Author Topic: PG&E - Potential Bankruptcy  (Read 20201 times)

cubsfan

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Re: PG&E - Potential Bankruptcy
« Reply #20 on: January 15, 2019, 11:54:00 AM »
Or ...  the assets are just bought out of bankruptcy, by somebody else (& another entity), at cents on the dollar.
All existing capital of PG&E used to cover existing (& future) claims; and the good people of California continue to receive their electricity, & pay their bills, without interuption.

Still feel like fishing in the toilet?


SD

You have a good point - and that visual is enough to keep me away..


walkie518

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Re: PG&E - Potential Bankruptcy
« Reply #21 on: January 15, 2019, 11:58:21 AM »
no one thinks the fires were on purpose

in theory, insurance should cover, in practice, when the claim is that big, few if any want the risk

my guess is Brookfield puts a few bucks together and buys out of bankruptcy court



PG&E misses interest payment on 2040 notes; bonds, shares plummet
Reuters
January 15, 2019

By Kate Duguid
NEW YORK (Reuters) - The price of bonds and shares in PG&E Corp (PCG.N) plummeted after the California power company failed to make a $21.6 million interest payment due Tuesday on its 2040 senior notes.

Nearly all of the company's $18 billion in debt was trading down, while the share price has fallen 19.7 percent. In a form filed with the SEC on Monday, PG&E announced its intention to not make the payment.

In response to a request for comment, the company cited the SEC filing, which also noted that "Under the indenture governing the 2040 Notes, PG&E has a 30-day grace period to make the interest payment before triggering an event of default."

PG&E, which is the owner of the biggest U.S. power utility by customers, said on Monday it was preparing to file for Chapter 11 bankruptcy protection as soon as this month amid pressure from the potential $30 billion in liabilities linked to California's catastrophic wildfires in 2017 and 2018. Prices of shares and bonds have been falling since.

The 2040 bond <694308GS0=>, which is worth $800 million and sports a 5.4 percent coupon, saw its price fall by 4.75 points on Tuesday. Its yield spread, which refers to the additional compensation demanded by investors to hold a risky bond over safer U.S. Treasury securities, rose by 4.77 percentage points.

bookie71

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Re: PG&E - Potential Bankruptcy
« Reply #22 on: January 15, 2019, 12:26:55 PM »
Wasn't one of WEB's best deals was his picking up the bonds that survived the Whoops (Washington Power) bankruptcy?
Always remember, Pigs get fat and hogs get slaughtered.

cherzeca

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Re: PG&E - Potential Bankruptcy
« Reply #23 on: January 15, 2019, 02:03:08 PM »
this does seem like a good case for a S 365 transfer, and old pg&e remains with proceeds to pay out claims and debt pennies on dollar.  plenty of big utilities would love to be a 365 buyer, no?  if this is right, stay the eff away

Cardboard

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Re: PG&E - Potential Bankruptcy
« Reply #24 on: January 15, 2019, 06:07:49 PM »
Rotten history. I recall the rolling blackouts, manipulation of natural gas prices, Erin Brochovich...

Got to be something better to buy and study out there.

Cardboard

Cigarbutt

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Re: PG&E - Potential Bankruptcy
« Reply #25 on: January 15, 2019, 08:50:55 PM »
-Few random points. This will likely evolve over a few years.

-A comment above was made about the Washington Public Power Supply System (WPPSS) investment made by Mr. Buffett. There may be lessons in that story but the plot was different. WPPSS was a municipal corporation or a public authority. The bonds that defaulted (1983) were for the so-called nuclear plants #4 and #5, which were separate (although legally debated for a while) from the bonds (bought by Mr. Buffett) linked (revenue bond type of arrangement) to plants #1, #2 and #3 which did not default. In fact, WPPSS did not file for bankruptcy. The bonds that Mr. Buffett bought traded at a moderate discount because of the uncertainty (munis defaulting was very rare then and the WPPSS fiasco had reached significant and very public proportions) but were backed by a regional federal power agency (although there was some legal noise too at that level) which had alternative sources of revenues that could support those bonds. Perhaps easy to say now but the situation then was markedly different from PG&E and Mr. Buffett chose the bonds that sat quite high in the fulcrum structure. Bonds were held for close to or around ten years and returns were good (especially given the tax-exempt nature of the interest) but returns were not spectacular. Potentially useful lessons for the PG&E evolving story are that 1-most of the legal noise went away and eventually settlements were reached with the #1,2,3 bonds back to par and the #4,5 bonds settling between 10 to 40 cents on the dollar and 2-even if the entity was public, there was no federal bail-out because the "injured" parties were mostly the bondholders and maybe some felt that moral hazard was worth a lesson. Remarkably, WPPSS went back to the muni market to refinance the worst bonds in 1989 and got investment-grade from the rating agencies (which graded the #1,2,3 bonds triple A until looking into the abyss (what else is new) and until a few months before default of the #4,5.

