PG&E Bonds

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tdub
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PG&E Bonds

Post by tdub » Thu Jan 10, 2019 9:03 pm

The Pacific Gas and Electric Company had its credit rating cut from BBB- to B by the Standard & Poor's credit rating agency. A couple of days later Moody's cut PG&E's rating from Baa3 to B2.
How do bond index funds handle changes like this? Once one or more rating agencies redefine a bond as non-investment grade, does a fund hold bonds that no longer match its investment strategy or sell at a loss?
I'm interested how funds like Total Bond (BND) and Total Corporate Bond (VTC) handle this.


bloomberg.com/news/articles/2019-01-08/pg-e-bonds-reach-all-time-lows-as-s-p-cuts-five-notches-to-junk
bloomberg.com/news/articles/2019-01-10/pg-e-gets-second-junk-grade-after-moody-s-downgrades-on-wildfire

stan1
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Re: PG&E Bonds

Post by stan1 » Thu Jan 10, 2019 9:38 pm

Since you don't have any replies here's one source. Sorry it is 121 pages long, but since it is the methodology Bloomberg Barclays uses to construct the index Total Bond Market follows it is relevant and authoritative.

https://data.bloomberglp.com/profession ... -FINAL.pdf

alex_686
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Re: PG&E Bonds

Post by alex_686 » Thu Jan 10, 2019 9:42 pm

The bond gets droped by the index, then the fund has to sell. It is a valid criticism of bond index funds.

AlohaJoe
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Re: PG&E Bonds

Post by AlohaJoe » Thu Jan 10, 2019 9:53 pm

Indexes don't get updated daily, though. I think most are "reconstituted" quarterly.

Boglegrappler
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Re: PG&E Bonds

Post by Boglegrappler » Thu Jan 10, 2019 10:20 pm

Of course, the fund reports its net asset value on a daily basis, and that NAV reflects the daily trading prices on the bonds themselves, which presumably have already traded down materially. So the loss is already in the NAV. Selling would create a small tax loss for the fund holders.

workerbeeengineer
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Re: PG&E Bonds

Post by workerbeeengineer » Fri Jan 11, 2019 12:40 am

Realize this thread is speaking to PG&E bonds, but I’m curious on BH views on the stock. That is, will PG&E declare bankruptcy with stockholders wiped out?

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Phineas J. Whoopee
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Re: PG&E Bonds

Post by Phineas J. Whoopee » Fri Jan 11, 2019 5:16 pm

alex_686 wrote:
Thu Jan 10, 2019 9:42 pm
The bond gets droped by the index, then the fund has to sell. It is a valid criticism of bond index funds.
As opposed to spending money trying to recover some portion of the value in bankruptcy court. Occasionally that results in bondholders receiving equity in the reorganized company. Equities in a bond index fund. That's not good.

I make no prediction about Pacific Gas and Electric's bonds or stock.

PJW
Last edited by Phineas J. Whoopee on Fri Jan 11, 2019 5:27 pm, edited 1 time in total.

alex_686
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Re: PG&E Bonds

Post by alex_686 » Fri Jan 11, 2019 5:27 pm

Phineas J. Whoopee wrote:
Fri Jan 11, 2019 5:16 pm
alex_686 wrote:
Thu Jan 10, 2019 9:42 pm
The bond gets droped by the index, then the fund has to sell. It is a valid criticism of bond index funds.
As opposed to spending money trying to recover some portion of the value in bankruptcy court.

I make no prediction about Pacific Gas and Electric's bonds or stock.

PJW
The credit spreads are wide between investment grade BBB bonds and BB junk bonds, while the default rates are about the same. There are no rational reasons for the huge spread. The reasons are structurally. Once S&P or Moody's waves it magic wand lots of institutional owners have to dump their holdings. There are exploitable strategies out there that use this inefficiency.

Or you can use the flip argument, and argue about how those AAA CDO squared preformed back in 2008.

