enron mentions congressional panels to probe enron ' s accounting , trading
bloomberg , 11 / 29 / 01
nymex tells members enron trades must be approved ( update 2 )
bloomberg , 11 / 29 / 01
dynegy ceo says he ' d rather have enron pipeline than $ 1 . 5 bln
bloomberg , 11 / 29 / 01
italian banks fall on concern about enron exposure ( update 2 )
bloomberg , 11 / 29 / 01
argentine analysts , perez companc comment on tgs after enron
bloomberg , 11 / 29 / 01
duke , williams among companies facing enron losses ( update 2 )
bloomberg , 11 / 29 / 01
enron ' s problems aren ' t industry problems , felsinger tells cnbc
bloomberg , 11 / 29 / 01
california ' s senator dunn comments on possible enron bankruptcy
bloomberg , 11 / 29 / 01
cibc says it is owed $ 215 million by cash - strapped trader enron
bloomberg , 11 / 29 / 01
intelligent asset ' author bernstein comments on 401 ( k ) plans
bloomberg , 11 / 29 / 01
enron corp . has fourth - busiest day for a u . s . stock : table
bloomberg , 11 / 29 / 01
enron corp . is poised to file largest - ever bankruptcy ( update 3 )
bloomberg , 11 / 29 / 01
congressional panels to probe enron ' s accounting , trading
2001 - 11 - 29 15 : 59 ( new york )
congressional panels to probe enron ' s accounting , trading
washington , nov . 29 ( bloomberg ) - - senate and house
committees will investigate the collapse of enron corp and
consider new regulations for electricity and natural - gas trading .
enron , the largest energy trader , is expected to file for
chapter 11 protection after the collapse of a planned merger with
dynegy inc .
the house energy committee will hold hearings as early as
next month to scrutinize the accounting practices and earnings
reports of enron , said ken johnson , a panel spokesman . the senate
energy committee may begin looking in january at more federal
oversight of trading .
` ` when you have such a spectacular event as the collapse of a
company that controlled 50 percent of the natural - gas and
electricity trading , we ' re going to have some thoughts on that , ' '
said bill wicker , a spokesman for the senate energy committee .
enron ' s importance in energy trading and questions about its
accounting practices require an investigation , said senate
majority leader tom daschle of south dakota .
` ` i don ' t know that anybody knows yet just how this happened
and how it happened so quickly , ' ' he told reporters on capitol
hill . ` ` it raises some very serious questions . ' '
the unraveling of enron , which is saddled with $ 15 billion in
publicly held debt , began in october . shareholders ' equity was
reduced by $ 1 . 2 billion because of the way the company accounted
for outside partnerships it created . the announcement prompted
lawsuits and an investigation by the u . s . securities and exchange
commission .
nymex tells members enron trades must be approved ( update 2 )
2001 - 11 - 29 15 : 16 ( new york )
nymex tells members enron trades must be approved ( update 2 )
( adds analyst quote in fourth paragraph , enron share price in
sixth paragraph . )
new york , nov . 29 ( bloomberg ) - - new york mercantile exchange
president j . robert collins told brokers on the largest energy
exchange ' s trading floor that they could not accept orders from
enron corp . unless they receive written authorization from an
exchange clearing member .
the order is effective immediately and will ` ` remain in
effect until further notice from the exchange , ' ' according to a
fax collins sent today to member firms . a copy of the fax was
obtained by bloomberg news . exchange officials did not immediately
return phone calls .
enron ' s worsening financial condition has made many clearing
members , which back trades on the exchange for a fee , wary of
taking on additional business from enron . the nymex order aims to
alert independent floor brokers that clearing members who once
freely accepted enron trades may no longer be so willing , analysts
said .
nymex is ` ` reminding everyone that it ' s not business as usual
when it comes to enron , ' ' said tim evans , senior energy analyst at
ifr pegasus in new york , a unit of thomson corp . ` ` for enron , it
mean slower order execution - - as if they don ' t have enough
handicaps already . ' '
enron may be forced to file for bankruptcy to liquidate
assets to pay off some of its $ 15 billion in publicly held debt ,
analyst said . enron shares fell 24 cents to 37 cents in afternoon
trading . that ' s down from about $ 80 at the beginning of this year .
covering enron debts
under exchange rules , clearing members would be forced to
cover enron ' s obligations if the firm defaulted on its positions .
many energy traders , including rivals mirant corp . and aquila
inc . , already have reduced the number of trades they ' re doing with
enron in the over - the - counter markets , which involve direct trades
between companies that don ' t carry the financial guarantees of
regulated commodity exchanges .
the new york exchange yesterday said it will raise margins on
its natural gas and crude oil futures contracts at the close of
trading today . margins are deposits traders must make with the
exchange when buying or selling futures contracts to ensure
obligations will be met .
while the exchange gave no reason for the increase , the
decision followed a day of wide changes in natural gas prices . the
swings began after dynegy inc . abandoned plans to purchase enron ,
once the biggest gas trader .
