DRValue

https://www.wsj.com/articles/lawmakers-promise-fresh-push-to-overhaul-housing-finance-11548345601 Anyone have full text?

I'm looking into what happened with Energy Future Holdings. One of the more complex ones. Not sure on what the recovery was.

This. If there is more of this coming, the Government has to legislate reasonably and responsibly or the whole thing fails. I know PG&E has demonstrable failings and I believe the shareholders will be punished at least a little, but this is a new paradigm to be regulated / legislated for. The structure already exists and does not require legislation. 1) Assets sold to a new entity. New entity supplies existing customers. Business continues as normal. 2) Old entity manages the liabilities in a wind-up. 3) Public covers anything in excess (bonds & equity at zero) If you believe the fire liability is less than PG&E's total current debt and equity, there's something left over for you. If you think the public 'is gloing to pay', then all existing debt and equity must be zero. SD I guess I don't think its politically palatable for the public to pay, and the easiest way to avoid that is either the PG&E of today or a restructured PG&E with equitized debt and a common wipe-out. Looking at the latest 10Q, assuming PP&E are bought at 50c on the dollar that raises $28b. I have no idea how much utility assets could be sold for, but imagine 50c could be too low as their relatively easy to value. The trouble is I have read that claimants would be equal to bond holders, so I don't know how that would affect any recovery for the bonds. I can also imagine bond holders whispering in the ear of politicians for at least some form of recovery. I'll try and find some examples where utility bonds have been totally wiped out without equity recovery. That reputation for utilities being boring and safe will go up in smoke if California kills PG&E. Does anyone else think there is anything here btw? I'm OK with criticism etc. as it may save me from some losses, but havent heard any bull comments at all yet. Perhaps its too early in the process...

This. If there is more of this coming, the Government has to legislate reasonably and responsibly or the whole thing fails. I know PG&E has demonstrable failings and I believe the shareholders will be punished at least a little, but this is a new paradigm to be regulated / legislated for.

@Cigarbutt I agree with everything you said. I'm going to start thinking of scenarios of how this will play out and document the pros and cons. But the more I think about it, I can't shake that the easiest thing here is help PG&E rather than hinder them. Lets say worst case is that the company's assets are bought out of bankruptcy, I don't think any company would assume the liabilities. That means it falls on the Government. If the liabilities were assumed, then why couldn't PG&E manage them the same way that the other companies would? I have also seen that PG&E have to demonstrate they are in dire straits before the government will step in. Bankruptcy pretty much demonstrates that to me. I'm also thinking that they have 16m customers. Let's say they have liabilities of $30b and issue a 5% 5 year amortizing bond. Spread that over the customer base and that's an extra $35 a month on the bill. Not nice, but shouldn't be too painful. It might only be the commons that end up being a sacrificial lamb, but i might have a nibble if i get involved in the rest of the capital structure.

My argument in essence is that you can't pass a law to make companies liable no matter what and then not let them work themselves out of it. If the liabilities are simply too great then the government has to step in. In that scenario what benefit is there to letting pg&e fail? It just increase government liability. Me thinks more regulation / changed best practices, an insurance fund, and process if this happens again should be enough. And if the politicians really want to, they can wipe out the common stock. But what's the point? The company may be at fault under the strict letter of the law, but it's practices could've been reasonable.

"However, California is one of the only states in the country in which courts have applied inverse condemnation to events caused by utility equipment. This means that if a utility's equipment is found to have been a substantial cause of the damage in an event such as a wildfire - even if the utility has followed established inspection and safety rules - the utility may still be liable for property damages and attorneys' fees associated with that event." That is absolutely crazy! This liability needs to shift to the provider of the equipment. Any precedents of this law being used previously? Seems unfair to me. I believe its new, I wonder if they could work something out or amend it?

A thought here. To the best of my knowledge, the current law is that if a utility in California somehow causes a wildfire, even if it wasn't negligent, then it is liable. If Shareholders and bondholders are sacrificed here, won't that push up the cost of debt etc. to all other utilities? Won't capital stay away? Even if the companies do everything they have to, I could face a total wipe out as an investor if there is some event. Starting to think about those cumulative non-redeemable preferred. There's a lot more to do here and more to hear, but I'm interested. Time to read those annual reports, prospectuses, court cases, and deep dive into the politics and financial implications of this.

