Prepping for Bankruptcy, PG&E Secures $5.5 Billion in “Debtor-in-Possession” Financing. What is “DIP” Financing?

Here’s how a soon-to-be bankrupt company that’ll default on all its debts can still borrow $5.5 billion.

PG&E, the largest gas and electric utility in California, announced on January 14 that the holding company, PG&E Corporation, and its regulated utility subsidiary, Pacific Gas and Electric Company, would file for Chapter 11 bankruptcy “on or about January 29, 2019.” The announcement disclosed that PG&E was negotiating with four unnamed banks to line up $5.5 billion in “Debtor-in-Possession” (DIP) financing to fund the company through the bankruptcy process.

Now PG&E disclosed that on January 21 it has secured a commitment by four banks — JPMorgan Chase, Bank of America Merrill Lynch, Barclays, and Citigroup — for this $5.5 billion in DIP financing.

The package will include a $3.5-billion revolving line of credit, a $1.5-billion term loan, and a $500-million delayed-draw term loan.

Money from this DIP financing will not become available until after the company files for Chapter 11 bankruptcy, and until after the bankruptcy judge approves the DIP financing package.

But PG&E’s credit ratings have been axed from investment grade before January 14 to deep junk now and will be cut to default with the bankruptcy filing. This sudden destruction of its credit rating has locked the company out of the short-term credit market, and it can no longer fund itself.

In order to survive until the bankruptcy filing, the company needs new liquidity. So it announced that on January 21 it entered into a debt commitment letter with JPMorgan for a senior secured bridge loan of $250 million, with a term of six months. Collateral will be the Utility’s accounts receivable.

PG&E can start borrowing under this facility as soon as the deal is closed and before the bankruptcy filing. This allows PG&E to hang on until the bankruptcy filing.

But this bridge loan, though disclosed simultaneously with the DIP financing, is separate from the DIP financing and doesn’t involve a bankruptcy filing or a judge’s approval. It’s a classic loan from a bank to a distressed company with good assets.

So what is DIP financing? How can a company that is about to default on all its debts and obligations even qualify for an additional $5.5 billion in debt? And why would banks be nuts enough to do it?

These are very timely questions, as a coming wave of bankruptcy filings by over-indebted Corporate America is shaping up on the horizon. Bankruptcy is a profit opportunity for an industry specialized in it. This includes the biggest banks, bankruptcy lawyers, restructuring advisory firms, and others. They’re already licking their chops.

So here we go, step by step, using PG&E’s disclosure as guideposts.

Collateral for DIP loans: Everything ahead of everyone else.

In its SEC disclosure, PG&E said that borrowings under DIP financing “would be senior secured obligations of the Utility, secured by substantially all of the Utility’s assets and entitled to superpriority administrative expense claim status in the Utility’s bankruptcy case.”

In other words, this DIP financing would be more senior than the most senior existing debt, and would be secured by all of the Utility’s assets. If PG&E collapses and ends up being liquidated in bankruptcy court, the four banks providing the DIP financing would get practically all of the Utility’s assets, including that rotten utility pole eight feet from our balcony, likely dating from over 100 years ago. I’m not sure the finely clothed bankers would want it.

In other words, for banks this type of loan is fairly low-risk, though things can go wrong, and then they end up having to run an unpopular utility with lots of exposure to wildfires on the other end of the country.

How long will that $5.5 billion keep PG&E afloat?

The DIP financing would mature on December 31, 2020, and can be extended to December 31, 2021, “if certain terms and conditions are satisfied.” So it would be for two years, and maybe three years.

PG&E expects the bankruptcy process to last “approximately two years,” but if it drags out, PG&E can extend the DIP financing for one more year “at its option.” So there’s some breathing room.

As PG&E emerges from bankruptcy — possibly as a new entity with new shareholders that might include some of its stiffed creditors — it will be able to obtain regular funding and can pay off the DIP financing.

Why are banks doing it?

“The Utility will pay customary fees and expenses in connection with obtaining the DIP Facilities,” it said because, yes, this stuff is a profitable activity for banks, involving lots of fees and interest income.

Closing and a judge’s approval.

The closing of the DIP financing is still subject to “among other conditions”:

  1. “Execution of definitive documentation”; so some details still need to get done.
  2. “Approval by the Bankruptcy Court.”

The DIP financing becomes part of the bankruptcy filing and will become one of the early things to be dealt with. In a bankruptcy without DIP financing, PG&E would likely be liquidated in a fire sale. So it’s in nearly everyone’s interest to get this done, though some creditors might squeal, but hey, they’re already squealing loudly because of the bankruptcy filing.

But this approval process might drag on for four to six weeks, as PG&E expects, and it will be burning through its $250 million bridge loan in no time. So there is a quicker “interim” part, and then the rest:

PG&E would seek interim approval of the DIP Facilities, and availability of a portion of the DIP Revolving Facility in the amount of $1.5 billion, at an interim hearing in the Bankruptcy Court shortly after its filing of the Chapter 11 cases on or about January 29, 2019, and final approval, and availability of the remaining amount of DIP Facilities in the amount of $4.0 billion, at a final hearing.

PG&E is unable to predict the date of the final hearing but expects it to occur within 30 to 45 days after the petition date.