dynegy ceo says he ' d rather have enron pipeline than $ 1 . 5 bln
2001 - 11 - 29 14 : 56 ( new york )
dynegy ceo says he ' d rather have enron pipeline than $ 1 . 5 bln
houston , nov . 29 , ( bloomberg ) - - dynegy inc . chairman chuck
watson said he would rather take over an enron pipeline than get
back the $ 1 . 5 billion investment that entitles dynegy to the line .
watson said dynegy expects to take over operation of the
16 , 500 - mile northern natural pipeline system by dec . 19 .
chevrontexaco corp . , which owns 26 percent of dynegy , gave enron
$ 1 . 5 billion to help the cash - strapped company stay in business .
the investment , part of dynegy ' s plan to buy enron , was backed
by the northern natural system . dynegy backed out of the merger
yesterday , and said it would exercise its right to take over the
line .
watson said he hopes that northern natural employees will
continue to operate the pipeline after dynegy takes ownership .
italian banks fall on concern about enron exposure ( update 2 )
2001 - 11 - 29 14 : 20 ( new york )
italian banks fall on concern about enron exposure ( update 2 )
( closes shares in second paragraph ; adds analyst comment from
eighth , estimates of exposure in 10 th . )
milan , nov . 29 ( bloomberg ) - - intesabci spa and unicredito
italiano spa shares fell on investors ' concern that italian banks
may not recoup money lent to units of enron corp . if the largest
u . s . energy trader goes bankrupt .
intesabci , italy ' s biggest bank , fell 2 . 4 percent to 2 . 75
euros while unicredito , the no . 2 lender , lost 1 . 9 percent to 4 . 24
euros . banca nazionale del lavoro spa , the nation ' s sixth - largest
bank , dropped 1 . 4 percent to 2 . 55 .
` ` the theme of the day is to sell banks because they are
exposed to enron , ' ' said daniele savare , who helps manage 120
million euros ( $ 106 million ) at bipielle asset management . ` ` in
some cases , the reaction may be a bit overdone . ' '
dynegy inc . yesterday abandoned its proposed merger with
enron , leaving the houston - based company burdened with debt and
the likelihood of insolvency . some analysts said bankruptcy is
inevitable and may come as early as today . a bankruptcy filing by
enron , which reported more than $ 61 billion in assets , would be
the biggest chapter 11 reorganization in history .
` ` i ' ve heard intesa is the most exposed , to the tune of
between 400 billion and 500 billion lire ( $ 183 million - $ 229
million ) , ' ' said gianluca ferrari , who helps manage 260 million
euros in stocks at banca valsabbina in brescia .
gabrio gelmi , an intesa spokesman , confirmed enron is a
client of the bank , though he declined to comment on the size of
its exposure . luigi ferrari , a spokesman at san paolo - imi spa ,
said the exposure of italy ' s no . 3 bank was ` ` limited and under
control . ' ' he declined to give an amount .
diversified
officials at unicredito , banca nazionale del lavoro and banca
di roma spa were not immediately available for comment .
` ` it doesn ' t make sense to attribute the declines today
purely to the enron exposure , ' ' said luca comi , head of research
at eptasim . ` ` if it ' s just one company that ' s in trouble , banks
are sufficiently diversified that the impact is very limited . ' '
comi said san paolo had told him enron had borrowed 80
million euros as part of a 120 million - euro credit line . of the
loan , 50 million euros is guaranteed by enron assets , the analyst
said .
san paolo shares fell 1 percent to 12 . 41 euros .
other banks have higher exposure to enron , such as 168
million euros for intesa , banca nazionale del lavoro ' s 142 million
euros and 122 million euros at unicredito , investors said , citing
analysts ' reports .
argentine analysts , perez companc comment on tgs after enron
2001 - 11 - 29 15 : 55 ( new york )
buenos aires , nov . 29 ( bloomberg ) - - eugenia benitez , an
energy analyst at allaria ledesma & cia , esteban marx , an analyst
at banco comafi , gustavo neffa , an analyst at bbva banco frances
sa and mario grandinetti , head of perez companc ' s institutional
relations , comment on the future of gas distributor transportadora
de gas del sur sa .
enron corp . , which together with perez companc owns 70
percent of tgs , may file for bankruptcy protection in the biggest
bankruptcy reorganization in history . the move may force the
largest u . s . energy trader to liquidate assets to pay some of its
$ 15 billion in publicly held debt .
eugenia benitez :
` ` the natural buyer is perez companc . there ' s definitely the
possibility of reaching a deal that would make perez the only
controlling shareholder of tgs .
` ` we would need to see how much tgs debt perez has . its debt
profile is relevant .
` ` the acquisition would be another step in perez ' strategy of
integrating all its operations in one holding . ' '
esteban marx :
` ` perez is the natural candidate , but i ' m not sure now is the
right time for perez to pour money into tgs , unless it can get it
really cheap . ' '
gustavo neffa :
` ` the only company that could make the sort of investment to
by the tgs stake is perez companc , but its a huge investment given
that tgs ' assets are worth about $ 1 billion .
` ` but it would definitely be the likely buyer . ' '
grandinetti :
` ` we ' re not permitted to buy enron ' s stake in tgs because of
rules that prevent us having a majority stake .