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Phineas J. Whoopee
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Re: PG&E Bonds

Post by Phineas J. Whoopee » Fri Jan 11, 2019 5:32 pm

By all means buy a high-yield bond fund if that's your desire. Last decade's financial crisis has nothing to do with a decision today. You're justified in being skeptical of bond ratings, but that has always been the case, and everybody else knows it too.
PJW

alex_686
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Re: PG&E Bonds

Post by alex_686 » Fri Jan 11, 2019 5:56 pm

Phineas J. Whoopee wrote:
Fri Jan 11, 2019 5:32 pm
By all means buy a high-yield bond fund if that's your desire.
I think you are missing my point. Let me ask you this - what wisdom descends from heaven, moving a child of 17 years and 364 days, to a person mature enough to vote the next day? None that I know of. It is an arbitrary line drawn in the sand.

Indexes are not prefect and there are weird affects around the BBB/BB mark. It is good to know the strengths and weaknesses of any investment you get into.

Whakamole
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Re: PG&E Bonds

Post by Whakamole » Fri Jan 11, 2019 6:32 pm

alex_686 wrote:
Fri Jan 11, 2019 5:27 pm
The credit spreads are wide between investment grade BBB bonds and BB junk bonds, while the default rates are about the same. There are no rational reasons for the huge spread. The reasons are structurally. Once S&P or Moody's waves it magic wand lots of institutional owners have to dump their holdings. There are exploitable strategies out there that use this inefficiency.
I believe those are the so-called "fallen angel" bonds?

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Phineas J. Whoopee
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Re: PG&E Bonds

Post by Phineas J. Whoopee » Fri Jan 11, 2019 6:43 pm

alex_686 wrote:
Fri Jan 11, 2019 5:56 pm
Phineas J. Whoopee wrote:
Fri Jan 11, 2019 5:32 pm
By all means buy a high-yield bond fund if that's your desire.
I think you are missing my point. Let me ask you this - what wisdom descends from heaven, moving a child of 17 years and 364 days, to a person mature enough to vote the next day? None that I know of. It is an arbitrary line drawn in the sand.
Naturally such situations are based on arbitrary lines. What of it?
alex_686 wrote:
Fri Jan 11, 2019 5:56 pm
Indexes are not prefect and there are weird affects around the BBB/BB mark. It is good to know the strengths and weaknesses of any investment you get into.
Kindly refrain from attributing to me opinions or emotions I have not expressed.

PJW

fennewaldaj
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Re: PG&E Bonds

Post by fennewaldaj » Fri Jan 11, 2019 11:51 pm

alex_686 wrote:
Fri Jan 11, 2019 5:56 pm


Indexes are not prefect and there are weird affects around the BBB/BB mark. It is good to know the strengths and weaknesses of any investment you get into.
right bond indexes with corporate bonds would likely do better if they had more leeway to hold there downgrades.

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SlowMovingInvestor
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Re: PG&E Bonds

Post by SlowMovingInvestor » Sat Jan 12, 2019 9:31 am

Whakamole wrote:
Fri Jan 11, 2019 6:32 pm
alex_686 wrote:
Fri Jan 11, 2019 5:27 pm
The credit spreads are wide between investment grade BBB bonds and BB junk bonds, while the default rates are about the same. There are no rational reasons for the huge spread. The reasons are structurally. Once S&P or Moody's waves it magic wand lots of institutional owners have to dump their holdings. There are exploitable strategies out there that use this inefficiency.
I believe those are the so-called "fallen angel" bonds?
There's actually an ETF (FALN) that tracks these. It's actually returned over 4% YTD, which is actually quite high for a bond fund over only a few days.

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Phineas J. Whoopee
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Re: PG&E Bonds

Post by Phineas J. Whoopee » Sat Jan 12, 2019 1:01 pm

Perhaps my business idea from several years ago would be apropos.
PJW

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tdub
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Re: PG&E Bonds

Post by tdub » Sat Jan 12, 2019 9:49 pm

It sounds like trading occurs monthly based on stan1's link.
Out of Moody's, S&P, and Fitch two of the three need to rate a bond investment grade. If that changes the bond will be added or dropped from the index; then the index fund will make adjustments by trading.
fennewaldaj wrote:
Fri Jan 11, 2019 11:51 pm
alex_686 wrote:
Fri Jan 11, 2019 5:56 pm
Indexes are not prefect and there are weird affects around the BBB/BB mark. It is good to know the strengths and weaknesses of any investment you get into.
right bond indexes with corporate bonds would likely do better if they had more leeway to hold there downgrades.
Seems like a recipe to lose money if you have coordinated selling of something and everyone knows ahead of time.


