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PG&E - Potential Bankruptcy


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Not much info yet hence starting up in General Discussion, to hear peoples thoughts.

 

https://seekingalpha.com/news/3421010-pg-and-e-opens-minus-24-percent-bankruptcy-fears

 

If they file, the debt in bankruptcy could be interesting. They've also filed before and I'm trying to find out exactly what the outcome was.

 

Any thoughts? What generally happens to stockholders of utilities that file? I'd imagine bigger utilities continue in one form or another.

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Just like every BK, equity is wiped out, debt is renegotiated and becomes the new equity.  Sometimes you take a haircut on the debt, sometimes a massive haircut.

 

This is slightly different because of the liabilities, but just estimate what their exposure is.  Then knock out that much equity from that.  How would they pay it etc..

 

My two cents is that unless you know what you're doing that playing in the bankruptcy pool is a dangerous place to be.  Maybe worth a little speculation to learn, but it's a tight knit group of professionals who know the ins and outs.

 

I followed a BK a few years ago and the volume of filings was crazy.  It was common for 200-300 pages worth of docs to be filed every day or two.  Depositions between suppliers, the bankrupt party etc.  It's easier to read vs a 10-q, but it's just a lot of reading.  There was a lot of nuance I missed because I didn't understand the process.

 

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Agree. 1 in 200 bankruptcies is probably a profitable investment, no data for that but you get the point...

 

The thinking on this one is that they're a utility so there's still demand there should they be able to work out the liabilities. A bankruptcy to convert some unsecured, an equity raise (assuming they can), raising rates and some more debt are some options. If debt is converted in bankruptcy id expect to get par eventually.

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Guest cherzeca

total wildcard.  did PG&E caused wildfires?  sort of an important question that should be answered before investing imo

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https://www.zerohedge.com/news/2019-01-12/pge-reportedly-planning-bankruptcy-announcement-workers-monday

 

Somewhat reminiscent of ggp liquidity event causing bankruptcy.

 

Potential solution to 30b liabilities is 18b unsecured conversion to equity, issuance of 18b new debt, equity raise and rate increase?

 

Perhaps a pay out over time a'la trans ocean is manageable?

 

Will be interested to see if any big names end up in unsecured debt.

 

If only I wasn't waiting for the gse's...

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In any bankruptcy, it's pragmatic to separate the physical from the financial. Electricity still has to be delivered, the infrastructure remains in place, it's a rate regulated business, and customers have few practical alternatives. It's really just who customers will pay their bills to going forward, and when. It is of course a human-interest 'story', and there will be much media reporting of the disruption, but it's highly unlikely that thousands of PG&E employees and contractors are going to be permanently out of a job.

 

The lawyers/bankers will do their thing, the assets/liabilities will move to 'new' legal entitities, and there will be some closed door state/federal 'backstop agreements'; but it will not remove the initial 'fear' and 'uncertainty' scepticism - only success delivered over time will. But to raise the requisite capital in this environment, the new entities are going to have to either pay up, or sell paper at a deeper discount.

 

Don't fish in the toilet, look at the subsequent 'new' offerings instead.

Let the media do its thing, and the more negative the sentiment the better ;)

 

SD

 

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Note that PG&E at a sub level ( not the holding) went bankrupt before in 2001 due to poorly designed deregulation ( leading to Enron price gauging utilities). Back then the preferred were trading at much lower prices than they are trading now. Equity ended up being unimpaired after the release from bankruptcy a few years later. I think the current situation is different though. I just mention thi for historical perspective.

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In any bankruptcy, it's pragmatic to separate the physical from the financial. Electricity still has to be delivered, the infrastructure remains in place, it's a rate regulated business, and customers have few practical alternatives. It's really just who customers will pay their bills to going forward, and when. It is of course a human-interest 'story', and there will be much media reporting of the disruption, but it's highly unlikely that thousands of PG&E employees and contractors are going to be permanently out of a job.