` ` if the law is modified , then yes we would consider it . but
there are also economic issues to consider . ' '
duke , williams among companies facing enron losses ( update 2 )
2001 - 11 - 29 16 : 23 ( new york )
duke , williams among companies facing enron losses ( update 2 )
( updates total in second paragraph , adds closing stock price
in ninth paragraph and analyst comment in paragraph 12 th and 20 th
paragraphs . )
houston , nov . 29 ( bloomberg ) - - duke energy corp . , j . p .
morgan chase & co . , williams cos . and a dozen other companies
together may lose more than $ 1 . 1 billion from the collapse of
enron corp .
electricity and natural gas companies said enron owed them
about $ 660 million as of yesterday , when dynegy inc . abandoned a
merger that deprived enron of cash it needs to avoid insolvency .
j . p . morgan , the bank that was enron ' s adviser on the failed
buyout , said it is owed $ 500 million for unsecured loans .
losses may grow as companies tally their exposure from
transactions with houston - based enron , the largest energy trader ,
with revenue last year of $ 100 billion . enron also manages power
supply for companies such as j . c . penney co . and eli lilly & co . ,
and owns pipelines and a fiber - optic telecommunications network .
some companies ` ` have positions that they ' re not owning up
to , ' ' said peter fusaro , president of global change associates
inc . , an energy research firm . ` ` enron had long - term deals on the
books , and these may take years to sort out . how could they not
have big exposure ? ' '
enron is poised to file the largest bankruptcy reorganization
in history . the company is saddled with more than $ 15 billion in
debt and had less than $ 2 billion in cash as of last week . it must
pay $ 690 million to lenders by mid - december and is responsible for
another $ 3 . 9 billion in debt owed by affiliated partnerships . the
company ' s credit - rating was downgraded to junk status yesterday .
` ` considering enron ' s size and clout , there are very few
companies in the energy business or electric utility companies
that have not done business with them , ' ' said jon cartwright , a
fixed - income analyst at raymond & james associates . ` ` i don ' t
believe that everyone could have gotten out of their exposure . ' '
limited payments
enron said yesterday it will continue payments necessary to
maintain its trading and other core energy businesses , while
suspending all others . it also resumed limited trading on its
enrononline internet market , after shutting down most of
yesterday .
the new york mercantile exchange , the largest energy market ,
tightened trading restrictions on enron in a move that members
said was made to limit the risk from any new business with the
company .
shares of enron fell 25 cents to 36 cents , compared with $ 70
a year ago .
if enron is unable to pay all it owes , duke and williams said
they would lose no more than $ 100 million each . duke , the largest
u . s . utility owner , didn ' t stop trading with enron until
yesterday , and warned that its earnings may be affected .
` ` we are closely monitoring this unfortunate situation to
determine if a provision against earnings is appropriate , ' '
richard j . osborne , duke ' s executive vice president and chief risk
officer , said in a statement today
` reassure investors '
energy companies that did business with enron are trying ` ` to
reassure investors that they ' re not going to go belly up as a
result of enron ' s demise , ' ' said gordon howald , an analyst at
credit lyonnais securities inc . ` ` investors still need to be
cautious about this industry , because there are a lot of
unanswered questions . ' '
reliant resources inc . said it faces $ 80 million in losses
from transactions with enron involving electricity and natural gas
sales .
dynegy said it faces $ 75 million in losses , though it plans
to exercise its option under the buyout agreement to take the
northern natural gas system in exchange for a $ 1 . 5 billion
investment in enron . mirant corp . , an atlanta - based energy trader ,
said it would lose no more than $ 60 million .
aquila inc . , american electric power co . and el paso corp .
said each estimated their exposure to enron at $ 50 million .
more losses
centrica , the dominant u . k . natural - gas supplier , may write
off contracts worth $ 43 million if enron fails , the company said
in a statement . exelon corp . , owner of utilities in chicago and
philadelphia , said its exposure is less than $ 20 million .
dominion resources inc . , a power and gas utility said its
exposure for past sales is $ 11 million .
rwe , europe ' s fourth - biggest utility owner , said its open
trading positions with enron are ` ` much less ' ' than $ 8 . 9 million .
st . mary land and exploration co . , a denver - based natural - gas
producer , said it has hedged $ 4 . 17 million of production with
enron through 2003 . western gas resources inc . said it faces $ 2 . 6
million in possible losses .
nrg energy inc . announced a potential liability of $ 10
million through its energy trading with enron , and plains
resources inc . said its exposure through to the end of next year
was about $ 630 , 000 .
companies that did business with enron ` ` relied for the most
part on the rating agencies ' ' to determine if enron was
financially sound , credit lyonnais ' howald said . enron ` ` was
investment grade , and they were solidly investment grade for some
time . i don ' t think you can fault these companies for doing
business with a company that represented 20 percent ' ' of the
market .
some companies , such as calpine corp . , said they had no
exposure to enron .
j . p . morgan has a $ 400 million loan secured by enron ' s
transwestern and northern natural gas pipelines , the bank said .
enron ' s problems aren ' t industry problems , felsinger tells cnbc
2001 - 11 - 29 16 : 33 ( new york )
san diego , nov . 29 ( bloomberg ) - - enron corp . ' s problems are
particular to the company and should not reflect on the energy
industry , sempra energy group president donald felsinger said in
an interview with financial news network cnbc .