Resources
Bloomberg Barclays Indices - parent page, pdf
25 of 121 - Credit Quality
49 of 121 - Benchmark Index Rebalancing Rules
51 of 121 - Figure 14
Image
Exposure to BBB-rated securities
Image

TVD
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Re: PG&E Bonds

Post by TVD » Sat Jan 12, 2019 11:37 pm

PG&E bonds aybe worthless by the end of next week. As for bond funds, this should be a warning for issues with liquidity mismatches.

fennewaldaj
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Re: PG&E Bonds

Post by fennewaldaj » Sun Jan 13, 2019 12:35 am

tdub wrote:
Sat Jan 12, 2019 9:49 pm
It sounds like trading occurs monthly based on stan1's link.
Out of Moody's, S&P, and Fitch two of the three need to rate a bond investment grade. If that changes the bond will be added or dropped from the index; then the index fund will make adjustments by trading.
fennewaldaj wrote:
Fri Jan 11, 2019 11:51 pm
alex_686 wrote:
Fri Jan 11, 2019 5:56 pm
Indexes are not prefect and there are weird affects around the BBB/BB mark. It is good to know the strengths and weaknesses of any investment you get into.
right bond indexes with corporate bonds would likely do better if they had more leeway to hold there downgrades.
Seems like a recipe to lose money if you have coordinated selling of something and everyone knows ahead of time.


Resources
Bloomberg Barclays Indices - parent page, pdf
25 of 121 - Credit Quality
49 of 121 - Benchmark Index Rebalancing Rules
51 of 121 - Figure 14
Image
Exposure to BBB-rated securities
Image
I guess all these BBBs that may get downgraded are good for high yield funds that focus on BBs like vanguards and the fallen angel etfs. Of course they are likely to have there own downgrades and defaults going on at the same time.

3504PIR
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Re: PG&E Bonds

Post by 3504PIR » Sun Jan 13, 2019 6:27 pm

workerbeeengineer wrote:
Fri Jan 11, 2019 12:40 am
Realize this thread is speaking to PG&E bonds, but I’m curious on BH views on the stock. That is, will PG&E declare bankruptcy with stockholders wiped out?
I don’t know about bankruptcy, but it isn’t a utility stock I would buy. Obviously too much risk for a sector considered “bond like.” Can’t imagine buying it as a regular stock holding either as the risk would be worth any reasonable upside. Considering the impact of a bankruptcy, I doubt California (mainly) would allow it to go out of business completely. The regulatory atmosphere in the state alone should give investors pause, not even accounting for the liability from recent events.

dalbright
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Re: PG&E Bonds

Post by dalbright » Sun Jan 13, 2019 7:02 pm

Phineas J. Whoopee wrote:
Sat Jan 12, 2019 1:01 pm
Perhaps my business idea from several years ago would be apropos.
PJW
I found the past topic you linked to very interesting, thanks!

dalbright
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Re: PG&E Bonds

Post by dalbright » Mon Jan 14, 2019 9:47 am

Also looks like you might get to see what happens in real time since PG&E just announced it would file for bankruptcy this morning...

Teague
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Re: PG&E Bonds

Post by Teague » Mon Jan 14, 2019 11:27 am

dalbright wrote:
Mon Jan 14, 2019 9:47 am
Also looks like you might get to see what happens in real time since PG&E just announced it would file for bankruptcy this morning...
And their stock is down about 50% at the moment.
Semper Augustus

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Phineas J. Whoopee
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Re: PG&E Bonds

Post by Phineas J. Whoopee » Mon Jan 14, 2019 6:54 pm

Teague wrote:
Mon Jan 14, 2019 11:27 am
dalbright wrote:
Mon Jan 14, 2019 9:47 am
Also looks like you might get to see what happens in real time since PG&E just announced it would file for bankruptcy this morning...
And their stock is down about 50% at the moment.
In a capital structure reorganization shareholders are last in line to be paid. Frequently there's nothing left after paying creditors. I'm surprised it's only down fifty percent, but of course gas and electric service isn't being withdrawn from central and northern California. There must and will be a successor utility that uses the same equipment, and most likely employs the same staff who know all the intricacies of the existing physical plant.

