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@johnN It is very difficult to imagine PG&E bankruptcy. First, its liability for California fires should established, then the size of liabilities ordered by court should be really huge to bankrupt the company. The notes will mature in 2 years and it is very unlikely any decision will be made before that.
But if it breaks you loose all capitals and company give you back few cents on the dollar once it settled... Be very careful. Happened to me few times w individuals bonds... Set up 'pg&g bankrup' to Google. Com/alerts gmail and have mails delivered to you on an instance and if something happen you sell before it TSHTF
They can go bankrupt under chapter 11 AND keep running while they restructure their debt. As Ted inferred, California most likely would not allow them to stop producing, but they can still go broke and the bond holder would still lose as John said. Sounds like a very risky buy, but risk can bring profit too.
I agree with @Ted with respect to the State not letting PG&E go broke. However, things are very unsettled in Sacramento right now with respect to State oversight of PG&E, with talk of possibly breaking PG&E up into several smaller units. My best guess is that nothing will come of this, but it's another unknown factor right now.
With respect to PG&E's liability for last year's fires, the State has allowed PG&E to fund their liabilities with bonds which will be funded by ongoing and future charges to PG&E customers, so these bonds are revenue bonds for all practical purposes.
While it has yet to be determined if PG&E is in fact responsible for the current fire situation, Sacramento is preparing to initiate legislation similar to last year's, again allowing PG&E to fund their liabilities by revenue bonds if that becomes necessary.
I have no idea if the bonds being discussed by @DavidV are part of this special liability setup, but as long as PG&E is in business they will have revenue, and as long as they have revenue from captive customers who have no choice in the matter, that income revenue seems safe enough.
On another perspective regarding the current fire damage, I've not seen any specific news articles regarding rebuilding, but from very good background knowledge I can note that the current construction labor market in Northern California is already so over-stressed that there is virtually no chance of significant rebuilding in the Paradise area any time within the foreseeable future. All available labor is already fully employed in the Santa Rosa fire ares from last years fires, and even there it's estimated that additional labor resources won't be available for several years.
Above mentioned PG&E bond already dropped YTM to 6.1% after announcement that California regulators do not expect company's bankruptcy. Stock jumped up 30%. Now PG&E bonds are trading in the same range as GE Capital bonds.
@MFO Members Here is the latest on PG&E Bonds from Blooberg. Regards, Ted PG&E bonds rose sharply in Thursday’s trading session and continue to climb higher on Friday, but have not yet returned to levels seen before news of the wildfires emerged. Some of its notes have tightened more than 120 basis points today, which translates to about a 5.7% increase in dollar price. The company’s most-actively traded bonds, its 6.05% notes due in 2034, have tightened about 85 basis points above Treasuries since Wednesday. The bonds, however, still trade at levels similar to high-yield securities.
OJ, if I recall PG&E covers most of the state and there is no other option. Is that correct? Is it true for both gas and electric? I don't need all the gory details. Thanks.
@Mark- Hi there. Well, PG&E hits most of Northern CA for electricity, and much of Northern CA for gas. There are lots of rural areas which don't have natural gas supplies- they use either bottled propane or small local propane distribution systems.
There are two other major suppliers for the southern part of the state- Southern California Edison and San Diego Gas & Electric.
Actually, we’re in a similar situation. No NG in our area. Have a 500 gallon propane tank (known as a “pig”) in the yard and a local supplier delivers by truck. Years ago the neighborhood association attempted to move everyone to a “small local (propane) distribution system” as you referenced. Didn’t get off the ground.
In my post (above) I mentioned that "Sacramento is preparing to initiate legislation similar to last year's, again allowing PG&E to fund their liabilities by revenue bonds if that becomes necessary."
Don't utilities routinely carry insurance for outages and disasters? Or are they just trying to pay for what the insurance won't cover? Man, I'm not sure I'd want to be a PG&E ratepayer in the age of wildfire disasters. (But then I've never actually enjoyed being in thrall to the slimy utility that rules the roost in this neck o' the woods.)
@AndyJ- The SF Chronicle recently reported that PG&E currently carries 1.4 Billion (!) of such insurance, but that the potential losses from the Paradise fire alone will be well over $15 billion.
A better question might be "who is stupid enough to insure PG&E?". (If I was an insurance company I would charge PG&E $1.50 for every dollar of coverage.)
Thanks, @Old_Joe. Wow, poor ratepayers, poor California. (A friend lost her home and essentially everything in the Thomas fire last year. I can't imagine the collective pain being felt in all those wildfire areas.)
And I (along with many fellow citizens) was p-o'd about the comparatively really minor insurance-related scam our utility tried to pull when their oldest, dirtiest coal plant went down a couple of years ago .... They tried to double charge the ratepayers for both the replacement power and the extreme, uninsured costs of the plant fix, for a plant far beyond its design life.