` ` i ' ve really been surprised and impressed in how well the
energy industry has responded with enron ' s problems , ' ' he said .
` ` the past month the energy players have stepped up and taken over
positions that enron had , and the energy market today is working
very well . ' '
felsinger said $ 15 million in business with enron isn ' t
` ` material ' ' and will not affect sempra energy ' s earnings this
year or next year .
california ' s senator dunn comments on possible enron bankruptcy
2001 - 11 - 29 17 : 03 ( new york )
sacramento , california , nov . 29 ( bloomberg ) - - california
state senator joseph dunn , chairman of a committee investigating
possible price manipulation in the state ' s wholesale power market ,
comments on how an enron corp . bankruptcy would affect the probe :
` ` if we assume enron files for bankruptcy , either through
liquidation or reorganization , our ability to deal with the
corporate entity to get documents and access to witnesses will be
overseen by a bankruptcy court , which means we have to jump
through additional hoops and ladders to get the information we may
require .
` ` substantively , it doesn ' t affect our investigation at all
because the senate ' s investigation is not out to get anybody . we
are tying to get a very thorough understanding of why we got into
the mess we are in and whether any concrete legislative fixes in
the wholesale market need to be taken .
` ` enron was a critical player in setting up the market that
ultimately gave rise to the market power , which in my view is the
ultimate cause of the energy crisis .
` ` there are some pluses and there are some minuses if we
assume that enron disappeared from the energy trading market . it
would create a void that would have to be filled by other players
in the wholesale market .
` ` if those other players that fill that void do not currently
posses market power , that ' s a good thing because the diffusion of
market share , most economists will tell you , is one of the best
ways to eliminate already existing market power .
` ` if enron goes into reorganization bankruptcy rather than
liquidation , and they are purchased by one of the big players that
currently possesses market power , then we are only going to
complicate the crisis that we currently find ourselves in . ' '
cibc says it is owed $ 215 million by cash - strapped trader enron
2001 - 11 - 29 17 : 15 ( new york )
cibc says it is owed $ 215 million by cash - strapped trader enron
toronto , nov . 29 ( bloomberg ) - - canadian imperial bank of
commerce , the country ' s third - biggest bank , said enron corp . owes
it $ 215 million , more than half in unsecured loans , letters of
credit and derivatives .
cibc won ' t revise its fiscal 2002 forecast on loan - loss
provisions because of enron ' s problems , the bank said in a
statement distributed by pr newswire . cibc said monday it expected
loan losses to be about 10 percent higher in the year ending oct .
31 from c $ 1 . 1 billion ( $ 695 . 8 million ) last year
toronto - based cibc said it ' s owed about $ 115 million in
unsecured items and $ 100 million in secured loans by enron .
houston - based enron , once the biggest energy trader , may face
bankruptcy after dynegy inc . withdrew a bid for the
cash - strapped company .
enron is poised to file the largest bankruptcy reorganization
in history . the company has more than $ 15 billion in debt and had
less than $ 2 billion in cash as of last week .
shares of cibc rose c $ 1 to c $ 54 . 15 in toronto . it released
the statement after north american markets closed . enron fell 25
cents to 36 cents .
` intelligent asset ' author bernstein comments on 401 ( k ) plans
2001 - 11 - 29 17 : 23 ( new york )
north bend , oregon , nov . 29 ( bloomberg ) - - william j .
bernstein , author of the investment book ` ` the intelligent asset
allocator , ' ' comments on the disadvantages of corporate pension
plans that hold company stock and place the responsibility and
risk of managing retirement savings with employees . his comments
follow the collapse of enron corp . , whose 401 ( k ) plan held 62
percent of assets in the energy trader ' s common and convertible
preferred stock at the end of 2000 and restricted employees '
ability to sell .
as of the end of 2000 , about $ 1 . 8 trillion was invested in
401 ( k ) plans serving 42 million u . s . workers , according to cerulli
associates . investors in 401 ( k ) plans lost money last year for the
first time since they were introduced in 1981 as stocks fell .
` ` maybe some good will come of ' ' enron ' s collapse in the way
of national pension reform , said bernstein . ` ` it ' s never , ever
prudent to put your company stock in your retirement plan . the
overwhelming majority of plans allow it and a large plurality of
them encourage it . a fairly significant minority of plans have
very large amounts of company stock . you want to diversify your
risks . if your company fails , at least you have a backstop . ' '
bernstein said individual investors ought to consider putting
their retirement savings into a combination of low - cost mutual
funds that track indexes for u . s . stocks and bonds and
international stocks . ` ` the average person has as much business
managing their own retirement as they do taking out their own
appendix , ' ' said bernstein , a neurologist by profession .
in addition , average 401 ( k ) plan expenses of 3 . 5 percent of
assets exceed the projected annual returns of 3 percent from
stocks in coming years after adjusting for inflation , meaning
investors are facing zero long - term real gains , bernstein said .
expenses are lower with traditional corporate pension plans ,
known as defined benefit plans because they guarantee a certain
level of retirement benefits based on pay and years of service .
