B2B Payments

PG&E Bankruptcy Plans May Hit Suppliers, Too

The ripple effects of PG&E’s bankruptcy may hit billions of dollars in outstanding supplier contracts as renegotiations loom. Elsewhere, Saudi Arabia is spotlighted amid late payments to suppliers.

The bankruptcy of Pacific Gas and Electric Company (PG&E) will have ripple effects for its suppliers, as it may try to renegotiate contracts signed over the past few years, when rates were higher than have been seen in recent periods. The New York Times (NY Times) reported that the renegotiations may hurt firms, many of them renewable energy companies that had borrowed based on higher rates. In other cases, firms like Topaz Solar Farm have counted PG&E as their sole customer.

PG&E faces $30 billion in damages tied to wildfires across 2017 and 2018. The impact to power producers would mean the company could reject supplier contracts and pay less on those claims, saving as much as $2.2 billion annually if it renegotiates to the now-lower market rates.

According to bankruptcy filings, as reported this week, the utility company is looking to offload $42 billion worth of purchase agreements with an estimated 350 energy suppliers. The majority of those vendors are in the wind, solar and green energy industries, reports said. The utility firm’s commitments under the current supplier contracts are worth about three times its 2017 gross revenues.

The credit profiles of some suppliers have been negatively impacted as a result of PG&E’s filing. Reports this past week said that Topaz Solar Farm, owned by Berkshire Hathaway, has had its debt downgraded to junk because its only customer is PG&E. The company’s solar project costs $2.4 billion.

Elsewhere, Saudi Arabia has reportedly failed to pay $1 billion owed, amid payments held back from supplier General Dynamics. The late payments have been a cause of concern and discussion for years by Western firms, said The Wall Street Journal (WSJ). The publication said that late payments have been cited by companies ranging from Bechtel to Boston Consulting Group.

The late payments come as the Saudi government has looked to “contain” its budget deficit, as oil prices have trended lower, yet public spending has been significant.

“It is a strategy,” one Saudi official said about the delayed payments, as quoted in the WSJ. “The government knows they can get away with it, and would not want to have an alarming budget-deficit figure.”

Bechtel is at the head of a consortium of companies that have entered formal mediation on payments worth $2.6 billion. The money is owed on cost overruns and work that has gone beyond the scope of the original project. The consortium is reportedly open to accepting $1 billion, said the WSJ, citing unnamed sources.

Some firms have said the delayed payments from Saudi Arabia have impacted operations.

Late payments “significantly impacted the free cash flow we expected last year,” said General Dynamics CFO Jason Aiken during an investor conference late last month.

Peacocks Extends Payment Terms

Peacocks, the discount fashion chain, has significantly extended the time it takes to pay for its shipments (to 130 days from 90 days) in an effort that will pay suppliers faster. The Sunday Times reported that suppliers will use finance company Tradewind, where invoices will be paid within seven to 10 days. The fee levied will be 2.25 percent per invoice, and Peacocks will pay Tradewind after 130 days.

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