PG&E - Potential Bankruptcy

[cdogstu99]

hey guys, i bought a few call options before the pop on PCG that expire on Feb 15th.  Do you guys know what happens to options with a company that is going into bankruptcy?  Do i need to sell them before the 29th?  I see that Sears still has options on its stock so I'm thinking i might be okay to hold on.  I probably should have sold when the stock got over $14, but I was getting too greedy--ughh!

[DRValue]

hey guys, i bought a few call options before the pop on PCG that expire on Feb 15th.  Do you guys know what happens to options with a company that is going into bankruptcy?  Do i need to sell them before the 29th?  I see that Sears still has options on its stock so I'm thinking i might be okay to hold on.  I probably should have sold when the stock got over $14, but I was getting too greedy--ughh!

 

I believe that if the stock is delisted you will be able to exercise or close your options but will not be able to buy. If the stock is not delistsed, I don't think it matters. I haven't been through this myself but have heard it. Not the most concrete answer I know. I would ask your broker or read your options agreement. Well done on your call, if you've closed.

[DRValue]

https://seekingalpha.com/article/4235606-pg-and-e-get-will-go

 

https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180SB901

 

Bill 901 referenced in the article was to apply to the fires that PG&E are no longer held liable for. The projected liabilities are similar (2017 - $17b) and having set precedent the previous year, I can't imagine a reason to have this bill not apply to the 2018 fires.

 

One thing troubling me with the BK filing is that its the hold co. and op co. filing. In 2001, it was only the op co. so shareholders may suffer this time round.

[cdogstu99]

I believe that if the stock is delisted you will be able to exercise or close your options but will not be able to buy. If the stock is not delistsed, I don't think it matters. I haven't been through this myself but have heard it. Not the most concrete answer I know. I would ask your broker or read your options agreement. Well done on your call, if you've closed.

 

i think you are right, fidelity said as long as the stock is trading, nothing changes, so in this case it would probably be a while if ever that PCG is actually delisted.  I unfortunately didn't close the options yet (UGH) but still well positive, but about half of what I would have made if I sold when I actually should have.  Still a lot of moving parts, so hoping for some more good news before my expiration.

[DRValue]

I believe that if the stock is delisted you will be able to exercise or close your options but will not be able to buy. If the stock is not delistsed, I don't think it matters. I haven't been through this myself but have heard it. Not the most concrete answer I know. I would ask your broker or read your options agreement. Well done on your call, if you've closed.

 

i think you are right, fidelity said as long as the stock is trading, nothing changes, so in this case it would probably be a while if ever that PCG is actually delisted.  I unfortunately didn't close the options yet (UGH) but still well positive, but about half of what I would have made if I sold when I actually should have.  Still a lot of moving parts, so hoping for some more good news before my expiration.

 

Not to colour your judgement, but I'm keeping track of whether they file because I will likely be interested in the debt, preferred and possibly common equity if they all get cheap enough. The reason I say this is that recent articles quoting analysts are saying that they still see the company filing regardless of the 2017 fire positive outcome. Just something to keep in mind.

 

 

 

[cdogstu99]

Not to colour your judgement, but I'm keeping track of whether they file because I will likely be interested in the debt, preferred and possibly common equity if they all get cheap enough. The reason I say this is that recent articles quoting analysts are saying that they still see the company filing regardless of the 2017 fire positive outcome. Just something to keep in mind.

I think it all looks interesting for sure..even with a stake in the game, i'm finding this all fascinating to follow.  The morgan stanley note was interesting in that they mention the ch 11 filing could be challenged, given that they are potentially solvent.  I'm pretty sure PG&E is just filing in order to get the state to reverse the inverse condemnation laws, since fundamentally the company is in good shape, ~$6 Billion in operating income on average per year;  if they were able to stretch out any claims against them over the course of several years, while somehow adjusting the laws so that they don't get screwed on any future fires (while at the same time cleaning up their sloppiness) they would be perfectly fine.

 

I also find it interesting that at the source of the Camp Fires from 2018, PG&E found bullet holes at the transmission pole. 

 

https://www.cnn.com/2018/12/13/us/pge-camp-fire-report-outages/index.html

 

Now the big problem here, is that it will probably be a while- at least a few months I think - before they actually determine the cause of that fire, but can you imagine if someone was just taking target practice at a few poles and ignited the fire?  Totally possible.  Again, not likely to help them stave off bankruptcy, but certainly a homerun wild card moving forward.