` ` the way defined contribution plans are currently set up
there is not adequate controls on expenses . what you ' re really
getting is an enormous transfer of wealth from plan participants
to the financial services industry . this is an enormous social
experiment that ' s been foisted upon us and it ' s going to be a
failure , ' ' said bernstein .
enron corp . has fourth - busiest day for a u . s . stock : table
2001 - 11 - 29 17 : 17 ( new york )
enron corp . has fourth - busiest day for a u . s . stock : table
new york , nov . 29 ( bloomberg ) - - enron corp . had the fourth
most - active day for a u . s . stock , with 264 . 9 million shares
trading , according to preliminary figures from the new york stock
exchange .
enron fell 25 cents , or 41 percent , to 36 cents a share .
yesterday , the stock set an all - time volume record after dynegy
inc . abandoned a takeover bid , leaving the company that was once
the largest energy trader without enough cash to pay its $ 15
billion in debt .
the following is a list of stocks with the 10 highest one - day
trading volumes in u . s . market history , according to data from the
nyse and the nasdaq stock market .
* t
stock date volume ( in millions )
enron corp . nov . 28 , 2001 345 . 7
intel corp . sept . 22 , 2000 308 . 7
cisco systems inc . feb . 7 , 2001 281 . 6
enron nov . 29 , 2001 264 . 9
oracle corp . march 2 , 2001 224 . 0
cisco systems jan . 10 , 2001 213 . 0
jds uniphase corp . july 26 , 2000 200 . 4
cisco systems oct . 3 , 2001 196 . 5
worldcom inc . nov . 1 , 2000 195 . 5
exodus communications sept . 25 , 2001 193 . 1
* t
enron corp . is poised to file largest - ever bankruptcy ( update 3 )
2001 - 11 - 29 17 : 30 ( new york )
enron corp . is poised to file largest - ever bankruptcy ( update 3 )
( adds investor comment in eighth paragraph . )
washington , nov . 29 ( bloomberg ) - - enron corp . is poised to
file the largest bankruptcy reorganization in history after dynegy
inc . scuttled plans to acquire the energy trader that is saddled
with more than $ 15 billion in debt .
enron , with less than $ 2 billion in cash as of last week ,
must pay $ 690 million to lenders by mid - december and is
responsible for another $ 3 . 9 billion in debt owed by affiliated
partnerships . the company ' s credit - rating was downgraded to junk
status yesterday .
houston - based enron ' s collapse was underscored by new
restrictions on its operations . the new york mercantile exchange
barred floor members from accepting orders from enron without
special written authorization , and the company ' s internet trading
was reduced from about 30 commodities to just natural gas ,
electricity and metals .
a bankruptcy filing by enron , which investors said may come
within a matter of days , would top texaco inc . ' s record $ 35 . 9
billion case in 1987 . creditors would be lining up to claim what ' s
left of the company ' s more than $ 61 billion in assets .
` ` it ' s a black hole , ' ' said gary hindes , managing director of
deltec asset management llc , which has no investment in enron .
` ` until the forensic accountants can get in there and sort things
out , you just don ' t know what enron ' s worth . ' '
duke energy corp . , j . p . morgan chase & co . , williams cos . and
a dozen other companies say they may lose more than $ 1 billion
combined from enron ' s collapse . electricity and natural gas
companies said enron owed them almost $ 600 million as of
yesterday .
european administrator
in london , was appointed administrator
of enron ' s european holding company and some of its operating
companies , a step other companies have taken before filing chapter
11 papers in the u . s .
` ` if i were a betting man , enron going into chapter 11 in the
next week is a bet i ' d make , ' ' said glen hilton , who helps manage
$ 125 million , including dynegy shares , for montgomery asset
management .
enron shares have lost more than $ 26 billion in market value
in the last seven weeks . they fell 25 cents , or 41 percent , to 36
cents . the shares traded at $ 54 . 54 on june 4 .
enron bonds were bid at 23 cents on the dollar in late
trading , little changed from yesterday , traders said . the debt had
been near full value as recently as last month .
quarterly dividend
the company said this morning it was evaluating whether it
will pay a scheduled 12 . 5 - cent quarterly dividend on dec . 20 .
enron hired the law firm weil gotshal & manges llp , which has
the nation ' s largest bankruptcy practice , and the blackstone group
lp investment banking firm . arthur newman , head of restructuring
at blackstone , said his firm was retained and declined to comment
further .
chapter 11 would let enron officials continue to control the
company while negotiating a recovery plan with creditors . a
provision of u . s . bankruptcy law automatically blocks debt -
collection efforts , lawsuits and other actions against the
company .
