance to the state's economy, some experts say PG&E's bankruptcy could be resolved relatively quickly -- maybe in two years instead of three. For the very same reasons, others say it will bog down. PG&E stock is down 77 percent from its high last September. But that doesn't mean it can't go lower. Walter Torous, a finance professor at the Anderson School of Management at UCLA, has studied what happens to stocks after bankruptcies and found that on average, they don't do well. "You'd think that if a company announces bankruptcy it takes a one-time hit. But it continues to underperform badly over the long term. The market doesn't seem to quickly incorporate this bad news," says Torous. Torous tracked 78 large companies that filed for bankruptcy between 1979 and 1983. He found that during the first year after they filed, their stocks trailed the overall market by 38 percentage points. Over two years, they underperformed by 57 percentage points. Over three years, they trailed by almost 100 percentage points. (He explains that if the market went up 50 percent and the bankrupt stocks went down by 50 percent, they would trail by 100 percentage points). Torous says that because the companies he studied all went bankrupt around the same time, they might not be representative of companies going bankrupt during other periods. Marty Whitman, manager of the Third Avenue Value Fund, points out that in past utility bankruptcies -- such as Public Service Co. of New Hampshire and Northeast Utilities -- shareholders who held on came out well, after a number of years. "In other utility bankruptcies, they've all been reorganized on the backs of the ratepayers and taxpayers," he says. Whitman, who doesn't own PG&E stock but does own secured bonds in the utility, was irate yesterday that PG&E didn't "prepackage" its bankruptcy. That would have involved getting all the parties involved to agree to a reorganization plan before filing for bankruptcy. "If they did it preplanned, they could be in and out (of bankruptcy) in six months," Whitman says. Instead, he says it could take two to three years. Mark Luftig, co-manager of the Strong American Utilities Fund, does not own the stock and considers it a highly speculative investment. "If you can put it away for three years, there's an above-average chance you'll get an above- average return," says Luftig. "Will you miss a lot of sleep in the meantime? Probably." MOODY'S GROWS NERVOUS: Debt-rating agency Moody's said yesterday that it changed its outlook on the state of California's general obligation bonds to negative from stable, "reflecting our view that the deepening electric power crisis -- compounded by (yesterday's) bankruptcy filing by Pacific Gas & Electric Co. -- has increased the risks to the state's otherwise strong fiscal and economic condition." Moody's is the second bond-rating agency to warn that it might downgrade the state's credit rating because of the power crisis. In January, Standard & Poor's put the state's credit rating, currently AA, on "CreditWatch" with negative implications. Net Worth runs Tuesdays, Wednesdays and Fridays. E-mail Kathleen Pender at kpender@sfchronicle.com. ,2001 San Francisco Chronicle Page D - 1
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