Power Players: Bold Investors Make Bets On Bonds of Struggling California Utilities

• Published in: The Wall Street journal. Eastern edition
• Main Author: By Gregory Zuckerman and Jathon Sapsford
• Format: Newspaper Article
• Language: English
• Published: New York, N.Y Dow Jones & Company Inc 19.01.2001
• Edition: Eastern edition
• Subjects: Bankruptcy; Electric rates; Electric utilities; Heard on the street (wsj); Investment; Investments; Prices; Stock exchanges; United States > US; California
• ISSN: 0099-9660

Behind such movements are aggressive investors such as money manager Martin Whitman, of M.J. Whitman. "We're trying to buy the secured [bonds] like it's going out of style, and some of our smartest clients are buying the unsecured debt," says Mr. Whitman, who runs Third Avenue Value Fund, a mutual fund, as well as hedge funds. Mr. Whitman, whose firm also acts as a broker-dealer for distressed debt, hopes to buy as much as $200 million of the bonds in coming weeks. His only frustration is that the prices aren't coming down. Why do the bulls--including distressed-debt specialists as well as funds such as Mr. Whitman's -- see so much value in the utility mess? Unlike the run-of-the-mill troubled company, the utilities are so big, and so important to the California economy, that some form of resolution will likely be found to help them get back on their feet, perhaps by allowing the companies to boost electric rates. Even if a bankruptcy proceeding results, the utilities control sufficient assets to give bondholders a good chance of full recovery of their principal and even eventual payment of any missed interest payments, bulls say. Even as Mr. Whitman and others place their new bets, many investors who months or even years ago bought the utilities' debt figuring it was rock solid are licking their wounds. "We stayed away from tobacco. We stayed away from Japanese banks," says Orange Country Treasurer John Moorlach, who invested $40 million in Edison's commercial paper before the credit-ratings agencies downgraded the utilities' debt. With the two California utilities now rated below other investments that Mr. Moorlach wouldn't touch, he says, "It's frustrating."