The alternative to DIP financing:

If the judge does not approve the DIP financing, the four banks will not be out any funds because PG&E cannot actually borrow under the DIP package until after the judge approves it. In other words, if the judge refuses to go along, the four banks will be fine but PG&E will run out of cash shortly thereafter and will likely be broken up and its pieces sold off in bankruptcy auctions, which could get messy. But this is highly unlikely, knock on wood.

California’s rate payers & taxpayers likely on the hook, as we know from PG&E’s first bankruptcy in 2001. Read...  Bankruptcy Next, PG&E Says. Shares Down 90% in 15 Months. From “Investment Grade” to “Default” in Three Weeks?

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  77 comments for “Prepping for Bankruptcy, PG&E Secures $5.5 Billion in “Debtor-in-Possession” Financing. What is “DIP” Financing?

  1. HighYieldTrash
    Jan 22, 2019 at 10:26 pm

    It’s sad that we’ve become so dependant on serial defaulting energy companies that we’d rather keep throwing resources into them rather than into a different model because the banks can make money off the fees, securitize the trash and sell it to pensions chasing yield pretending its the same as investing.

    • char
      Jan 30, 2019 at 10:45 am

      We live in a time of an energy transition from carbon energy to “new” energy so expect many defaults in the next 20 years

  2. C
    Jan 22, 2019 at 10:47 pm

    Thanks!

    > I’m not sure the finely clothed bankers would want it.

    So what would happen if the bankers find themselves actually owning the assets? Sell it off to another utility asap?

  3. Javert Chip
    Jan 22, 2019 at 11:03 pm

    Considering PG&E is a huge regulated utility and this is their 2nd bankruptcy trip since 2000, you have to wonder why equity investors (aka: shareholders) put up with this toxic combination of poor utility management & pis-poor CA government regulations.

    However, I believe the only thing worse than a publicly-owned PG&E would be a CA government run utility.

    • mikey
      Jan 22, 2019 at 11:13 pm

      Most of the utilities will be in trouble in the next ten years. Most of the generating business has been sold off or spun off in many of them to avoid risk, especially the risk of becoming obsolete and impossible to run at a profit. People will use a lot less energy as living standards decline. Your typical young person now is only using one room, not a whole house. Property owner solar, etc will reduce the amount of power used by existing consumers. It’s not a growth business anymore, could be a decline business in the future. This happened in Germany when the government changed the rules and made most of the power plants a liability rather then an asset. Unfortunately, I had stock in them as I though it was safer.

    • roddy6667
      Jan 23, 2019 at 1:56 am

      Countries that allow the utilities to be privately owned must have an agency or three to oversee them. It seems that in California, the agencies charged with overseeing the utilities are corrupt, incompetent, or all of the above.

      • upwising
        Jan 23, 2019 at 7:22 pm

        Former head of PUC was commonly known to drink wine, smoke herb, and snort coke with the highest representatives of PG&E during weekend soirées on the Sonoma Coast.

        Readers looking for another model should look at, breathe deeply, The State of Nebraska. Deep red, profoundly conservative, energy-resource poor Nebraska is 100% PUBLIC POWER and has been for many, many years. There are numerous public power enterprises across the state, from small villages and towns with their own systems to multi-county power districts serving big industrial operations. There is a state-owned, state-wide “wholesaler” that in some areas is also a retailer. Infinitely cheaper power in Nebraska than from PG&E. They have made some goofy decisions but overall it is an admirable model. It was all pulled together through discretionary use of eminent domain, all directed by Nebraska’s Unique NON-PARTISAN Unicameral Legislature.

        In California, readers may look at the PUDs (Public Utility Districts) that operate, among other places, around Lake Tahoe and in hydro-power rich Trinity County. “Irrigation Districts” serve huge areas around Modesto and in Imperial County, among others. Electric cooperatives operate in Anza-Borrego, and areas across the northern part of the state. Municipal power operators include unlikely towns such as Azusa, Riverside, Glendale, Anaheim, Pasadena, Healdsburg, Ukiah, Lompoc, Palo Alto, Alameda, Redding, and Shelter Cove (Humboldt County).

    • MC01
      Jan 23, 2019 at 6:27 am

      PG&E, like most public companies worldwide, has been on a wild ride over the past decade. Until the ugly reality of the 2017 wildfires surfaced PG&E stocks had been going from strength to strength and were blowing past $70.

      Why was PG&E doing so well? For the same reason people are still ready to pay enormous sums of money for the stocks of financial black holes such as Netflix or why financial markets are still blowing off everything, from rate hikes to poor automotive data worldwide. Robert Shiller explained it very well when he said that media, not fundamentals, are what shape market sentiment.

      And media have been “hinting” for years that is something bad were to happen to PG&E the State of California would simply move in and bail the company out.
      As it always happens these hints were 50% wishful thinking and 50% a not-so-subtle attempt to armwrestle legislators into compliance.
      If a bailout is coming it won’t include existing bondholders: at the moment PG&E has over $17 billion in assorted maturities and it’s anybody’s guess how many of those bonds will be still worth something once the bankruptcy procedure is closed. But a lot of people are going to lose a lot of money, that’s for certain.

