Author Topic: PG&E - Potential Bankruptcy  (Read 11784 times)

DRValue

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Re: PG&E - Potential Bankruptcy
« Reply #110 on: February 01, 2019, 04:55:22 AM »
I quite like the debt, but want it dirt cheap. I think it'll be OK in a restructure.
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DRValue

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Re: PG&E - Potential Bankruptcy
« Reply #111 on: February 01, 2019, 05:13:38 AM »
^From the odds point of view, PG&E appears to be in a weak position versus certain fires especially the Camp Fire, which happened to be the straw that broke the camels back, except that it was more like a ton of bricks.
http://www.fire.ca.gov/communications/downloads/fact_sheets/Top20_Destruction.pdf

Most of the numbers work here is discounting the liabilities (settlement, time value etc).

PG&E will have to roll with the punches (and they're likely to be good at that, absent a deadly blow) and should become a champion of security and safety but that does not appear to be printed in their DNA (Board and top exec overhaul would help).

This is likely to get worse before (if) it gets better.

For those fires currently under investigation, do you know which may be attributed to PG&E or which are suspected? Good info.

Also, Camp Fire is roughly 3 .3 times the number of structures and Tubbs was estimated to be $7b of liability, so an estimate of $23b seem fair?
« Last Edit: February 03, 2019, 05:52:05 AM by DRValue »
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Cigarbutt

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Re: PG&E - Potential Bankruptcy
« Reply #112 on: February 01, 2019, 07:34:50 PM »
^From the odds point of view, PG&E appears to be in a weak position versus certain fires especially the Camp Fire, which happened to be the straw that broke the camels back, except that it was more like a ton of bricks.
http://www.fire.ca.gov/communications/downloads/fact_sheets/Top20_Destruction.pdf

Most of the numbers work here is discounting the liabilities (settlement, time value etc).

PG&E will have to roll with the punches (and they're likely to be good at that, absent a deadly blow) and should become a champion of security and safety but that does not appear to be printed in their DNA (Board and top exec overhaul would help).

This is likely to get worse before (if) it gets better.
For those fires currently under investigation, do you know which may be attributed to PG&E or which are suspected? Good info.

Also, Camp Fire is roughly 3 .3 times the number of structures and Tubbs was estimated to be $7b of liability, so an estimate of $23b seem fair?

Convert the debt with a hair cut and you're set. So I'm interested at 39c on the $.
The most decisive work will come from the evaluation of major risks: 1- 2019-20 "weather" risks, 2-"nationalization" risk and 3-risk of newco.

The valuation work will be work in progress.
(Re)insurers may be a good starting point:
https://www.munichre.com/en/media-relations/publications/press-releases/2019/2019-01-08-press-release/index.html

DRValue

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Re: PG&E - Potential Bankruptcy
« Reply #113 on: February 02, 2019, 04:36:09 AM »
If PG&E issues $5b+ of new secured debt, then the existing unsecured debt becomes secured.
https://www.bloomberg.com/news/articles/2018-11-14/any-pg-e-bankruptcy-would-pit-bonds-against-burnt-out-homes

PG&E have sought up to $5.5b worth of DIP financing. It has also just got approval for $1.5b of that amount.
https://www.thestreet.com/investing/stocks/pg-e-files-for-bankruptcy-protection-seeks-5-5-billion-in-dip-funding-14848011

Wall Street Journal says the DIP is secured.
https://www.wsj.com/articles/pg-e-gets-court-ok-to-tap-1-5-billion-of-bankruptcy-loan-11548979436

I'm unsure if the DIP will be paid back out of cash flows as an amortizing loan as the bankruptcy process continues.