Then an insider just recently spilled the beans; they figured they'd save $ by not buying insurance on their unreliable coal plants, 'cause, hey, they could just get the ratepaying schmucks to pay the whole tab when something went wrong. Not even the captive public ute commission could vote to dun the ratepayers for the whole tab after that revelation.
California can certainly let PGE go bankrupt without letting it shut down. I am sure the state doesn't want to have to run a utility, but PGE could be forced to bankruptcy and sell off it's assets. this would leave the bondholders fighting over pennies.
It is extremely unlikely any of this will happen in the next few years, but it doesn't have to happen for the bonds to trade lower. Unless you are able to figure out GE's complex finances, these are probably a better bet in the short run.
But there are probably better high yields out there with less uncertainty. Face it, if you put a meaningful amount of money into these things, can you really watch while the political meat grinder in California goes after all PGE assets to pay off all those poor homeless people? It is going to get a lot uglier than it is now.
@hank- not sure of the overall response, but the newspapers did quote one fire victim (who had voted for Trump) as saying "Trump can kiss my big Red ass!".
@hank- I have to tell you, it really has shaken my complacency with respect to our place on the Russian River. It's only 20 minutes from last years inferno in Santa Rosa, and then we have Paradise this year. As I was driving to and from the river place this weekend I was looking over the country that we were driving through, and thinking that virtually all of it is just as susceptible to wildfire as Santa Rosa and Paradise.
I used to kind of think that because the river runs through the back yard there would be plenty of water if anything ever got started. Now I realize that just being close to water means absolutely nothing once one of these fires gets going.
PG&E bonds have faced steep declines this year, with some declining more than 30%. PG&E has approximately $18 billion in outstanding senior unsecured bonds. At present, PG&E’s most actively traded bond is trading at a higher yield than junk bonds.
This decline has been sparked by news regarding PG&E’s likely liability related to recent California wildfires. The Public Employees Retirement Association of New Mexico filed a securities suit against PG&E earlier this year based on misrepresentations that PG&E allegedly made regarding its vegetation management (the practice of making sure vegetation is clear from power lines to avoid fire risk), fire prevention, and other policies related to the company’s wildfire prevention efforts and potential liabilities. That suit centers around wildfires that occurred in 2017 and a series of disclosures that began in October 2017 and sent PG&E shares tumbling.
In the midst of the most recent California wildfires, PG&E has filed additional disclosures regarding the limitations of its liability insurance to cover any liabilities related to the fires. PG&E also disclosed that it had filed an electric incident report with the CPUC relating to an incident at the same place and time that the most recent wildfire began, leading to the possibility of even more dramatically increased wildfire liabilities for PG&E.
I see no bondholder suit as of yet, though it is pretty clear that bondholders are impacted here, and should have standing to pursue their own action.
I thought he may have been thinking of harvesting lingonberries. When I was staying in Umea, Sweden with some friends, they showed me a hand tool/rake they used to go under the trees in the forests to pick lingonberries. Here's a stand up type which I imagine is more comfortable if not as charming.
Anna, he saw some firefighters using fire rakes (not garden/leaf rakes) clearing a break near the perimeter of the fire, didn't notice the other equipment that was undoubtedly there or nearby (chainsaws and pulaskis and shovels, and if the terrain wasn't too steep, motor vehicles like Bobcats or D8s), conflated leaf raking with containment-line work, and went from there.
Didn't bother to get briefed on exactly what was going on, complete incuriosity, and no hesitation in expounding whatever silly conclusions he came to by some bizarre form of reasoning.
Those berry pickers in your pic in some quarters are called rake-combs. Native people in interior Alaska traditionally used a somewhat similar tool, minus the long handle, except they were wooden carved near-replicas of a grizzly's paw and claws -- which they were imitating, as a very efficent berry gathering tool if you don't mind eating or separating out a few leaves and pieces of stem ... and bears aren't usually very picky about details like that.
Comments
8.205% bonds are a strong buy. In my opinion there is no way the state of California will let PG&E go broke. You just can't create a new utility out of thin air.
Regards,
Ted
Reuters Article:
https://www.reuters.com/article/us-california-wildfires-pg-e/pges-wildfire-risks-mount-shares-and-bonds-plunge-idUSKCN1NJ2EI
Bloomberg Article 1.
https://www.bloomberg.com/news/articles/2018-11-14/any-pg-e-bankruptcy-would-pit-bonds-against-burnt-out-homes
Bloomberg Article 2.
https://www.bloomberg.com/news/articles/2018-11-15/pg-e-debt-crash-leads-slump-in-investment-grade-utility-bonds
With respect to PG&E's liability for last year's fires, the State has allowed PG&E to fund their liabilities with bonds which will be funded by ongoing and future charges to PG&E customers, so these bonds are revenue bonds for all practical purposes.