 

The lawyers/bankers will do their thing, the assets/liabilities will move to 'new' legal entitities, and there will be some closed door state/federal 'backstop agreements'; but it will not remove the initial 'fear' and 'uncertainty' scepticism - only success delivered over time will. But to raise the requisite capital in this environment, the new entities are going to have to either pay up, or sell paper at a deeper discount.

 

Don't fish in the toilet, look at the subsequent 'new' offerings instead.

Let the media do its thing, and the more negative the sentiment the better ;)

 

SD

entirely agreed as for the fishing, though an investment might also require an amendment to state law?

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Guest cherzeca

the lights have to go on in California (unfortunately).  I think there is plenty of opportunity among the debt pieces, but this one requires some local knowledge, politics etc, and not just finance/bktcy, imo

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Do you know what the following means?

 

KYJ

Fraudulent Conveyance

DIP

Cram Down

Stalking Horse Bid

Pre-petition vs Post Petition

Absolute Priority

GUC

EC

First Day Pleading

Sign In Sheet

PACER

Docket

Disclosure Statement

Bankruptcy Plan

Claim Transfers

Chapter 11 vs Chapter 7

Equitable

 

 

If you don't know most of these terms, maybe you want to stay on the sideline. 

 

 

 

 

 

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If California lets them go bankrupt, who would dare step in with new capital post BK?  In good years they get a decent but not amazing return on equity, are crimped on their ability to upgrade infrastructure and safety by not getting enough rate increases, and then eventually there is a disaster and you're wiped out whether at fault or not.  Not an attractive value proposition for anyone.

 

The stock is trading like an option on California doing something to bail them out, but even if they don't get something like the massive rate increases or debt securitization I would have to think they would be fighting responsibility for wildfire claims in the courts for years.  Not sure how likely it is, but given no option but to fight back against accepting full financial responsibility for the disaster, they might be able to mount a challenge to the laws governing liability vs. act of God.  They are only insolvent if massive claims like $30B+ are allowed.

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I'm only really interested if they file. Right now my opinion on what will play out is that the company is using this as leverage to lower the claims against them. For me the financials in the end matter most as I'm going to assume, regardless of rhetoric, that this business will continue in one form or another.

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If California lets them go bankrupt, who would dare step in with new capital post BK?  In good years they get a decent but not amazing return on equity, are crimped on their ability to upgrade infrastructure and safety by not getting enough rate increases, and then eventually there is a disaster and you're wiped out whether at fault or not.  Not an attractive value proposition for anyone.

 

The stock is trading like an option on California doing something to bail them out, but even if they don't get something like the massive rate increases or debt securitization I would have to think they would be fighting responsibility for wildfire claims in the courts for years.  Not sure how likely it is, but given no option but to fight back against accepting full financial responsibility for the disaster, they might be able to mount a challenge to the laws governing liability vs. act of God.  They are only insolvent if massive claims like $30B+ are allowed.

 

Forget about California bailing them out. People have died and politicians needs heads on sticks and it’s better not be their own. PG&E‘s Equipment provided the spark that started these fires, so I think it’s easy to put the blame on them. If the $30B in claims go through, the equity and possibly the preferred are a zero, but the debt may still be good. Debt still trades at 80c on the $ and preferreds at 50%, which doesn’t look like a great risk reward to me. I believe CA legislators would need to indemnify their utilities better against similar claims in the future to ensure investibility, but that wouldn‘t help current investors.

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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

 

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Do you know what the following means?

 

KYJ

Fraudulent Conveyance

DIP

Cram Down

Stalking Horse Bid

Pre-petition vs Post Petition

Absolute Priority

GUC

EC

First Day Pleading

Sign In Sheet

PACER

Docket

Disclosure Statement

Bankruptcy Plan

Claim Transfers

Chapter 11 vs Chapter 7

Equitable

 

 

If you don't know most of these terms, maybe you want to stay on the sideline.

 

This is good advice.

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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

 

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.

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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..

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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.

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Guest cherzeca

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

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