PG&E Corp. surged to a two-month high after reaching a $13.5 billion settlement with the victims of wildfires ignited by its power lines — a major step toward resolving the biggest utility bankruptcy in U.S. history.

The agreement, announced late Friday, will cover claims stemming from some of the worst blazes to ever hit Northern California, including the 2017 wine country and the 2018 Camp fires. The 2015 Ghost Ship fire and the 2017 Tubbs fire are also covered, though the utility doesn’t admit fault for either blaze, PG&E said. Shares rose 14% to $11 at 9:51 a.m. in New York on Monday.

The deal is a victory for PG&E, which has spent months trying to negotiate a viable restructuring plan to emerge from bankruptcy by the middle of next year. California Governor Newsom has threatened a state takeover if the utility fails to come up with a plan soon, and the judge overseeing the company’s reorganization had ordered parties into mediation.

The agreement “offers the clearest path forward in PG&E’s ongoing bankruptcy fight,” Clayton Allen, an analyst at Height Capital Markets, said in a note Monday. The judge overseeing the bankruptcy case will probably support the company’s settlements with victims and their insurers “as they seem to offer the most expedient option,” he said.

Half of the payout announced Friday will be financed through stock and the other half through cash — with $5.4 billion paid upfront and the rest over time, according to a filing made Monday. The deal must still be approved by Newsom and the bankruptcy court.

Compensating victims of wildfires had emerged as the largest challenge to restructuring PG&E, which declared bankruptcy in January after its equipment was blamed for starting catastrophic blazes in 2017 and 2018. The fires buried the utility giant in an estimated $30 billion worth of liabilities.

PG&E initially offered victims $8.4 billion, a fraction of what they said they were owed. A group of creditors led by Pacific Investment Management Co. and Elliott Management Corp. stepped in to offer $13.5 billion to victims as part of a rival reorganization plan that would’ve handed them ownership of almost all of the power company.

The agreement reached Friday could deal a fatal blow to that proposal. As part of the deal reached Friday, victims would agree to oppose the efforts of Pimco and Elliott.

The utility has already agreed to pay $11 billion to insurers and investors, although that pact has been contested by the governor’s office, saying it locks claim holders into a restructuring plan that may not win approval. The company also has a deal to pay $1 billion to local government agencies.

PG&E amended its restructuring support agreement to include an added pretax charge for victim claims of $4.9 billion for the quarter ended Dec. 31, according to a filing. And it extended the deadline for obtaining bankruptcy court approval for the agreement with insurers to Dec. 11 from Dec. 6.

Resolving Major Claims

PG&E said Monday that it will update and file its reorganization plan that resolves all major wildfire claims by Dec. 12. The company said it is on track to gain the needed regulatory and court approvals to exit from bankruptcy by a state-imposed deadline of June 30, 2020.

The utility said it had received more than $12 billion in equity backstop commitments to support the settlement and its plan of reorganization.

The settlement with fire victims comes after PG&E drew outrage from state lawmakers and residents for carrying out deliberate mass blackouts to keep its power lines from igniting more wildfires during wind storms. In October, it plunged millions of Californians into darkness four times. The backlash increased pressure on Newsom to restructure PG&E.

If approved, the settlement means PG&E will avert a trial scheduled to begin next month in San Francisco federal court to determine its liability from fire-related losses and estimate damages. Parties would also agree to put some trials involving the Tubbs fire on hold.

–With assistance from Brian Eckhouse.