      Right now PG&E stocks are seeing a rebound. Part of this is due to professional gamblers: they are betting existing shareholders won’t be completely destroyed during bankruptcy. It’s a calculated risk: if existing shareholders are offered much diluted shares and these shares do what they have been doing since 2017, they’ll come off ahead. Otherwise easy come easy go.
      But the rest are the usual wide-eyed hopefuls whot have no idea how a Chapter 11 bankruptcy works and are still believing in some last minute Miracle of the Marne. For them it’s going to be tough going.

      • Bobber
        Jan 23, 2019 at 11:54 am

        I’ve seen many bankruptcy resolutions. The current shareholders will likely get nothing, but it they get anything it will be worth less than $100M of value (i.e., nuisance value). That’s a lot less value than what the stock is currently trading at.

        The problem is that current stockholders have zero leverage. Management goes into self-preservation mode and they begin talking about stakeholders, rather than shareholders. Current stockholders are thrown to the wind with nobody to defend them. The public wants to see them suffer. Also, the large stockholders and funds sell early because they don’t want to deal with the bankruptcy mess, and the remaining stockholders are a bunch of ragtag speculators that nobody cares about.

        Plus, stockholders have already lost the money. What they used to have is nobody’s concern at this point. The pain has already been delivered. Water under the bridge.

        • MC01
          Jan 24, 2019 at 7:42 am

          While I agree with you, look at how fast stock market are rising. They have blown off everything, keep on blowing off everything and will probably test new heights in under a month.

          Even if existing PG&E shareholders are given a pittance in bankruptcy they’ll probably come off way ahead in under a year. For many it’s well worth the risk of losing their money if old shareholders are wiped out.

  4. MooMoo
    Jan 22, 2019 at 11:09 pm

    Speaking of Debt.

    “The end of quantitative easing will increase the risk of countries defaulting on their debt and may start a “game of political chicken” in the eurozone if Italy needs a Greek-style bailout, Credit Suisse has warned.”

    …don’t think it can’t happen. It can.

    • Iamafan
      Jan 23, 2019 at 6:59 am

      Debt on fiat money is still fiat money. So for as long as you can print your own currency (the main sign of sovereignty) and other counties are willing to trade with you, or better still buy your debt, then the music is still playing. The problem with Greece is they do not have their own currency and they lived high-on-the-hog with the Euro (which they did not control). Tax Evasion was a popular hobby over there. So in essence, they have only themselves to blame. Today, the US Dollar is still the reigning king, so count your blessings. Congress can and will broaden the Fed’s toolbox if necessary.

      • MooMoo
        Jan 23, 2019 at 10:02 am

        Ahhh, I see… Greece has only themselves to blame. Getting them in to Euro-denominated debt was something that GS had nothing to do with, and the population at large is responsible for. And insulating bond holders from default in favour of austerity (aka loan-sharking), thereby making ALL bonds risk-free for the buyer/issuer who can lend at will without any creditworthiness assessment or risk to them needed.

        Right.

        So Greek citizens didn’t pay taxes … but their government bonds were fully credit worthy… and can never be defaulted on.

        …exactly what blessings should I count.? If you can’t see the relationship between the social disintegration of Europe and the fact that bondholders will be made 100% at ALL TIMES and under ALL CIRCUMSTANCES, you perhaps should crack a history book.

        • Jan 23, 2019 at 10:13 am

          MooMoo,

          Greece did default on its government bonds, and bondholders were NOT made whole, but it was a “selective default.”

          Greece defaulted on its bonds held by the private sector (banks, including famously Cypriot banks, hedge funds, investors, etc.). These holders of Greek government bonds got a big haircut during the debt exchange that followed the default (2011-2012);

          Only the Greek government bonds that were held by EU institutions (ECB and bailout funds) were not defaulted on because they were backed by Eurozone taxpayers.

        • Atu
          Jan 23, 2019 at 12:53 pm

          Ha ha. Greece “part defaulted” (or accepted “voluntary swaps), for a haircut around 100bn for private investors, while receiving over 100 bn in bailout…oh and austerity and Troika saves the day…” Spring is in the air” per Lagarde…but obviouly not for many greeks. But wait! There were sweeteners for the swappers in the bailout agreement, and the total loss figures are hard to find, some sites place at 30 bn… but who knows…and it all helped bring down the Cypriots and naughty Russian investors.

          Remember though, no bailout and no capital controls, while ECB buys everything afterwards to eliminate the resulting moral hazard.

          So sad, so neat… so cosy for some.

  5. michael
    Jan 22, 2019 at 11:29 pm

    On a somewhat related matter, how will this bankruptcy affect previous agreed upon credits for those people who have solar panels and sell power back to the grid?

    • Auld Kodjer
      Jan 23, 2019 at 4:24 pm

      Form two lines please.

      Bankers and management to the right.

      Crucifixions to the left.

    • Jan 23, 2019 at 5:08 pm

      I doubt those solar credits will change, they have more to do with state law.

      For now nothing is changing with regards to customer billing.

      There’s a chance that electricity rates will go up after the bankruptcy proceedings complete though – it depends what is negotiated with both the creditors and the CA regulators. State regulators must agree to any rate hike though.

  6. Bernadette
    Jan 23, 2019 at 12:19 am

    Bottom line, PG & E Corp has turned a blind eye for too many years. Their Archaic Corporate Stodgy management style has caught up with them finally — Sad at the expense of all California citizens.