` ` a chapter 11 filing can be a great thing for a cash - starved
company being attacked from all sides , ' ' said nancy rapoport , dean
of the university of houston law center .
thousands affected
an enron bankruptcy would affect thousands of people ,
including the company ' s 21 , 000 employees , its customers ,
suppliers , investors and other creditors . the court - supervised
recovery process would give enron a chance to change strategies
and fix mistakes . it might take years to complete and may end in
the company ' s liquidation .
in addition to its energy trading operation , enron operates a
nationwide gas pipeline system spanning 25 , 000 miles . it also owns
portland general electric , which generates and distributes power
to about 725 , 000 customers in the pacific northwest . the company ' s
enron broadband services is building a global fiber - optic
communications network .
chapter 11 reorganization lets companies abandon onerous
contracts and unprofitable leases .
` ` every bad business deal enron got into they ' ll walk away
from , ' ' said peter chapman , a distressed - debt investor who also
publishes newsletters on high - profile bankruptcy reorganizations .
recovery
the goal in chapter 11 is a recovery plan that allows a
company to pay creditors and come out of bankruptcy . a plan
typically must be approved by a majority of creditors representing
two - thirds of a company ' s debts . then a company would ask a
bankruptcy judge for final approval .
the recovery plan divides a company ' s value among various
classes of creditors . under a hierarchy set by the u . s . bankruptcy
code , secured creditors - - those with collateral backing their
claims - - are paid ahead of unsecured creditors , such as
bondholders and suppliers .
financial advisers to creditors and companies in large
bankruptcies say a chapter 11 recovery plan for enron would be
particularly difficult to produce .
` ` you have a host of intangible assets combined with a morass
of contingent liabilities creating a potential witches ' brew of a
bankruptcy , ' ' said jeff werbalowsky of houlihan lokey howard &
zukin , an investment banking firm that has been contacted for
advice by enron bondholders .
shareholders
enron ' s shareholders are likely to lose all of their
investment in chapter 11 because they would be last in line to get
paid .
some recovery for enron creditors in a bankruptcy case may
come from lawsuits , said russell a . belinsky , an investment banker
with chanin capital partners , which also has been approached for
advice by enron bondholders .
` ` there ' s a lot of juicy legal issues , ' ' said belinsky .
potential targets include enron ' s accounting firm and its officers
and directors . ` ` disentangling all the pieces in a reorganization
is going to be a painstaking job . ' '
liability
dynegy might face some liability for cancelling its purchase
of enron . dynegy invoked terms of the buyout agreement that gave
it the right to purchase an enron natural gas pipeline if the
takeover fell apart . dynegy received the right to the pipeline in
exchange for a $ 1 . 5 billion investment in enron by chevrontexaco
corp . , which owns one - fourth of dynegy .
enron might use bankruptcy to prevent dynegy from walking
away from the buyout and claiming ownership to the pipeline .
the dynegy acquisition , valued at $ 23 billion when it was
proposed on nov . 9 , collapsed as bankers failed to raise the $ 1 . 5
billion enron needed to operate until the deal was completed . the
lack of funds and a credit downgrade contributed to dynegy ' s
decision .
bankers led by j . p . morgan chase & co . vice chairman james b .
lee tried for two weeks to raise the cash enron needed . investors
turned them down because of heightened concern enron wouldn ' t be
able to pay its debts .
unraveling
enron ' s unraveling began in october after it said
shareholders ' equity was reduced by $ 1 . 2 billion because of the
way the company accounted for outside partnerships it created . the
announcement prompted lawsuits and an investigation by the u . s .
securities and exchange commission , and enron ended up restating
earnings for almost five years .
as shares plunged , enron ' s trading partners lost confidence
the company would have the cash to pay bills . trading partners
such as mirant corp . either demanded more collateral to trade or
restricted trading with the company .
` ` the situation is dire , ' ' said deltec ' s hindes . ` ` no one ' s
going to trade with enron right now because you could wind up
being an unsecured creditor tomorrow . ' '
enron mentions
congressional panels to probe enron ' s accounting , trading
bloomberg , 11 / 29 / 01
nymex tells members enron trades must be approved ( update 2 )
bloomberg , 11 / 29 / 01
dynegy ceo says he ' d rather have enron pipeline than $ 1 . 5 bln
bloomberg , 11 / 29 / 01
italian banks fall on concern about enron exposure ( update 2 )
bloomberg , 11 / 29 / 01
argentine analysts , perez companc comment on tgs after enron
bloomberg , 11 / 29 / 01
duke , williams among companies facing enron losses ( update 2 )
bloomberg , 11 / 29 / 01
enron ' s problems aren ' t industry problems , felsinger tells cnbc
bloomberg , 11 / 29 / 01
california ' s senator dunn comments on possible enron bankruptcy
bloomberg , 11 / 29 / 01
cibc says it is owed $ 215 million by cash - strapped trader enron
bloomberg , 11 / 29 / 01
intelligent asset ' author bernstein comments on 401 ( k ) plans
bloomberg , 11 / 29 / 01
enron corp . has fourth - busiest day for a u . s . stock : table
bloomberg , 11 / 29 / 01
enron corp . is poised to file largest - ever bankruptcy ( update 3 )
bloomberg , 11 / 29 / 01
congressional panels to probe enron ' s accounting , trading
2001 - 11 - 29 15 : 59 ( new york )
congressional panels to probe enron ' s accounting , trading
washington , nov . 29 ( bloomberg ) - - senate and house
committees will investigate the collapse of enron corp and
consider new regulations for electricity and natural - gas trading .
enron , the largest energy trader , is expected to file for
chapter 11 protection after the collapse of a planned merger with
dynegy inc .
the house energy committee will hold hearings as early as
next month to scrutinize the accounting practices and earnings
reports of enron , said ken johnson , a panel spokesman . the senate
energy committee may begin looking in january at more federal
oversight of trading .