[DRValue]

A summary of my bull thesis thinking so far:

 

[*]Cali was prepared to help in 2017, and allowed PG&E to issue recovery bonds - https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180SB901

[*]The 2017 fire liabilities have gone away after pg&e are deemed not liable.

[*]Cali wants to help after the 2018 fires, while the 2017 liability was still assumed - https://www.bloomberg.com/news/articles/2018-11-15/pg-e-faces-deepening-fire-crisis-with-12-billion-market-wipeout?srnd=premium

[*]If a similar amount of recovery bonds would have been acceptable for the 2017 fire, and now those liabilities have gone away, why can't the same course of action apply to the 2018 fire?

[*]If PG&E is wiped out, the cost of capital will icrease across all providers in Cali.

[*]There is no point having an inverse condemnation law and then not allowing the companies to earn their way out of it. That would create capital flight from the sector.

[*]PG&E haven't acutally been found liable at this time, there is potential they weren't. Even if they were, the above applies.

 

 

[cdogstu99]

Nice

A summary of my bull thesis thinking so far:

 

[*]Cali was prepared to help in 2017, and allowed PG&E to issue recovery bonds - https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180SB901

[*]The 2017 fire liabilities have gone away after pg&e are deemed not liable.

[*]Cali wants to help after the 2018 fires, while the 2017 liability was still assumed - https://www.bloomberg.com/news/articles/2018-11-15/pg-e-faces-deepening-fire-crisis-with-12-billion-market-wipeout?srnd=premium

[*]If a similar amount of recovery bonds would have been acceptable for the 2017 fire, and now those liabilities have gone away, why can't the same course of action apply to the 2018 fire?

[*]If PG&E is wiped out, the cost of capital will icrease across all providers in Cali.

[*]There is no point having an inverse condemnation law and then not allowing the companies to earn their way out of it. That would create capital flight from the sector.

[*]PG&E haven't acutally been found liable at this time, there is potential they weren't. Even if they were, the above applies.

 

 

nice summary!  one note on #2 and I see a lot of different numbers floating around, but they still do have liabilities from 2017.  The recent investigation cleared them of the Tubbs fire, which was around 2/3 of their outstanding liabilities from that year.  JPM notes that Tubbs liabilities were around $7B, which leaves them still with roughly $28 Billion in 'potential' liabilites for 2017-2018.

[DRValue]

Nice

A summary of my bull thesis thinking so far:

 

[*]Cali was prepared to help in 2017, and allowed PG&E to issue recovery bonds - https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180SB901

[*]The 2017 fire liabilities have gone away after pg&e are deemed not liable.

[*]Cali wants to help after the 2018 fires, while the 2017 liability was still assumed - https://www.bloomberg.com/news/articles/2018-11-15/pg-e-faces-deepening-fire-crisis-with-12-billion-market-wipeout?srnd=premium

[*]If a similar amount of recovery bonds would have been acceptable for the 2017 fire, and now those liabilities have gone away, why can't the same course of action apply to the 2018 fire?

[*]If PG&E is wiped out, the cost of capital will icrease across all providers in Cali.

[*]There is no point having an inverse condemnation law and then not allowing the companies to earn their way out of it. That would create capital flight from the sector.

[*]PG&E haven't acutally been found liable at this time, there is potential they weren't. Even if they were, the above applies.

 

 

nice summary!  one note on #2 and I see a lot of different numbers floating around, but they still do have liabilities from 2017.  The recent investigation cleared them of the Tubbs fire, which was around 2/3 of their outstanding liabilities from that year.  JPM notes that Tubbs liabilities were around $7B, which leaves them still with roughly $28 Billion in 'potential' liabilites for 2017-2018.

 

Oh I read that tubbs was $17b of the $30b combined estimated?

[Spekulatius]

It’s is easier to sort out liabilities in a bankruptcy to some extend, so what prevents PCG from filing? I don’t think that managment owns a lot of stock, so they wouldn’t care as long as they are paid. Same with employees. Also, is it conceivable that the state would bid on PCG‘s asset in bankruptcy? It’s a state regulated business to begin with already and the state would have a lower cost of capital than any private entity, if they issue bonds to pay for this. That would solve the issue how to backstop the business in the future. I know tiring contra what most people here believe, but I believe infrastructure assets can be well run in public hands and at lower cost, due to cost of capital advantage.

[DRValue]

As left as Commiefornia is, I'd prefer to think they'd lean to privatisation not nationalisation. Also, if they take over or break up pg&e the state definitely has to pick up claims from constituents. That's a bad thing for the balance sheet and also politically because at some point they have to say no to claimants and deal with the political fall out from that. Far easier and palatable imo to leave this liability in the private sector. I'll need to add these points to the thesis.