    Since their ongoing ‘mea culpa’ 2007 San Diego fire payouts https://www.sandiegouniontribune.com/sdut-fire-lawsuit-witch-creek-settled-electric-2014dec05-story.html — and
    last year’s fire in Northern California https://www.sfchronicle.com/business/article/PG-E-to-pay-2-5-billion-for-Wine-Country-fires-13013596.php

    https://www.bloomberg.com/news/articles/2018-04-23/edison-pg-e-seek-mercy-from-courts-over-doomsday-fire-payouts

    will only result in business opportunities for Alternative Energy such as Solar and Windmill. Stay tuned Californians…In the meantime, watch out for PG & E trending gimmicks to assuage your increasing electricity bill.

  7. Henri
    Jan 23, 2019 at 12:22 am

    So what dows this mean for the shareholders? Is the stock going to be a penny stock?

    • Jan 23, 2019 at 12:27 am

      No one knows. In most bankruptcies, the old shares get cancelled and no longer represent anything and become worthless and ownership of the company gets transferred to creditors. However, in some bankruptcies when there are a lot of good assets, as is the case with PG&E, there may be some crumbs left over for old shareholders. This could be in form of very heavily diluted shares. Right now, this is a real gamble.

      • Stockolio
        Jan 23, 2019 at 12:48 am

        Excellent article!

      • Henri
        Jan 23, 2019 at 1:10 am

        A lot of believers out there thinking that the company will get bailed out by the state keeping the stock price high. I guess they will find out soon the hard way

      • MooMoo
        Jan 23, 2019 at 12:09 pm

        The Lender of Last Resort was not defaulted on. .. The IMF. Default swaps were not triggered. “Selective Default”…??? Did cross government holdings get defaulted on? No. The there is no real default… because that is the one that counts.

        The rest is window dressing… and a ‘haircut’ is not a default. A default is when all holders are left with worthless paper… The Greek people are paying to keep the German banks, the IMF and each others Treasuries whole. THAT is the story.

        • MooMoo
          Jan 23, 2019 at 12:11 pm

          The Fudge (“selective default”) is exactly why there has been No real default.. and why Greece suffers to keep German banks whole.

        • Jan 23, 2019 at 12:30 pm

          MooMoo,

          German banks are in the “private sector.” Those that held Greek bonds were forced into the debt restructuring and haircut.

          But Eurozone taxpayers, including German taxpayers, were spared a haircut because public-sector holders (=taxpayers) of Greek debt (ECB, bailout funds, etc.) were made whole.

          The problem was that Greece could no longer borrow at cheap rates in the markets because the markets had lost confidence and Greece’s debt was rated deep junk. At the time, for Greece to issue 10-year bonds, it would have had to pay over 10% in interest. It just couldn’t afford to do that.

          But Greece HAD to borrow because it ran huge government deficits (that is something the Greeks did to the Greeks, and not the Germans to the Greeks). These deficits needed to be financed with new debt. So the Greek government went begging for a bailout, cajoling and threatening the Eurozone, to try to get what it wanted.

          The Greeks had a chance to vote whether or not to stay in this system, and they voted to stay in it, because they remembered what life was like before they got the euro and before they could borrow cheaply in euros to live above their means, because the drachma had been constantly devalued and it was nearly impossible to borrow in drachma longer-term.

          Get a chart of the drachma against the dollar. And you’ll understand why the Greeks voted to stay in the euro system – because they do NOT trust their own government in managing a currency.

  8. Trinacria
    Jan 23, 2019 at 1:01 am

    Wow…every day the proverbial “stuff” seems to hit the fan!!! I guess we’re not in Kansas anymore???!!! As King Theoden in Lord of Rings says: “how did it come to this???”
    So, when does Tesla formerly go bankrupt? I know it’s a game how the heavy concentration of shareholders seem to keep the price up. What a joke that “company” is.

  9. Iamafan
    Jan 23, 2019 at 1:10 am

    141 ETFs hold PG&E including the XLU.
    https://www.etf.com/stock/PCG

  10. Rcohn
    Jan 23, 2019 at 1:25 am

    At its center the process is a political one.Those who lost their property in last years fires are suing the utilitity for an estimated total of over 30b and will lose out if the utility declares bankruptcy , so there is political pressure to NOT declare bankruptcy. On the other hand ,raising future rates to pay off these claims , is a large negative cloud facing Cal legislators.

  11. Old Engineer
    Jan 23, 2019 at 3:33 am

    I really don’t understand 3 things. 1. How can the law allow PG&E to replace existing senior debt with new without some form of compensation for the existing senior debtors? And if they can do that can they then replace the DIP creditors with more senior debtors? 2. Why does a utility with its huge cash flow need to borrow enormous amounts of money on an ongoing basis? Doesn’t this mean it is operating at a loss and doomed anyway? 3. If the company is so cash flow poor and it does default, where does the money to run the company come from if it’s account receivables go to pay off the DIP loan?
    The whole PG&E business sounds “bogus” to me.

    • Rowen
      Jan 23, 2019 at 4:14 am

      Historically, the BK law allowed DIP borrowing to be senior to existing creditors under the belief that the existing creditors would be wiped out without said DIP.