PJW

AlohaJoe
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Re: PG&E Bonds

Post by AlohaJoe » Mon Jan 14, 2019 7:03 pm

Phineas J. Whoopee wrote:
Mon Jan 14, 2019 6:54 pm
Teague wrote:
Mon Jan 14, 2019 11:27 am
dalbright wrote:
Mon Jan 14, 2019 9:47 am
Also looks like you might get to see what happens in real time since PG&E just announced it would file for bankruptcy this morning...
And their stock is down about 50% at the moment.
In a capital structure reorganization shareholders are last in line to be paid. Frequently there's nothing left after paying creditors. I'm surprised it's only down fifty percent, but of course gas and electric service isn't being withdrawn from central and northern California. There must and will be a successor utility that uses the same equipment, and most likely employs the same staff who know all the intricacies of the existing physical plant.

PJW
I think it more about:

Last time California lawmakers passed a law saying that utilities didn't bear liability. But that law doesn't cover 2018 fires. So right now the market seems to think there is something like a ~50% chance California lawmakers will pass a new law that retroactively removes the liability from PG&E. (Also it is well known that the market is slow to incorporate new news and then over-corrects. So maybe it will fall another 25% tomorrow.)

Irisheyes
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Re: PG&E Bonds

Post by Irisheyes » Mon Jan 14, 2019 7:04 pm

From Bloomberg: Vanguard Holds Half of PG&E's $920 Million Municipal Bonds

The Vanguard Group holds about $415 million of municipal bonds issued on behalf of PG&E Corp., about half of the $920 million state and local debt sold for the California utility that’s edging toward bankruptcy because of the fallout from devastating wildfires.

But all but $2 million of the bonds held by Vanguard are backed by banks that act as buyers of last resort for the securities, insulating the money manager from risk, said Freddy Martino, a spokesman.

invstar
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Re: PG&E Bonds

Post by invstar » Mon Jan 14, 2019 10:43 pm

Irisheyes wrote:
Mon Jan 14, 2019 7:04 pm
From Bloomberg: Vanguard Holds Half of PG&E's $920 Million Municipal Bonds

The Vanguard Group holds about $415 million of municipal bonds issued on behalf of PG&E Corp., about half of the $920 million state and local debt sold for the California utility that’s edging toward bankruptcy because of the fallout from devastating wildfires.

But all but $2 million of the bonds held by Vanguard are backed by banks that act as buyers of last resort for the securities, insulating the money manager from risk, said Freddy Martino, a spokesman.
Are people invested in vanguard muni bonds affected by this?

FrankLUSMC
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Re: PG&E Bonds

Post by FrankLUSMC » Tue Jan 15, 2019 9:40 am

invstar wrote:
Mon Jan 14, 2019 10:43 pm
Irisheyes wrote:
Mon Jan 14, 2019 7:04 pm
From Bloomberg: Vanguard Holds Half of PG&E's $920 Million Municipal Bonds

The Vanguard Group holds about $415 million of municipal bonds issued on behalf of PG&E Corp., about half of the $920 million state and local debt sold for the California utility that’s edging toward bankruptcy because of the fallout from devastating wildfires.

But all but $2 million of the bonds held by Vanguard are backed by banks that act as buyers of last resort for the securities, insulating the money manager from risk, said Freddy Martino, a spokesman.
Are people invested in vanguard muni bonds affected by this?
Vanguard held $227.9 million of PG&E debt in its $5.6 billion California Municipal Money Market fund as of Dec. 31, according to data compiled by Bloomberg. It held another $110 million of PG&E’s debt in its California intermediate and long-term funds and $94.5 million in its $18.3 billion national money market fund.


Here is the article I read.
https://www.yahoo.com/finance/news/vang ... 47645.html

Teague
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Re: PG&E Bonds

Post by Teague » Tue Jan 15, 2019 10:49 am

AlohaJoe wrote:
Mon Jan 14, 2019 7:03 pm
... So maybe it will fall another 25% tomorrow.
Remarkably accurate, down 26% today so far.
Semper Augustus

Scooter57
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Re: PG&E Bonds

Post by Scooter57 » Tue Jan 15, 2019 10:56 am

Hmmmm.

Who are "Banks of last resort?"