[DRValue]

Nice

A summary of my bull thesis thinking so far:

 

[*]Cali was prepared to help in 2017, and allowed PG&E to issue recovery bonds - https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180SB901

[*]The 2017 fire liabilities have gone away after pg&e are deemed not liable.

[*]Cali wants to help after the 2018 fires, while the 2017 liability was still assumed - https://www.bloomberg.com/news/articles/2018-11-15/pg-e-faces-deepening-fire-crisis-with-12-billion-market-wipeout?srnd=premium

[*]If a similar amount of recovery bonds would have been acceptable for the 2017 fire, and now those liabilities have gone away, why can't the same course of action apply to the 2018 fire?

[*]If PG&E is wiped out, the cost of capital will icrease across all providers in Cali.

[*]There is no point having an inverse condemnation law and then not allowing the companies to earn their way out of it. That would create capital flight from the sector.

[*]PG&E haven't acutally been found liable at this time, there is potential they weren't. Even if they were, the above applies.

 

 

nice summary!  one note on #2 and I see a lot of different numbers floating around, but they still do have liabilities from 2017.  The recent investigation cleared them of the Tubbs fire, which was around 2/3 of their outstanding liabilities from that year.  JPM notes that Tubbs liabilities were around $7B, which leaves them still with roughly $28 Billion in 'potential' liabilites for 2017-2018.

 

Oh I read that tubbs was $17b of the $30b combined estimated?

 

This article mentions tubbs was potentially $17b of the $30b.

 

http://www.capradio.org/articles/2019/01/26/pge-just-escaped-blame-for-one-huge-disasterbut-its-still-the-utility-california-loves-to-hate/

 

[DRValue]

@cherzeca,

 

Do you happen to know if cumulative preferred share dividends that are suspended are reduced during bankruptcy?

 

Or does it depend on the judge and the bankruptcy plan? I'm assuming a scenario where the commons survive.

[DRValue]

Updated bull thesis.

 

[*]Cali was prepared to help in 2017, and allowed PG&E to issue recovery bonds - https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180SB901

[*]The 2017 Tubbs fire liabilities (est. $17b of $30b total) have gone away after pg&e are deemed not liable.

[*]Cali wants to help after the 2018 fires, while the 2017 liability was still assumed - https://www.bloomberg.com/news/articles/2018-11-15/pg-e-faces-deepening-fire-crisis-with-12-billion-market-wipeout?srnd=premium

[*]If a similar amount of recovery bonds would have been acceptable for the 2017 fire, and now those liabilities have gone away, why can't the same course of action apply to the 2018 fire?

[*]If PG&E is wiped out, the cost of capital will increase across all providers in Cali.

[*]There is no point having an inverse condemnation law and then not allowing the companies to earn their way out of it. That would create capital flight from the sector.

[*]PG&E haven't acutally been found liable at this time, there is potential they weren't. Even if they were, the above applies.

[*]PG&E have found bullet holes in and around equipment at the origin point of the fire - https://edition.cnn.com/2018/12/13/us/pge-camp-fire-report-outages/index.html

[*]The NPV of claims will be lower than initial estimates of the gross value of $30b plus. I have read (and will try to find) an analyst believes the NPV of the Tubbs and Camp Fire Fires would be $22b. Excluding Tubbs could well halve that value.

[*]A break-up of PG&E or nationalization saddles the state with the claims from constituents, and the debt that goes with it.

[*]If the state pays the claims, that could be politically difficult as the state has to do a good job administratively and at some point will have to deny claims. Politicians, I assume, would have an easier life criticizing PG&E's handling of claims and leaving the cost in the private sector.

[*]Someone has to pay these claims. If it isn't PG&E, its the state. They wont want the state to pay

 

No valuations yet, for me this is all about the practicalities of working this all out. Value comes next.

[cdogstu99]

 

This article mentions tubbs was potentially $17b of the $30b.

 

http://www.capradio.org/articles/2019/01/26/pge-just-escaped-blame-for-one-huge-disasterbut-its-still-the-utility-california-loves-to-hate/

don't think that's right. here's chart from jpm

[DRValue]

 

This article mentions tubbs was potentially $17b of the $30b.

 

http://www.capradio.org/articles/2019/01/26/pge-just-escaped-blame-for-one-huge-disasterbut-its-still-the-utility-california-loves-to-hate/

don't think that's right. here's chart from jpm

 

Thanks. Do you have more of the source?