      Now, especially once private equity got involved, it’s just another form of skimming by “cutting to the front of the line”, which is why companies will file multiple BKs shotgun style.

      Corporate BK is totally corrupt.

      • Iamafan
        Jan 23, 2019 at 5:39 am

        POTUS did it 6 times. Using the law to “restructure” debt. You think we can repay the nation’s debt? Some States or Municipalities have experience.

      • Anonymouser
        Jan 23, 2019 at 4:42 pm

        This is incorrect, DIP financing can only prime secured debt if the debt holders consent or are given equivalent value. Normally this results in the existing senior debt holders providing DIP financing, or unsecured assets being used to secure the DIP financing.

    • Jan 23, 2019 at 10:00 am

      To your question # 1. The applicable law is the federal bankruptcy code. All creditors understand this when they lend money. Without DIP financing, nearly all bankruptcies would end in liquidation and fire sale of the assets because companies are out of money and cannot go on. This would often be the worst outcome for senior creditors.

      To your questions #2 & 3: No, PG&E has not borrowed an unbearable mount of money and is not “cash-flow poor.” It faces $30 billion in claims from the wildfires, under California law, but does not have those $30 billion and cannot borrow that much additional.

      • Old Engineer
        Jan 23, 2019 at 11:15 am

        I appreciate your explanation, and without trying to be obnoxious I simply don’t understand why they need to borrow very much. They have money coming in hand over fist every month (and it is spread over the month). I understand only a little of financial things, and I know they need to borrow some over the year to even out their money requirements, but did they intentionally spend their accounts down to zero in order to help justify bankruptcy? If they did that to avoid paying the wildfire claims it seems tantamount to fraud. They will zero out the stock and so have no dividend to pay, they won’t have to pay the $30 billion wildfire claim, the bankruptcy will zero that out, and even allow them to do haircuts on their bonds and so reduce their interest payments. I don’t deny your assertion that they need cash, I just don’t see where the great need for cash comes from.

        • Jan 23, 2019 at 12:13 pm

          Old Engineer,

          Whether or not PG&E actually has the need to file for bankruptcy is hotly disputed by hedge funds (such as BlueMountain Capital) that bought its shares at much higher prices and that now sit on huge losses, and that will likely get wiped out, or nearly wiped out, in a bankruptcy.

          This is a very complex and very murky situation.

        • Stockolio
          Jan 23, 2019 at 12:41 pm

          Sometimes swap holders make more from bankruptcy then the bond being repaid… Figure that one out, you figure out corporate bankruptcies

        • Earthtone
          Jan 24, 2019 at 10:14 am

          I suspect the cash is needed for a series of Golden Parachutes.
          Also, “to retain key personnel”
          Meaning – gosh my stock options are now worthless

        • Dangerous Dave
          Jan 24, 2019 at 5:30 pm

          Old Engineer.

          As an Engineer (from the UK) myself this makes no sense to me either. I presume that the whole thing is merely a charade (game) where a few people stand to make enormous amounts of cash while the majority lose.

      • Sadie
        Jan 24, 2019 at 10:38 am

        Are the sum of the parts worth more than the whole?

  12. secant
    Jan 23, 2019 at 7:21 am

    And so how does any of this magical “DIP” financial engineering hedge against the risk of cyclical bankruptcy due to accelerated climate change? Note that regardless of “why” we are having climate change, it is happening…and California is experiencing the effects sooner than most states.

    The problem with removing the time value of money, via near zero rate policy, is that short sighted long term decisions can be made at every level, including bailing out PG&E, while continuing with business as usual. I suspect as being a somewhat selfish and short sided species by nature, this makes sense as those making the decisions are old enough to understand such short term thinking and planning will not affect their own lives over the next and most likely final 20 to 30 years.

  13. unit472
    Jan 23, 2019 at 7:55 am

    I’m curious as to how an electric utility will be able to continue to operate in California given that the same conditions that existed prior to the wildfires will not change. That is power lines will still run through the same rights of way. Will they be de-energized as PG&E had suggested during periods of high fire risks, in effect, shutting down places Paradise or, more problematic, Silicon Valley and Malibu? Putting them all underground would be enormously expensive and electric rates in California aren’t cheap now. Distributed generation isn’t an option for everyone and it would not be a 24/7 year round option for most unless they have a fossil fuel back up generator with ‘gas’ provided by PG&E. Don’t think California’s environmentalists are going to let homeowners and businesses put 500 gallon diesel tanks in their back yards.

    • Justme
      Jan 23, 2019 at 2:59 pm

      From wikipedia entry about the Camp Creek Fire (CCF):

      >>A policy it adopted subsequent to the North Bay fires precluded shutting off lines carrying more than 115kV because of the number of customers this shutdown had negatively impacted.[33]

      From this I gather that the power line that started the CCF was more than 115kV (possibly includes 115kV?). It was not a smaller neighborhood distribution line. That is likely the reason it was not shut down — the Transmission Line TL) was essential to the operation of the grid. Yet, when the TL fell down (failed, whatever), there were no outages except locally? How many people lose power when you shut down a 115kV line?

      I’d really like to understand the parameters of the shutdown question better, as well as all other information that the newspapers never print about the fires, whether it is because the journos are not smart enough to ask or because PG&E are trying to hide the specifics.