What impact does this bankruptcy have on their balance sheets?

Is this the Black Swan that tips over the banking system 2008 style?

Not to be alarmist or anything. Just wondering what happens when banks have to come up with half a trillion dollars. . .

assetalloc
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What to do with PG&E Bonds

Post by assetalloc » Tue Jan 15, 2019 11:13 am

[Thread merged into here, see below. --admin LadyGeek]

I am holding PG&E PACIFIC GAS &ELEC CO NOTE CALL MAKE WHOLE maturing on 10/01/2020

I bought these few years back (before any of the problems surfaced - I think these were still high-grade bonds) & now the company is filing for bankruptcy. What will happen to these bonds? Will these become worthless? Should I sell these? When? When will these become worthless? Currently, these bonds are still worth 75 cents on a dollar. Is there point of "wait and see"? How fast bankruptcy proceedings happen that affect bonds?

clutchied
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Re: PG&E Bonds

Post by clutchied » Tue Jan 15, 2019 11:18 am

VCADX was unmoved yesterday.

CA int tax exempt fund.

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triceratop
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Re: PG&E Bonds

Post by triceratop » Tue Jan 15, 2019 11:21 am

Phineas J. Whoopee wrote:
Fri Jan 11, 2019 5:32 pm
By all means buy a high-yield bond fund if that's your desire. Last decade's financial crisis has nothing to do with a decision today. You're justified in being skeptical of bond ratings, but that has always been the case, and everybody else knows it too.
PJW
I am struggling to see what your comment about high-yield bond funds has to do with the present question. Since alex_686 is pointing out a structural problem with bonds which were rated Not-Junk at issue and downgraded subsequent to being owned by Investment-grade indexes, what does an asset class (High-yield) which contains many bonds issued as Junk (edit: to add) have to do with the question The proper comparison is a bond index fund to a Fallen Angel fund like FALN, as has been pointed out.

The question was also not one of bond ratings being invalid but the effect of their assessments on market participants who are forced to sell following a downgrade.

TLDR: There may or may not be something to the thesis in favor of FALN, but that doesn't mean a comparison to JNK is appropriate.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

MnD
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Re: What to do with PG&E Bonds

Post by MnD » Tue Jan 15, 2019 11:35 am

assetalloc wrote:
Tue Jan 15, 2019 11:13 am
I am holding PG&E PACIFIC GAS &ELEC CO NOTE CALL MAKE WHOLE maturing on 10/01/2020

I bought these few years back (before any of the problems surfaced - I think these were still high-grade bonds) & now the company is filing for bankruptcy. What will happen to these bonds? Will these become worthless? Should I sell these? When? When will these become worthless? Currently, these bonds are still worth 75 cents on a dollar. Is there point of "wait and see"? How fast bankruptcy proceedings happen that affect bonds?
Are they secured bonds or unsecured? Are they senior corporate debt or subordinated debt? Are they insured by anyone?
The average recovery for bondholders in Chapter 11 is around 40 cents on the dollar but can range from 100% to nothing.
Mr. Market has significant concerns given they are trading at 75 cents of face value prior to bankruptcy filing.

There is no good reason to buy individual "high quality" corporate bonds at face value because the upside is just the coupon which is roughly the same for all corporate bonds of similiar duration and credit quality whereas the downside is up to 100%. Heads you win roughly the same yield as a bond fund and tails you lose up to all your money.

From here on out the bond prices will be very volatile as they are dumped by funds required to hold investment grade and bought by numerous speculators and vulture funds. I'm not sure why the lesson of GM, GE, Enron, Worldcom, PG&E in 2001 doesn't sink in for buyers of individual bonds but here we have yet another Exhibit A. Good luck!

quantAndHold
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Re: What to do with PG&E Bonds

Post by quantAndHold » Tue Jan 15, 2019 11:46 am

The bonds are likely not completely worthless. I haven’t looked at PG&E’s finances to say what they are worth, but if the market is pricing them at 75 cents on the dollar, that’s my best estimate right now of what they’re worth today.

What will happen in the short term is that your interest payments will stop, and you won’t automatically get your principal back in 2020.