[DRValue]

https://www.sfchronicle.com/opinion/openforum/article/Open-Forum-SF-takeover-of-PG-E-would-make-things-13565697.php

 

Union representative doesn't like the idea of San Francisco running pg&e.

 

Another thought, a judge has ordered for pg&e to prevent wildfires that costs $150b+. it'll never happen but what would be the reaction of constituents if Cali ran pg&e and said no to the judge's order? Probably not good.

[Cigarbutt]

^The filing made in response to federal Judge Alsup is interesting and relevant on many levels.

https://www.eenews.net/assets/2019/01/24/document_ew_03.pdf

The process is a consequence of the 2010 San Bruno pipeline explosion and the ensuing probation period that is ongoing during further safety (and now firm survival) concerns. In a do-whatever-it-takes way, the multi-component solution proposed does not appear to be workable. In its response, PG&E likely exaggerates but they say that, in order to comply, they would need to hire (now) 650 000 workers and cut 100M trees which would theoretically result in the utility bill being multiplied by 5 for 16M Californians. There are risks, negotiations during bankruptcy will expose more risks but a workable solution can be reached. When PG&E (sub) went under in 2001, their position, on how to come out, was markedly different from the CPUC's position but they worked it out.

 

For the Tubbs fire, a gross way to evaluate the liability is to use the number of structures damaged by the fire (about 5640) over the total number of structures damaged by the relevant 2017 fires (about 10 800).

 

For the cumulative preferred dividend question, I would say that this becomes an issue only if prefs and commons survive and if/when the dividend on the common is reinstated.

 

 

 

[Sharad]

They're filing for Ch. 11 at 12:01am Pacific Time.

 

https://sanfrancisco-cbslocal-com.cdn.ampproject.org/v/s/sanfrancisco.cbslocal.com/2019/01/28/pge-votes-to-file-for-chapter-11-bankruptcy/amp/?amp_js_v=a2&amp_gsa=1&usqp=mq331AQCCAE%3D#referrer=https%3A%2F%2Fwww.google.com&amp_tf=From%20%251%24s&ampshare=https%3A%2F%2Fsanfrancisco.cbslocal.com%2F2019%2F01%2F28%2Fpge-votes-to-file-for-chapter-11-bankruptcy%2F

 

 

[DRValue]

Elliot management offered $4b in convertible bonds to stave off bankruptcy. Without seeing the terms, I'll assume they see value in the common. This is going to get very interesting.

[Spekulatius]

Elliot management offered $4b in convertible bonds to stave off bankruptcy. Without seeing the terms, I'll assume they see value in the common. This is going to get very interesting.

 

Bankruptcy is easier for managment than dealing with an activist. I don’t think that management owns enough stocks to care if shareholders get wiped out of not. Now it’s “calvinball“ game in bankruptcy court.

[DRValue]

Stock price action is a head scratcher. Leaked good news? I expect it to trade down on a ticker change, but can't explain the upward pressure.

[LongHaul]

Could someone have predicted that there would have been a series of fires this big in California in 17 and 18? Thoughts on risk assessment?  2015 was the highest dollar damage year on record before 2017 and it was $3b (see Cali Fires History).

 

Verisk had ~2 million households at high risk of wildfire damage in Cali

https://www.verisk.com/insurance/campaigns/location-fireline-state-risk-report/#

 

 

Cali Fires history

http://cdfdata.fire.ca.gov/pub/cdf/images/incidentstatsevents_270.pdf

 

California Wildfire history

https://en.wikipedia.org/wiki/List_of_California_wildfires

 

Electric Service Area of PG&E

https://www.pge.com/tariffs/tm2/pdf/ELEC_MAPS_Service_Area_Map.pdf

 

 

 

 

[DRValue]

Could someone have predicted that there would have been a series of fires this big in California in 17 and 18? Thoughts on risk assessment?  2015 was the highest dollar damage year on record before 2017 and it was $3b (see Cali Fires History).

 

Verisk had ~2 million households at high risk of wildfire damage in Cali

https://www.verisk.com/insurance/campaigns/location-fireline-state-risk-report/#

 

 

Cali Fires history

http://cdfdata.fire.ca.gov/pub/cdf/images/incidentstatsevents_270.pdf

 

California Wildfire history

https://en.wikipedia.org/wiki/List_of_California_wildfires

 

Electric Service Area of PG&E

https://www.pge.com/tariffs/tm2/pdf/ELEC_MAPS_Service_Area_Map.pdf

 

Could be a good case for Cali legislating for black swans, which this appears to be.

[undervalued]

https://finance.yahoo.com/news/hedge-fund-pge-losses-160917499.html