      I would like to ask people to contribute links to technical data and specifications. maps, images, anything that can make the public understand. Is there a *good* fire blog out there? I’m poking around and have not found anything very technical yet.

  14. Gorbachev
    Jan 23, 2019 at 9:15 am

    One reason bond yields are so low is bond holders don’t get

    wiped out during these situations.But I don’t think bond

    holders would be so generous if there was more risk

    for them.

    • Old Engineer
      Jan 23, 2019 at 9:28 am

      Well why does PG&E need DIP financing? What is it that it needs to borrow for? Do they borrow short term for capital improvements and maintenance? Or do they need to borrow to meet day to day costs? If they are borrowing just to meet day to day costs, which must exceed their revenues, then they are doomed sooner or later anyhow.
      And when they cancel the existing stock and issue new stock they will get a new supply of money, the US not being short of fools.
      And we know the pension funds will get stiffed in the bankruptcy and so will anyone who thought they were going to get damages from the fire from them along with numerous small creditors. The banks and of course the management, who will bonuses to keep their important talents, are the only ones. It all seems like an enormous Ponzi scheme.

    • MooMoo
      Jan 23, 2019 at 10:06 am

      exactly… government has decided to buy 4ever…

      That will end well… even if it may be 10-20 years out.

  15. Iamafan
    Jan 23, 2019 at 9:48 am

    This should serve as a huge warning shot to “cov-lite” CLOs.
    If you hold these things, beware. You could be holding less that you think.

  16. RD Blakeslee
    Jan 23, 2019 at 10:09 am

    There are problems with no solutions and it seems to me that California as a whole is one of them.

    I say that as a West Virginian, whose state has a generally smelly reputation, nationwide.

    So, their are “truisms” that are without foundation.

    Actually, It’s in my interest that the WV truism persists. I couldn’t live the way I do if an accurate evaluation of West Virginia’s attractions caused a large influx of refugees from California, or anywhere else:

    https://lenpenzo.com/blog/id22017-how-i-live-on-less-than-40000-annually-ralph-from-west-virginia.html

    Specific to access to household electric power: The absence of heavy regulation enables me to supply my own power needs for up to six months by means of a diesel-powered generator and a 500 gallon diesel tank. My house is on a wooded ridge, but wildfires don’t regularly occur here and a few of my oak trees are over 200 years old. Etc., etc.

    A way of life totally foreign to those who “invest”, i.e., game the fiat money financial system.

  17. Paulo
    Jan 23, 2019 at 10:58 am

    regarding: “Collateral will be the Utility’s accounts receivable.” That is for the short term operating loan, but will this also apply to DIP, ongoing?

    Because if the DIP goes to the head of the creditor line, and the DIP has a claim on the Company assets, it’s pretty easy to make 2+2 =10 It looks like DIP is really a tick, lining up to suck on the ratepayers for a long long time until they call political foul, and then the CA Govt steps in to alleviate ratepayer pain by paying off DIP. When the dust settles PG&E rates will be much much higher, forever. The banker DIPs will have made out like bandits, and after funneling a few campaign contributions and making a few phone calls to News conglomerate owners/editors everything falls off the radar, or hides behind further dysfunction of a system/country in collapse.

    Someone always makes money in this system. Even catastrophe is an excuse to goose some profiteering.

    From Mirriam Webster, “one who makes what is considered an unreasonable profit especially on the sale of essential goods during times of emergency”

    • Paulo
      Jan 23, 2019 at 11:00 am

      Forgot to add: This will even goose the GDP numbers, so it must be good news, right?

  18. secant
    Jan 23, 2019 at 11:22 am

    $30 billion in liabilities seems low. Novembers 2018’s Camp Fire disaster alone caused $17 billion in damages and 86 deaths. Cal Fire determined PG&E equipment sparked more than a dozen fires in 2017 alone, at a cost of $15 billion. I assume $30 billion is for 2018 only?

    On the bright side, at least Kim Kardashian’s $50 million mansion was saved by her private firefighters. Hmmm…yet had her place been destroyed and been rebuilt, $50 million more GDP could have been added to GDP. “Luckily” GDP does not believe in the broken window fallacy, or we could not have counted the $306 billion in natural disasters in 2017, and likely $400 billion for 2018. And having stunningly watched my personal and business insurance rates more than double over the last decade, I do not have to wonder who pays for all GDP spikes. So when the modern economic system does not allow PG&E to “actually” go “old style” bankrupt…just know ALL the hard working folks at the bottom of the money food chain end up paying for mistakes not of their own making, most likely through exponentially more expensive electric rates…

    If modern economics was not so indelibly insane, it would be boring…

    secant

  19. Jan 23, 2019 at 12:04 pm

    BTW, here is the 100+ year-old PG&E utility pole 8 feet away from our balcony, mentioned in the article. Note how the rot has eaten up the top (click on pic to enlarge):

    • secant
      Jan 23, 2019 at 12:30 pm

      LOL…that post is one woodpecker away from disaster. It would make more sense if the photo was black and white with horse drawn carriages on a dirt street below…HA

      Actually, it should be good as long as there is no dry rot right below that lower transformer bolt hole. Although that “jagged wicked pole top” will sure soak up a lot of rainfall, yet the poles are typically soaked in highly carcinogenic creosote which helps stop decay from moisture and insects damage. And look on the bright, the tension cable keeps it from falling on a car in the street….not so much the pedestrians below…=0

    • Old Engineer
      Jan 23, 2019 at 12:44 pm

      What is really interesting in this picture is that the circuit breaker is open! Either that transformer is not energized or they have wired around the circuit breaker, or you took the picture after something blew the circuit breaker. (The circuit breaker is that long skinny white rod with the circular pull tab on the end that is hanging down. It should latched in an upright position in parallel with the grey finned insulator.)That is very curious.