While it has yet to be determined if PG&E is in fact responsible for the current fire situation, Sacramento is preparing to initiate legislation similar to last year's, again allowing PG&E to fund their liabilities by revenue bonds if that becomes necessary.
I have no idea if the bonds being discussed by @DavidV are part of this special liability setup, but as long as PG&E is in business they will have revenue, and as long as they have revenue from captive customers who have no choice in the matter, that income revenue seems safe enough.
On another perspective regarding the current fire damage, I've not seen any specific news articles regarding rebuilding, but from very good background knowledge I can note that the current construction labor market in Northern California is already so over-stressed that there is virtually no chance of significant rebuilding in the Paradise area any time within the foreseeable future. All available labor is already fully employed in the Santa Rosa fire ares from last years fires, and even there it's estimated that additional labor resources won't be available for several years.
Regards,
Ted
PG&E bonds rose sharply in Thursday’s trading session and continue to climb higher on Friday, but have not yet returned to levels seen before news of the wildfires emerged. Some of its notes have tightened more than 120 basis points today, which translates to about a 5.7% increase in dollar price.
The company’s most-actively traded bonds, its 6.05% notes due in 2034, have tightened about 85 basis points above Treasuries since Wednesday. The bonds, however, still trade at levels similar to high-yield securities.
There are two other major suppliers for the southern part of the state- Southern California Edison and San Diego Gas & Electric.
Actually, we’re in a similar situation. No NG in our area. Have a 500 gallon propane tank (known as a “pig”) in the yard and a local supplier delivers by truck. Years ago the neighborhood association attempted to move everyone to a “small local (propane) distribution system” as you referenced. Didn’t get off the ground.
Here is a link to an article in the San Francisco Chronicle regarding that information.
A better question might be "who is stupid enough to insure PG&E?". (If I was an insurance company I would charge PG&E $1.50 for every dollar of coverage.)
And I (along with many fellow citizens) was p-o'd about the comparatively really minor insurance-related scam our utility tried to pull when their oldest, dirtiest coal plant went down a couple of years ago .... They tried to double charge the ratepayers for both the replacement power and the extreme, uninsured costs of the plant fix, for a plant far beyond its design life.
Then an insider just recently spilled the beans; they figured they'd save $ by not buying insurance on their unreliable coal plants, 'cause, hey, they could just get the ratepaying schmucks to pay the whole tab when something went wrong. Not even the captive public ute commission could vote to dun the ratepayers for the whole tab after that revelation.
It is extremely unlikely any of this will happen in the next few years, but it doesn't have to happen for the bonds to trade lower. Unless you are able to figure out GE's complex finances, these are probably a better bet in the short run.
But there are probably better high yields out there with less uncertainty. Face it, if you put a meaningful amount of money into these things, can you really watch while the political meat grinder in California goes after all PGE assets to pay off all those poor homeless people? It is going to get a lot uglier than it is now.
And there will be new fires next year
https://www.businessinsider.com/trump-continues-to-blame-wildfires-on-forest-mismanagement-2018-11
Thinking of all those dead, missing and those who have lost their homes.
I used to kind of think that because the river runs through the back yard there would be plenty of water if anything ever got started. Now I realize that just being close to water means absolutely nothing once one of these fires gets going.
This decline has been sparked by news regarding PG&E’s likely liability related to recent California wildfires. The Public Employees Retirement Association of New Mexico filed a securities suit against PG&E earlier this year based on misrepresentations that PG&E allegedly made regarding its vegetation management (the practice of making sure vegetation is clear from power lines to avoid fire risk), fire prevention, and other policies related to the company’s wildfire prevention efforts and potential liabilities. That suit centers around wildfires that occurred in 2017 and a series of disclosures that began in October 2017 and sent PG&E shares tumbling.
In the midst of the most recent California wildfires, PG&E has filed additional disclosures regarding the limitations of its liability insurance to cover any liabilities related to the fires. PG&E also disclosed that it had filed an electric incident report with the CPUC relating to an incident at the same place and time that the most recent wildfire began, leading to the possibility of even more dramatically increased wildfire liabilities for PG&E.
I see no bondholder suit as of yet, though it is pretty clear that bondholders are impacted here, and should have standing to pursue their own action.
Didn't bother to get briefed on exactly what was going on, complete incuriosity, and no hesitation in expounding whatever silly conclusions he came to by some bizarre form of reasoning.
Those berry pickers in your pic in some quarters are called rake-combs. Native people in interior Alaska traditionally used a somewhat similar tool, minus the long handle, except they were wooden carved near-replicas of a grizzly's paw and claws -- which they were imitating, as a very efficent berry gathering tool if you don't mind eating or separating out a few leaves and pieces of stem ... and bears aren't usually very picky about details like that.