Basically how bankruptcy works is everyone PG&E owes money to submits a claim to the bankruptcy court. According to the law, there’s an order in which people get paid. Bond holders are pretty high on the list, so you’ll probably get most or all of your money back, which is why your bonds are still worth 75 cents. But you won’t get the money back until things are sorted out with the court, which could be a couple of years or more. Or you can sell for 75 cents on the dollar now to someone else who is willing to take on the uncertainty of getting paid.

What you should do? I have no idea. Not an expert in this area.

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Re: What to do with PG&E Bonds

Post by Stinky » Tue Jan 15, 2019 11:51 am

assetalloc wrote:
Tue Jan 15, 2019 11:13 am
I am holding PG&E PACIFIC GAS &ELEC CO NOTE CALL MAKE WHOLE maturing on 10/01/2020

I bought these few years back (before any of the problems surfaced - I think these were still high-grade bonds) & now the company is filing for bankruptcy. What will happen to these bonds? Will these become worthless? Should I sell these? When? When will these become worthless? Currently, these bonds are still worth 75 cents on a dollar. Is there point of "wait and see"? How fast bankruptcy proceedings happen that affect bonds?
Mr. Market says they’re now worth 75. The fact that you paid 100 or so for them is irrelevant.

There will be uncertainty for days / weeks / months / years as to what the bonds are redeemed for as the bankruptcy process unfolds. Maybe 100, quite possibly a lot less.

If it were me, I would swallow the loss and sell now, and claim it as a realized loss on my 2019 tax return. But then again, I don’t buy individual bonds ......
It's a GREAT day to be alive - Travis Tritt

MnD
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Re: What to do with PG&E Bonds

Post by MnD » Tue Jan 15, 2019 12:20 pm

As priced now they are senior unsecured short-term very-low rated junk bonds.
Ratings Caa3 Moody's and CC S&P. If you had funds available to invest, would you purchase these bonds today as an investment?
If yes, they hang on by all means. If not you should sell. Otherwise you are succumbing to a cognitive bias, specifically sunk-cost fallacy/anchoring.

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Phineas J. Whoopee
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Re: PG&E Bonds

Post by Phineas J. Whoopee » Tue Jan 15, 2019 1:48 pm

triceratop wrote:
Tue Jan 15, 2019 11:21 am
Phineas J. Whoopee wrote:
Fri Jan 11, 2019 5:32 pm
By all means buy a high-yield bond fund if that's your desire. Last decade's financial crisis has nothing to do with a decision today. You're justified in being skeptical of bond ratings, but that has always been the case, and everybody else knows it too.
PJW
I am struggling to see what your comment about high-yield bond funds has to do with the present question. Since alex_686 is pointing out a structural problem with bonds which were rated Not-Junk at issue and downgraded subsequent to being owned by Investment-grade indexes, what does an asset class (High-yield) which contains many bonds issued as Junk. The proper comparison is a bond index fund to a Fallen Angel fund like FALN, as has been pointed out.

The question was also not one of bond ratings being invalid but the effect of their assessments on market participants who are forced to sell following a downgrade.

TLDR: There may or may not be something to the thesis in favor of FALN, but that doesn't mean a comparison to JNK is appropriate.
Hi triceratop, and thanks for your comment.

Bonds presently rated below BBB- are high-yield, or colloquially junk, regardless of their ratings when they were first issued.

PJW

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triceratop
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Re: PG&E Bonds

Post by triceratop » Tue Jan 15, 2019 1:55 pm

Phineas J. Whoopee wrote:
Tue Jan 15, 2019 1:48 pm
triceratop wrote:
Tue Jan 15, 2019 11:21 am
Phineas J. Whoopee wrote:
Fri Jan 11, 2019 5:32 pm
By all means buy a high-yield bond fund if that's your desire. Last decade's financial crisis has nothing to do with a decision today. You're justified in being skeptical of bond ratings, but that has always been the case, and everybody else knows it too.
PJW
I am struggling to see what your comment about high-yield bond funds has to do with the present question. Since alex_686 is pointing out a structural problem with bonds which were rated Not-Junk at issue and downgraded subsequent to being owned by Investment-grade indexes, what does an asset class (High-yield) which contains many bonds issued as Junk. The proper comparison is a bond index fund to a Fallen Angel fund like FALN, as has been pointed out.