` ` when you have such a spectacular event as the collapse of a
company that controlled 50 percent of the natural - gas and
electricity trading , we ' re going to have some thoughts on that , ' '
said bill wicker , a spokesman for the senate energy committee .
enron ' s importance in energy trading and questions about its
accounting practices require an investigation , said senate
majority leader tom daschle of south dakota .
` ` i don ' t know that anybody knows yet just how this happened
and how it happened so quickly , ' ' he told reporters on capitol
hill . ` ` it raises some very serious questions . ' '
the unraveling of enron , which is saddled with $ 15 billion in
publicly held debt , began in october . shareholders ' equity was
reduced by $ 1 . 2 billion because of the way the company accounted
for outside partnerships it created . the announcement prompted
lawsuits and an investigation by the u . s . securities and exchange
commission .
nymex tells members enron trades must be approved ( update 2 )
2001 - 11 - 29 15 : 16 ( new york )
nymex tells members enron trades must be approved ( update 2 )
( adds analyst quote in fourth paragraph , enron share price in
sixth paragraph . )
new york , nov . 29 ( bloomberg ) - - new york mercantile exchange
president j . robert collins told brokers on the largest energy
exchange ' s trading floor that they could not accept orders from
enron corp . unless they receive written authorization from an
exchange clearing member .
the order is effective immediately and will ` ` remain in
effect until further notice from the exchange , ' ' according to a
fax collins sent today to member firms . a copy of the fax was
obtained by bloomberg news . exchange officials did not immediately
return phone calls .
enron ' s worsening financial condition has made many clearing
members , which back trades on the exchange for a fee , wary of
taking on additional business from enron . the nymex order aims to
alert independent floor brokers that clearing members who once
freely accepted enron trades may no longer be so willing , analysts
said .
nymex is ` ` reminding everyone that it ' s not business as usual
when it comes to enron , ' ' said tim evans , senior energy analyst at
ifr pegasus in new york , a unit of thomson corp . ` ` for enron , it
mean slower order execution - - as if they don ' t have enough
handicaps already . ' '
enron may be forced to file for bankruptcy to liquidate
assets to pay off some of its $ 15 billion in publicly held debt ,
analyst said . enron shares fell 24 cents to 37 cents in afternoon
trading . that ' s down from about $ 80 at the beginning of this year .
covering enron debts
under exchange rules , clearing members would be forced to
cover enron ' s obligations if the firm defaulted on its positions .
many energy traders , including rivals mirant corp . and aquila
inc . , already have reduced the number of trades they ' re doing with
enron in the over - the - counter markets , which involve direct trades
between companies that don ' t carry the financial guarantees of
regulated commodity exchanges .
the new york exchange yesterday said it will raise margins on
its natural gas and crude oil futures contracts at the close of
trading today . margins are deposits traders must make with the
exchange when buying or selling futures contracts to ensure
obligations will be met .
while the exchange gave no reason for the increase , the
decision followed a day of wide changes in natural gas prices . the
swings began after dynegy inc . abandoned plans to purchase enron ,
once the biggest gas trader .
dynegy ceo says he ' d rather have enron pipeline than $ 1 . 5 bln
2001 - 11 - 29 14 : 56 ( new york )
dynegy ceo says he ' d rather have enron pipeline than $ 1 . 5 bln
houston , nov . 29 , ( bloomberg ) - - dynegy inc . chairman chuck
watson said he would rather take over an enron pipeline than get
back the $ 1 . 5 billion investment that entitles dynegy to the line .
watson said dynegy expects to take over operation of the
16 , 500 - mile northern natural pipeline system by dec . 19 .
chevrontexaco corp . , which owns 26 percent of dynegy , gave enron
$ 1 . 5 billion to help the cash - strapped company stay in business .
the investment , part of dynegy ' s plan to buy enron , was backed
by the northern natural system . dynegy backed out of the merger
yesterday , and said it would exercise its right to take over the
line .
watson said he hopes that northern natural employees will
continue to operate the pipeline after dynegy takes ownership .
italian banks fall on concern about enron exposure ( update 2 )
2001 - 11 - 29 14 : 20 ( new york )
italian banks fall on concern about enron exposure ( update 2 )
( closes shares in second paragraph ; adds analyst comment from
eighth , estimates of exposure in 10 th . )
milan , nov . 29 ( bloomberg ) - - intesabci spa and unicredito
italiano spa shares fell on investors ' concern that italian banks
may not recoup money lent to units of enron corp . if the largest
u . s . energy trader goes bankrupt .
intesabci , italy ' s biggest bank , fell 2 . 4 percent to 2 . 75
euros while unicredito , the no . 2 lender , lost 1 . 9 percent to 4 . 24
euros . banca nazionale del lavoro spa , the nation ' s sixth - largest
bank , dropped 1 . 4 percent to 2 . 55 .