      Huntsville recently did a project to replace bad poles. They used the scientific method to detect bad poles of a guy putting his ear to the pole and tapping on it with a hammer.

      • Jan 23, 2019 at 1:04 pm

        Yes, an engineer’s eyes! I took this pic some time ago when they were working on a pole nearby, so they threw the whole neighborhood into a blackout.

        I have meanwhile replaced the photo you saw with one I just took, which is better illuminated by the sun and shows the pole better. Also note, the circuit baker is back in place, and we have juice.

        • Iamafan
          Jan 23, 2019 at 1:21 pm

          Maybe you guys need a hurricane or some other catastrophe.
          I live in New England (antique has a different meaning here). Anyway, after Hurricane Sandy, the electric company had to replace the poles since they fell. Ironic. Like the broken window fallacy in GDP.

    • w.c.l.
      Jan 23, 2019 at 2:19 pm

      OMG, Wasn’t that one of the props from the original Frankenstein movie?
      Thanks, I really needed a good laugh today.

    • HMG
      Jan 23, 2019 at 2:40 pm

      Looks like one of the electricity poles I saw in Jamaica last time I was there.

    • MC01
      Jan 24, 2019 at 7:59 am

      It’s exactly the same thing as the telephone poles which are supposed to service my house which are actually older than I am (they carry a copper plate with date of installation).
      The problem is the telephone wire is just as old and battered (and mind you: this was a high net worth area until real estate speculators moved in the area last year and the exodus started; my house is already up for sale) and squirrels and dormice use it as a chew toy.
      Mercifully a nice wireless provider arrived in the area exactly one year ago. Amazingly fast and reasonably priced as well.
      Otherwise I would be back at using smoke signals and drums.

    • Big Al the Butchers Pal
      Jan 25, 2019 at 6:41 am

      If that is the general state of the electrical infrastructure, Crikey! that is of a third world standard (India, Africa, Indonesia etc). This would never be accepted in Australia (where I am). Furthermore, pole mounted transformers in an urban area! Crikey! and underground power not retrofitted in such areas. That is billions (if not trillions) in required distribution infrastructure investment, just to bring the existing system up to an acceptable standard. With 25% of US GDP already sucked up into rip-off health care, another 15% wasted in meaningless wars, another 15% in government and private interest, where will the money come from? If the roads, water, sewer, telco, internet infrastructure is all the same, Crikey, you lot are absolutely and truly stuffed. Overall bad infrastructure is like a 200% debt upon GDP (on top of your existing debt and a country that collects bugger all tax). The Trump ultimate reality TV show may as well just keep the US Govt shut down forever, and simply spend the money upgrading your shocking infrastructure. Perhaps your Govt shutdown is a blessing in disguise. Without proper infrastructure, you will have no economy.

  20. Sporkfed
    Jan 23, 2019 at 12:33 pm

    A good portion of this country’s infrastructure
    is dilapidated and in serious need of repair or
    replacement. From water and sewer systems
    to the electrical grid. There are some cities
    that are going to be in hock up to their eyeballs.
    Higher taxes here we come.

    • RD Blakeslee
      Jan 23, 2019 at 2:33 pm

      As an addendum to my earlier post: My electric service pole is 41 years old, in good condition, 300 feet from my balcony with a buried cable from the pole to the service entrance.

      Some of the commentary here refers to restrictions on life (regulations, bureaucracy, etc.)

      Here in WV, the power company and I cooperated to set the pole where I wanted it – no bureaucrats involved.

      • Paulo
        Jan 23, 2019 at 3:07 pm

        Hey RD,

        Where I live, in the land where Hydro electrical energy is accepted as an essential service and remains under a public Crown Corporation utility, we are on a first name basis with a line crew due to my son being a past electrical contractor. During the last emergency outage ‘Larry’ did the service call by himself, stopped at the house and asked what breaker blew? I showed him the fried stellar jay and received a, “Great, that’s all I need to see”. It took about 5 minutes for the reset and lights back on.

        There is this myth below 49 that all Govt corporations are faceless, inept, and inefficient. The reality is opposite. Their mission is readily apparent, lights, heat, and service. With privatised utilities the mission is profits, and as little service as absolutely necessary to keep profits elevated.

        The difference in performance between Telus, (our private phone service), and BC Hydro is stark. We had a huge windstorm just before Christmas. Both services share the same hydro poles. BC Hydro had everything repaired and replaced in 48 hours. Telus hasn’t even started yet and many of their phone lines are touching the ground. But hey, it’s only been 4 weeks.