The question was also not one of bond ratings being invalid but the effect of their assessments on market participants who are forced to sell following a downgrade.

TLDR: There may or may not be something to the thesis in favor of FALN, but that doesn't mean a comparison to JNK is appropriate.
Hi triceratop, and thanks for your comment.

Bonds presently rated below BBB- are high-yield, or colloquially junk, regardless of their ratings when they were first issued.

PJW
I am well aware. Did you mean your statement to apply as a correction of the emphasized quoted part of my post? What I wrote was correct.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Phineas J. Whoopee
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Re: PG&E Bonds

Post by Phineas J. Whoopee » Tue Jan 15, 2019 2:01 pm

^ Yes, that is what I meant.

It doesn't bother me if you and I disagree on something.

PJW

John Z
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Re: What to do with PG&E Bonds

Post by John Z » Tue Jan 15, 2019 2:08 pm

If you plan to keep them, try to research how long large bankruptcies took to totally resolve in the US. We are talking years. I had about $100K invested in a NH company that went bankrupt, the largest case ever in NH. It took over a year, close to two, for the court just to identify and confirm all creditors and amounts. I ended up getting about 60% back, but it was 5-7 years (can't recall exactly) and I lost all the income during that time (back in the day when interest rates were double digits). It's a long process. I was happy to get something back.

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Re: PG&E Bonds

Post by triceratop » Tue Jan 15, 2019 2:50 pm

I don't disagree with the statement. Of course, bonds which are below BBB- are high-yield "junk". Yes that has nothing to do with the ratings.

Whether that has implications for the risk-adjusted reward of a given bond, viewed as an event study pre- and post-downgrade is a matter which market participants might disagree on, but it isn't a disagreement of definitions.
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Re: PG&E Bonds

Post by LadyGeek » Tue Jan 15, 2019 4:44 pm

I merged assetalloc's thread into the on-going discussion. The combined thread is in the Investing - Theory, News & General forum.
assetalloc wrote:
Tue Jan 15, 2019 11:13 am
[Thread merged into here, see below. --admin LadyGeek]

I am holding PG&E PACIFIC GAS &ELEC CO NOTE CALL MAKE WHOLE maturing on 10/01/2020

I bought these few years back (before any of the problems surfaced - I think these were still high-grade bonds) & now the company is filing for bankruptcy. What will happen to these bonds? Will these become worthless? Should I sell these? When? When will these become worthless? Currently, these bonds are still worth 75 cents on a dollar. Is there point of "wait and see"? How fast bankruptcy proceedings happen that affect bonds?
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Re: PG&E Bonds

Post by workerbeeengineer » Tue Jan 15, 2019 8:38 pm

3504PIR wrote:
Sun Jan 13, 2019 6:27 pm
workerbeeengineer wrote:
Fri Jan 11, 2019 12:40 am
Realize this thread is speaking to PG&E bonds, but I’m curious on BH views on the stock. That is, will PG&E declare bankruptcy with stockholders wiped out?
I don’t know about bankruptcy, but it isn’t a utility stock I would buy. Obviously too much risk for a sector considered “bond like.” Can’t imagine buying it as a regular stock holding either as the risk would be worth any reasonable upside. Considering the impact of a bankruptcy, I doubt California (mainly) would allow it to go out of business completely. The regulatory atmosphere in the state alone should give investors pause, not even accounting for the liability from recent events.
Expanding the common stock discussion...I’m now assuming the PG&E stock is going to zero. Lots of discussion elsewhere in this thread on the value of the bonds. What about the other investor owned utilities in California? I believe that would be SEMPRA ENERGY (parent of San Diego electric utility and So Cal Gas) and Edison International /Souhern Cal Edison. Will those stocks come under pressure by extension? Certainly all of California is susceptible to Wildfires. In a few years will electrical generation in California be totally a “state owned enterprise”? Any early signs out there that funds or other large investors are starting to head for the exits?

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Re: PG&E Bonds

Post by Turbo29 » Tue Jan 15, 2019 11:42 pm

workerbeeengineer wrote:
Tue Jan 15, 2019 8:38 pm
What about the other investor owned utilities in California? I believe that would be SEMPRA ENERGY (parent of San Diego electric utility and So Cal Gas) and Edison International /Souhern Cal Edison. Will those stocks come under pressure by extension?
The California Rule That Doomed PG&E: Inverse Condemnation

As PG&E Corp. hurtles toward bankruptcy, a once-obscure legal doctrine with an awkward name certainly bears a portion of the blame.

