PG&E, Elliott Face Off in $5 Billion Spat for Extra Bond Payment

PG&E Corp. can avoid paying bondholders $5 billion that they’re demanding to compensate for their lost income, even if the bankrupt company loses a pending court fight.

The financial drama is set to play out Tuesday in federal court in San Francisco before U.S. Bankruptcy Judge Dennis Montali, who’s overseeing a recovery plan for the beleaguered power utility that involves refinancing $17.5 billion of debt.

Bondholders including Elliott Management Corp. claim that this plan would trigger a customary early-payoff premium, known as a make-whole payment, to make up for the interest income they were promised. PG&E says that being ...