    • Erle
      Jan 25, 2019 at 11:59 pm

      NYC still has over one hundred year old septic systems with wooden ducts.
      The streets here are horrible. I used to ride a track bike on the streets with a single front brake for stopping. One could draft on a car or truck with small worry of getting dumped by a bad surface.
      Now all of my tubular tire bikes are junk without having fat tires and a dorky helmet.
      It is a long way from drafting on the mail truck at 55 miles per hour along Lake Michigan. Back then the costs of vehicles was decent too. 16.00 for car license and 4.00 for motorcycle. 100k of liability for each bike cost 40.00 and less for the fleet rate.
      They eat us alive.

  21. Justme
    Jan 23, 2019 at 3:04 pm

    I posted some technical questions about transmission lines and wildfires further up. In retrospect it probably should have been a standalone comment/request placed here. Fell free to add answer here, or @wolf move the comment.

  22. Cashboy
    Jan 23, 2019 at 4:41 pm

    I think that it is disgusting that creditors had set up Fixed and Floating charges on the assets and then out of the blue, a few banks can come along and lend the company money ( with in effect a Fixed and floating charge above the existing ones), then take the money back in bank charges and fees and then get the assets of the company.

    • Justme
      Jan 23, 2019 at 5:09 pm

      At least the current shareholders and bondholders should be able to participate based on the size of their holdings, rather than being shut out from the process. The banks should only be allowed to lend whatever could not be raised from current shareholders and bondholders. Is that how these things usually work in the western world in general? Is the US different?

  23. Laughing Eagle
    Jan 23, 2019 at 6:35 pm

    Being that California is a tinder box of brown vegetation waiting for any fire source to burn, seems to me PG&E should replace all new electrical wires underground, but that increases costs and affects the bottom line. And then we have people building houses in wooden areas prone to the fires, and building codes not requiring fire retartant materials, especially for roofs, seems both the people and governements are to blame for those who build in these wooden brown areas. This whole mix is a triad of people, govenment, and utilities not really accessing their risks.
    But suits to reclaim your loss is because you did not fully realize the risk, really, I blame the people building in areas close to vegetation as much as a utility company who does not lower their risks and government for not imposing proper fire retardant building codes.

  24. Lune
    Jan 23, 2019 at 7:53 pm

    I’m scratching my head… PGC market cap today was still > $4Bil. Are there shareholders who still think that after everything is done, they’re going to leave $4bil of assets to shareholders???

    • secant
      Jan 24, 2019 at 2:27 pm

      No need to scratch your head Lune, TBTF monopolies like PG&E can simply quintuple your electric rates, as discussed today at CNBC:

      “PG&E says it might have to quintuple rates if it’s forced to clear trees and inspect electric grid”

      https://www.cnbc.com/2019/01/24/pge-says-it-might-have-to-quintuple-rates-if-forced-to-clear-trees.html

      • Jan 24, 2019 at 7:13 pm

        secant,

        That’s a click-bait CNBC nonsense headline. That was in response to what a judge unrealistically through into the air for PG&E to do, which would be nearly impossible to do in such a short time, and PG&E came back with an equally unrealistic number, and everyone in the industry agrees that this is unrealistic.

        • secant
          Jan 25, 2019 at 3:26 am

          Wolf – I understand as the first thing I calculated was spending $150 billion, at $3,000 per acre to clear all trees (my average from personal experience recently clearing 52 acres to increase tillable acreage), would result in 50 million acres cleared. Quick search on Google showed CA is approximately 100 million acres. Hmmmm…

        • Jan 25, 2019 at 9:41 am

          secant,

          Yes, that’s exactly what I was saying. It was a totally unrealistic number, not just in the way you pointed out, but in many other ways too, and everyone knows it. But CNBC turned into a click-bait headline.

  25. Earthtone
    Jan 24, 2019 at 9:01 am

    Why would DIP financing be necessary?
    PG&E revenues would not change materially.
    Payouts due to lawsuits would stop or slow or be put on hold because of the bankruptcy filing.
    Even payouts to suppliers, pensions, etc. could be “adjusted”.
    So why the DIP financing?

  26. WSKJ
    Jan 24, 2019 at 3:47 pm

    Great post and commentary. Ditto all the cynicism.

    That is quite a photo of your 8-ft.-away utility pole, Wolf. That picture is well worth a thousand words.

    Wolf, somewhere above, you seemed to imply that most bankruptcies involve some DIP financing. Did I understand that correctly ? But one does not often read about senior secured bond holders being displaced. Is this just another new better way of doing business (sarc.) ?

    • Jan 24, 2019 at 7:24 pm

      Most chapter 11 bankruptcies where the company’s debts are being restructured require DIP financing to pull it off. The reason is that as soon as a company files for bankruptcy, it’s automatically in default on its debts, and all access to credit is cut off. A company that files for debt restructuring usually doesn’t sit on a lot of cash. So it needs funding to meet payroll etc.

      Senior secured creditors are NOT screwed out of their money by DIP financing. They’re usually fine with DIP financing and they have their say on it during the bankruptcy proceedings. If enough of them disapprove of it, and then the judge agrees with them, then the company goes into liquidation. That’s the other option.

      • Erle
        Jan 26, 2019 at 12:08 am

        What guarantees do the ratepayers have if they will not support the scheme?
        It seems as though the goomint forced PGE into being bound to not doing what the more prudent in the company said needed to be done.

Comments are closed.