Known as inverse condemnation, it holds California utilities responsible for wildfire damage caused by their equipment -- whether the companies acted negligently or not. The utilities spent most of last year pushing state legislators to change it, to no avail.
https://www.bloomberg.com/news/articles ... ndemnation

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Re: PG&E Bonds

Post by AlphaLess » Wed Jan 16, 2019 12:03 am

workerbeeengineer wrote:
Fri Jan 11, 2019 12:40 am
Realize this thread is speaking to PG&E bonds, but I’m curious on BH views on the stock. That is, will PG&E declare bankruptcy with stockholders wiped out?
Probably.
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Re: PG&E Bonds

Post by AlphaLess » Wed Jan 16, 2019 12:12 am

SlowMovingInvestor wrote:
Sat Jan 12, 2019 9:31 am
Whakamole wrote:
Fri Jan 11, 2019 6:32 pm
alex_686 wrote:
Fri Jan 11, 2019 5:27 pm
The credit spreads are wide between investment grade BBB bonds and BB junk bonds, while the default rates are about the same. There are no rational reasons for the huge spread. The reasons are structurally. Once S&P or Moody's waves it magic wand lots of institutional owners have to dump their holdings. There are exploitable strategies out there that use this inefficiency.
I believe those are the so-called "fallen angel" bonds?
There's actually an ETF (FALN) that tracks these. It's actually returned over 4% YTD, which is actually quite high for a bond fund over only a few days.
With 25K shares traded per day ($625K), and $53MM AUM, this is real garbage.
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Re: PG&E Bonds

Post by cautiousjon » Wed Jan 16, 2019 1:08 am

Scooter57 wrote:
Tue Jan 15, 2019 10:56 am
... Not to be alarmist or anything. Just wondering what happens when banks have to come up with half a trillion dollars. . .
Bloomberg says that Vanguard holds about $415 million of municipal bonds issued on behalf of PG&E Corp. ... and all but $2 million of the bonds held by Vanguard are backed by banks ..., which suggests that the banks will only need to find ~413 million to bail out Vanguard in this case.

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Re: PG&E Bonds

Post by Tanelorn » Wed Jan 16, 2019 9:03 am

workerbeeengineer wrote:
Fri Jan 11, 2019 12:40 am
Realize this thread is speaking to PG&E bonds, but I’m curious on BH views on the stock. That is, will PG&E declare bankruptcy with stockholders wiped out?
Very likely for bankruptcy - They already missed a bond payment and no bailout appears forthcoming from CA. As for the stock, probable wipeout but that’s harder to say.

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Re: PG&E Bonds

Post by Scooter57 » Wed Jan 16, 2019 11:56 am

cautiousjon wrote:
Wed Jan 16, 2019 1:08 am
Scooter57 wrote:
Tue Jan 15, 2019 10:56 am
... Not to be alarmist or anything. Just wondering what happens when banks have to come up with half a trillion dollars. . .
Bloomberg says that Vanguard holds about $415 million of municipal bonds issued on behalf of PG&E Corp. ... and all but $2 million of the bonds held by Vanguard are backed by banks ..., which suggests that the banks will only need to find ~413 million to bail out Vanguard in this case.
Thanks for the correction. I must have misread that..

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Re: PG&E Bonds

Post by assetalloc » Thu Jan 17, 2019 10:39 am

Not sure why Admin decided to merge threads, as it has confused the whole discussion on few threads.

Last few years were very saddening for me out of "sheer luck". I was holding "American ICONS" like sears, GE, PG&E, among my holdings. These are days of Millions of dollars salary to CEOs and executive staffs to hurt American Average Workers and America, without any/ much penalty. Modern-day Enrons are getting even more sophisticated

Hindsight - yeah index funds would have been better - but we got invested in American economy before the latest fads proved old ways to be wrong- With sears, ge, and now pg&e I admit to being wrong :-(

After research & discussion from boards, I decided to cut losses. Was able to get out at $0.79 on the dollar. It hurts real bad to have accepted low coupons all these years for a junk -

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