-A comment was made above concerning the chapter 11 episode in 2001-4 for the PG&E entity. Just from my notes, it seems that the causes of distress were different (regulatory uncertainty, market manipulation, unstable markets) but the severity of the liquidity and solvency issues were comparable in intensity. The publicly-traded shares of the investor-owned utility continued to trade throughout and never dipped below 6$ and creditors were paid in full. This was a very complex process but I came away with the conclusion (opinion) that the surviving entity had benefitted indirectly along the painful restructuring from a not so clearly defined bail-out (state financial support) and from implicit support with higher expected rates in the future (support from the rate payers).

-It looks like PG&E will file shortly and the issue has to do with the wildfire claims (2017 and 2018). There are expectations for the usual legal noise and for a lengthy process. The odds are very difficult to establish now and there is a defining and challenging feature that seems to be particularly significant. California has quite stringent laws covering the inverse condemnation rule which has to do with the exposure to liabilities regardless of negligence, which means that PG&E is liable to damages when their equipment is simply "involved". If this definition is maintained as is, I guess it may be difficult for a bankruptcy judge to let a phoenix entity emerge as there would great uncertainty to continue as a viable entity. I would guess that there is potential legislative leeway that would make the restructuring less painful without causing outrage from the moral hazard crowd. PG&E has a long history and survived (financially) the 1906 San Francisco earthquake and fire. An interesting entry point may be defined at some point because of expectations of more frequent wildfire-related losses which may be related to a perception in line with a recency bias.

-Interesting to see Baupost involved in a distorted case of averaging down. At the end of Q3 2018, Baupost had 873M invested in the equity (ouch!). Apparently, they recently bought (about 30 to 35 cents on the dollar) for about a billion (face value) of insurance claims against the utility (subrogation claim with the right to sue) which may be a way to recuperate some losses or may simply be a way to be a heard voice in the restructuring process in order to maximize equity recovery.

I'm not sophisticated enough to invest directly here but look forward to further interesting discussions in the following years.

deadspace

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Re: PG&E - Potential Bankruptcy
« Reply #26 on: January 15, 2019, 09:31:55 PM »
Thanks for that summary

Another interesting comparison would be Buffett's investment in USG equity which was held through their asbestos associated bankruptcy process.   The equity was made whole.
 It could have been purchased for under $5 and eventually peaked post bankruptcy to $120

benhacker

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Re: PG&E - Potential Bankruptcy
« Reply #27 on: January 15, 2019, 09:48:23 PM »
Thanks for that summary

Another interesting comparison would be Buffett's investment in USG equity which was held through their asbestos associated bankruptcy process.   The equity was made whole.
 It could have been purchased for under $5 and eventually peaked post bankruptcy to $120

Actually I think USG is instructive for another reason. ***after*** emergence from bankruptcy you had plenty of time to buy below $20. 

My 2 cents at least. WR Grace another CH 11 reorg that worked, but I think these are vanishingly small as a % of situations.
Ben Hacker
Beaverton, Oregon - USA

deadspace

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Re: PG&E - Potential Bankruptcy
« Reply #28 on: January 15, 2019, 10:04:25 PM »
Well USG fell back down to $20 years later due to financial issues associated with the financial crisis and their debt  - but on the day they declared they were exiting bankruptcy as I recall the stock went from $35 to $80     -- You had opportunity to buy cheaper only after their financial situation started to deteriorate partly due to the debt they took on to pay off the asbestos liability

DRValue

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Re: PG&E - Potential Bankruptcy
« Reply #29 on: January 16, 2019, 12:20:36 AM »
this does seem like a good case for a S 365 transfer, and old pg&e remains with proceeds to pay out claims and debt pennies on dollar.  plenty of big utilities would love to be a 365 buyer, no?  if this is right, stay the eff away

Thanks Christian. I'll need to research that one. This is going to be very interesting. I won't be making any moves until I've read a lot of dockets and listened to all the political rhetoric come out.
[E]xpedience does not license omnipotence.

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