But if the DIP loans hit $5b and are secured, I wonder if they would count as new debt for the purposes of determining whether unsecured would become secured?
I haven't read the bond terms yet, but I doubt information about DIP financing would be in there?
« Last Edit: February 02, 2019, 04:38:42 AM by DRValue »
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Foreign Tuffett

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Re: PG&E - Potential Bankruptcy
« Reply #114 on: February 03, 2019, 11:58:30 AM »
I would be careful here, as in these types of situations individual investors and small fund managers are disadvantaged versus big distressed debt players like Appaloosa and Baupost. Here are two anecdotes to try and illustrate what I mean:

- When Enron filed bankruptcy Baupost had one analyst do nothing but Enron-related work for 4 years

- Big players involved with Puerto Rico bonds pay specialized services like Puerto Rico Clearinghouse for expert analysis of relevant legal decisions and regulatory actions

http://www.pr-clearing.com/


I'm sure similar resources are being devoted to PG&E's predicament. While I can only speak for myself, I don't have the expertise or resources to untangle this Gordian Knot.

Cigarbutt

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Re: PG&E - Potential Bankruptcy
« Reply #115 on: February 03, 2019, 08:22:29 PM »
I would be careful here, as in these types of situations individual investors and small fund managers are disadvantaged versus big distressed debt players like Appaloosa and Baupost. Here are two anecdotes to try and illustrate what I mean:

- When Enron filed bankruptcy Baupost had one analyst do nothing but Enron-related work for 4 years

- Big players involved with Puerto Rico bonds pay specialized services like Puerto Rico Clearinghouse for expert analysis of relevant legal decisions and regulatory actions

http://www.pr-clearing.com/

I'm sure similar resources are being devoted to PG&E's predicament. While I can only speak for myself, I don't have the expertise or resources to untangle this Gordian Knot.
Thanks for the wise words.

Interesting because the analogy was also nicely used by a journalist/columnist (Liam Denning, January 7th, 2019) who summarized the issue quite well:
"The Gordian knot here is that the cost of the wildfires, the risk of future wildfires (which is rising) and the expense of hardening the Californian grid against that risk must ultimately be met by ratepayers. Finding the most cost-effective way to do this over the long term must be balanced against ensuring PG&E (and its shareholders) pay a price for any of the company’s shortcomings."

In the 90's some commentators suggested that deregulation of the California electricity market was akin to cutting the Gordian knot, only to find out that the knot had to be reweaved after some turmoil.

At the very least, this will be interesting to watch and a potential outcome is that the knot remains intact.

DRValue

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Re: PG&E - Potential Bankruptcy
« Reply #116 on: February 04, 2019, 12:32:39 AM »
I would be careful here, as in these types of situations individual investors and small fund managers are disadvantaged versus big distressed debt players like Appaloosa and Baupost. Here are two anecdotes to try and illustrate what I mean:

- When Enron filed bankruptcy Baupost had one analyst do nothing but Enron-related work for 4 years

- Big players involved with Puerto Rico bonds pay specialized services like Puerto Rico Clearinghouse for expert analysis of relevant legal decisions and regulatory actions

http://www.pr-clearing.com/


I'm sure similar resources are being devoted to PG&E's predicament. While I can only speak for myself, I don't have the expertise or resources to untangle this Gordian Knot.

My base case is now that common have no value and I'm considering the put options.
I like the debt but another hurdle for small retail investors is the terms of conversion sometimes only include recovery for big players. That leads to the need for more of a discount for me.

The flip side is that pg&e aren't found liable for camp fire but I'm not factoring that in yet.
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Cigarbutt

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Re: PG&E - Potential Bankruptcy
« Reply #117 on: February 11, 2019, 07:58:52 PM »
The other two California investor-owned utilities are getting agitated and (one) raising the specter of bankruptcy, under the watch of rating agencies.
So, potential pressure for some action that may mitigate the big risks.

The inverse condemnation doctrine is enschrined in the Constitution and the present climate (political and popular) makes it unlikely that an amendment is ratified.

However, the application of strict liability may be potentially modified using a more flexible definition to pass on the cost to ratepayers. There seems to be a potential relevant precedent (a 1997 state Supreme Court ruling that used this standard in a water-district case) and, for the 2017 fires, there seemed to be enough political will to get this through in a more sustainable way.

Also, the idea of a California Wildfire Catastrophe Fund has been floated and could take the form of a partially funded pre-disaster program that could be modified according to the evolving wildfire experience.

If the State starts to discuss splitting the company, PG&E may come up with a different type of split and it may get interesting.
Following the playbook, the company also announced a Board restructuring, to add "a fresh perspective".