I use TA for entry/exit points, I don't trade. Definitely has a place in my toolkit, especially with so called "psychological" levels, i.e. round number prices.

https://www.bloomberg.com/news/articles/2019-01-16/lone-pg-e-bull-refuses-to-ditch-buy-rating-after-80-wipeout "Miller argues that regulators are already creating a so-called stress test that will limit the company’s liabilities from 2017 wildfires. He also notes that government officials including California Governor Gavin Newsom have said they want healthy, investor-owned utilities. What’s more, the company’s financially strong gas and power transmission business must have an “equity layer” if they are going to have access to capital, he said." I hope it plummets after they file (assuming they definitely do). Unfortunately I don't have a great deal of time right now to do some real analysis, and money is tied up... C'mon, Otting!

https://www.nytimes.com/2019/01/18/us/politics/mnuchin-private-flight-michael-milken.html#click=https://t.co/TYuX7jdk6K Hmmmmmm...

Wow. This is huge. My only concern right now is with Calabria's position. He seems to want to completely open things up for private industry and wind down the GSE's. Is it possible we are being fooled by this announcement? Calabria will be an implementer not a policy shaper imo.

Trying to spin this as a giveaway to hedge funds was a bad idea with this administration in place. The tax cuts were a far bigger giveaway, and didn't even fully close the carried interest loophole (if I remember right). Trump will get away with it anyway. "The government did something illegal and a bunch of people made some money. I call that smart. That's smart."

Lol

I'm assuming this all happens after q4 earnings but before calabria confirmation.

Open letter from Blue Mountain Capital: https://www.bluemountaincapital.com/wp-content/uploads/2019/01/BlueMountain-letter-to-PGE-dated-1.17.19.pdf I don't have a position on the analysis, but it does tie in with my current thinking about this being a liability management exercise to cap claims with leverage, and also that the cash flows will be BP'esque. Also good to know that there would be a shareholder advocate willing to fight, not that my first thought was to buy the equity.

We shall see, I think its one to follow.

Is that so? I know a town next to where I live who bought back their grid from National Grid years ago and they enjoy much lower electricity rates than I do. Their grid also seems to be more reliable, as they had little outages during the snowmaggedon in March 2018 and what went out was quickly repaired. I rented at this time in NG Territory and my Appartement was without power for a week. Maybe just the exception from the rule, but there does seem to be easy to make it a truly local utility work. The town in question is a rural community of roughly 10,000 people. That's interesting. I'll try and find the reference to the article but they didn't mention sizes of the community. It's good to have opposing information.

https://www.forbes.com/sites/greatspeculations/2019/01/16/pges-pending-bankruptcy-opportunity-knocks/#490ad4c11f5c Opinion piece on pcg outcomes. I've also read if pcg is split up there's a potential for rural customer energy to be priced too high as they won't have the urban "subsidy". Smaller entities also won't scale. There was another article yesterday saying pcgs San Francisco office building could be worth 1b+ but I don't know what it's carried at on the balance sheet.

Very honest muscle man. Personally I'm more concerned with valuing a great business and waiting for the price to fall because of some event rather than "cigar butts". And even then i won't buy until the discount to my valuation is at least 100%. I don't see any point risking any money in equity for only 10 to 20 pct. It has to be asymmetric. This all makes me sleep well at night as I don't worry about the business. And if the price falls but nothing has changed, well I might buy more. If I manage my cash flow too then I should be able to cope with stock price fluctuations. And concentration doesn't worry me, especially if the risk is asymmetric. Hence my gse position...

Sometimes claims are sold, generally (IMO), because of the value of the claim now versus in the future (i.e. time value). Could also be the claim sale gives certainty. But one thing I always remember here is the buyer. Would the buyer of the claim ever pay what its actually worth? My answer is no as they wouldn't make a profit. So there's probably more value than 35c on the dollar for sure.

The en banc hearing, if relating to relief, does give a politically expedient way to end conservatorship. I wonder if anyone has ever 'thrown' a case?

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.

That's one possibility. Or the existing lenders lend 5b more making the unsecured rank above claims. You can only judge that on more info.

Meaning price.