Skip to main content
No. of Recommendations: 2
Pacific Gas & Electric (PCG) serves most of N Cal. Lawsuits over fires --not entirely their fault-- forced them to file BK, which is generally a disaster for owners of the common and the debt alike. But this time, them who bet on the bonds did well, whereas the stock jocks are likely still underwater.

The fires are history you can look up. But by that Fall, the stock was under pressure and hit a local low on 11/15/18, on truly massive volume, creating a possible entry. Let's assume our stock jock got in at market close i.e., 17.74. He/she would still be down by half, given that PCG closed Friday at 9.09. Whereas, this --in fact-- is what I did.

"If the stock is getting trashed", I thought, "probably the bonds are, too." So I went shopping and picked up their some of 6.35's of '38 at 91.830 in one account and another maturity at a better price in another. As the bad news increased and the leftists became more belligerent, the stock crashed, but the bonds increased in price. Why? Because "someone knew something" and was bidding the bonds. Who? I have no idea. But pricing said that owners of the debt weren't at much risk.

Nonetheless, I began to be uncomfortable with my exposure to the uncertainties of the situation and traded out of a portion of it at a tidy profit, leaving the rest to ride, which resulted in a swap of new debt for old (the 4.55's of '30 and the 4.95's of '50), both of which are currently trading at a prem to par, offering me an avg cap-gain of 24% on my basis in the trade, which needs to be boosted by coupons received before they were stopped, plus some recent workout cash. So, let's call it a YTP (Yield to Present) of around 18%, or what a decent junk bond used to pay.

This isn't how all --or even most-- bond BKs turn out. On rare, rare occasions, I've been made entirely whole, as in, full return of principal, as well as all accrued coupons. On others --and far more commonly-- I received only pennies back on dollars risked. But this time, buying the debt, rather than the common, was the better trade.

-----------------
Date Open High Low Close* Volume
1-Nov-18 46.84 47.35 46.56 47.18 4,194,700
2-Nov-18 47.46 47.59 46.76 47.44 3,733,200
5-Nov-18 47.95 48.84 47.60 48.71 4,427,700
6-Nov-18 48.90 48.93 47.93 48.58 5,332,900
7-Nov-18 48.68 49.42 48.45 48.80 3,837,000
8-Nov-18 48.96 49.24 47.06 47.80 7,940,500
9-Nov-18 44.48 44.58 39.79 39.92 23,627,100
12-Nov-18 33.16 35.15 24.95 32.98 44,033,200
13-Nov-18 32.60 33.26 30.76 32.72 17,907,500
14-Nov-18 26.95 29.20 22.35 25.59 53,543,100

15-Nov-18 24.01 24.18 17.26 17.74 107,155,700

16-Nov-18 25.21 25.51 23.01 24.40 54,698,400
19-Nov-18 22.37 23.39 21.54 23.26 22,846,000
20-Nov-18 24.17 24.41 23.08 23.51 16,367,400
21-Nov-18 23.64 24.55 23.64 24.30 10,688,600
23-Nov-18 24.07 24.08 23.26 23.84 5,736,500
26-Nov-18 23.52 25.16 23.34 25.12 9,648,200
27-Nov-18 25.56 27.00 24.96 26.97 19,132,500
28-Nov-18 27.52 27.52 26.29 27.46 13,017,200
29-Nov-18 27.10 27.60 26.22 26.76 10,133,100
30-Nov-18 26.81 26.99 26.02 26.38 9,689,900
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.