Attached is the 8-K PG&E filed yesterday with the SEC after the bond rating
agencies downgraded their credit. Notice that the cash flow problem is at
both the parent and the utility subsidiary -- both are in default under
their bank lines of credit and the banks are refusing to waive the defaults.
Combined, the two entities have about $1 billion in cash, but face payment
obligations of $2-3 billion over the next 60 days.
http://biz.yahoo.com/e/010117/pcg.html
There are two signs that a bankruptcy is imminent: trade vendors are
refusing to supply except on a cash basis, and the company has stopped
making payments to creditors in order to increase its cash reserves. It is
bankruptcy 101 for companies to stiff creditors right before bankruptcy in
order to increase cash reserves -- Chapter 11 is expensive and you need as
much cash as possible to pay critical vendors on a going forward basis.
Similarly, vendors are waiting for bankruptcy to extend credit -- the
repayment of credit extended post-bankruptcy has a priority over the
repayment of credit extended pre-bankruptcy.
Unless the legislature agrees to in effect guarantee the repayment of all
credit extensions by suppliers and vendors, the companies may be in
bankruptcy as early as tomorrow -- voluntarily or involuntarily.
Regarding the sister corporations that generate electricity, it is true that
they are "bankruptcy remote" as we say. However, to the extent they are
wholly-owned subsidiaries of the parent, and the parent goes into
bankruptcy, the stock in the subsidiary will be an asset of the bankruptcy
estate. As a practical matter, I assume the creditor constituencies would
pressure the parent to upstream dividends from the subsidiary to the parent
in order to assist the repayment of the parent's debts. This wouldn't
necessarily directly benefit the creditors of the utility, but in the
context of a global restructuring, you can bet that the non-bankruptcy
sisters will be making a contribution.
What is truly bizarre, however, is that to the extent that the sister
corporations have been selling electricity to the California power exchanges
that act as the market between the suppliers and the utilities, the sister
corporations are conceivably creditors of the utilities and will have huge
claims.
Like I said, this is going to be such a mess that only the bankruptcy
lawyers are going to win.
David Shemano
-----Original Message-----
From: [EMAIL PROTECTED]
[mailto:[EMAIL PROTECTED]]On Behalf Of Eugene Coyle
Sent: Thursday, January 18, 2001 6:37 AM
To: [EMAIL PROTECTED]
Subject: [PEN-L:7099] Re: Re: Re: RE: Bankruptcy again
I shouldn't be as flip as I was a minute ago. There are real problems
here --
the lights went out yesterday for some areas, and maybe will again today.
But
the cash deficit is a lot smaller than the claim.
Gene Coyle
Ken Hanly wrote:
> So the whole story is:
> My right pocket is bankrupt, my left overflowing.
> I go to the state crying out that I need money in my right pocket to
keep
> providing these great power services to the public..
> The state fills my right pocket...
> I go laughing all the way to the bank..
> Cheers, Ken Hanly.......
> ---
> -- Original Message -----
> From: Eugene Coyle <[EMAIL PROTECTED]>
> To: <[EMAIL PROTECTED]>
> Sent: Wednesday, January 17, 2001 11:25 PM
> Subject: [PEN-L:7094] Re: RE: Bankruptcy again
>
> > The Calif utilities transformed themselves into holding companies a few
> years
> > back. The incumbent utility pieces have got severe cash problems but
the
> other
> > pieces of the two holding companies are doing very well.
> >
> > FERC (Federal Energy Regulatory Commission) astonishingly on Dec.
28th
> let
> > PG&E put an additional fence between the utility piece and the rest, so
> that
> > the cash and assets of the rest can't be touched by the sister company.
> People
> > are a little annoyed.
> >
> > A little annoyed, yes, like having the "Annoyed cow disease."
> >
> > We'll see what happens.
> >
> > Gene Coyle
> >
> > MORE: Even within the utility piece, they have declared that there are
> two
> > pots of money, never to be mingled. The utilities still retain
> signifigant
> > generating capacity and are selling the output at high market prices.
> This
> > offsets roughly half of what they claim to be losing. The utilities
> contention
> > is that the cash in-flow is to go in a separate and untouchable pocket
> from the
> > emptying cash out-flow pocket.
> >
> > Gene
> >
> >
> >