` ` the theme of the day is to sell banks because they are
exposed to enron , ' ' said daniele savare , who helps manage 120
million euros ( $ 106 million ) at bipielle asset management . ` ` in
some cases , the reaction may be a bit overdone . ' '
dynegy inc . yesterday abandoned its proposed merger with
enron , leaving the houston - based company burdened with debt and
the likelihood of insolvency . some analysts said bankruptcy is
inevitable and may come as early as today . a bankruptcy filing by
enron , which reported more than $ 61 billion in assets , would be
the biggest chapter 11 reorganization in history .
` ` i ' ve heard intesa is the most exposed , to the tune of
between 400 billion and 500 billion lire ( $ 183 million - $ 229
million ) , ' ' said gianluca ferrari , who helps manage 260 million
euros in stocks at banca valsabbina in brescia .
gabrio gelmi , an intesa spokesman , confirmed enron is a
client of the bank , though he declined to comment on the size of
its exposure . luigi ferrari , a spokesman at san paolo - imi spa ,
said the exposure of italy ' s no . 3 bank was ` ` limited and under
control . ' ' he declined to give an amount .
diversified
officials at unicredito , banca nazionale del lavoro and banca
di roma spa were not immediately available for comment .
` ` it doesn ' t make sense to attribute the declines today
purely to the enron exposure , ' ' said luca comi , head of research
at eptasim . ` ` if it ' s just one company that ' s in trouble , banks
are sufficiently diversified that the impact is very limited . ' '
comi said san paolo had told him enron had borrowed 80
million euros as part of a 120 million - euro credit line . of the
loan , 50 million euros is guaranteed by enron assets , the analyst
said .
san paolo shares fell 1 percent to 12 . 41 euros .
other banks have higher exposure to enron , such as 168
million euros for intesa , banca nazionale del lavoro ' s 142 million
euros and 122 million euros at unicredito , investors said , citing
analysts ' reports .
argentine analysts , perez companc comment on tgs after enron
2001 - 11 - 29 15 : 55 ( new york )
buenos aires , nov . 29 ( bloomberg ) - - eugenia benitez , an
energy analyst at allaria ledesma & cia , esteban marx , an analyst
at banco comafi , gustavo neffa , an analyst at bbva banco frances
sa and mario grandinetti , head of perez companc ' s institutional
relations , comment on the future of gas distributor transportadora
de gas del sur sa .
enron corp . , which together with perez companc owns 70
percent of tgs , may file for bankruptcy protection in the biggest
bankruptcy reorganization in history . the move may force the
largest u . s . energy trader to liquidate assets to pay some of its
$ 15 billion in publicly held debt .
eugenia benitez :
` ` the natural buyer is perez companc . there ' s definitely the
possibility of reaching a deal that would make perez the only
controlling shareholder of tgs .
` ` we would need to see how much tgs debt perez has . its debt
profile is relevant .
` ` the acquisition would be another step in perez ' strategy of
integrating all its operations in one holding . ' '
esteban marx :
` ` perez is the natural candidate , but i ' m not sure now is the
right time for perez to pour money into tgs , unless it can get it
really cheap . ' '
gustavo neffa :
` ` the only company that could make the sort of investment to
by the tgs stake is perez companc , but its a huge investment given
that tgs ' assets are worth about $ 1 billion .
` ` but it would definitely be the likely buyer . ' '
grandinetti :
` ` we ' re not permitted to buy enron ' s stake in tgs because of
rules that prevent us having a majority stake .
` ` if the law is modified , then yes we would consider it . but
there are also economic issues to consider . ' '
duke , williams among companies facing enron losses ( update 2 )
2001 - 11 - 29 16 : 23 ( new york )
duke , williams among companies facing enron losses ( update 2 )
( updates total in second paragraph , adds closing stock price
in ninth paragraph and analyst comment in paragraph 12 th and 20 th
paragraphs . )
houston , nov . 29 ( bloomberg ) - - duke energy corp . , j . p .
morgan chase & co . , williams cos . and a dozen other companies
together may lose more than $ 1 . 1 billion from the collapse of
enron corp .
electricity and natural gas companies said enron owed them
about $ 660 million as of yesterday , when dynegy inc . abandoned a
merger that deprived enron of cash it needs to avoid insolvency .
j . p . morgan , the bank that was enron ' s adviser on the failed
buyout , said it is owed $ 500 million for unsecured loans .
losses may grow as companies tally their exposure from
transactions with houston - based enron , the largest energy trader ,
with revenue last year of $ 100 billion . enron also manages power
supply for companies such as j . c . penney co . and eli lilly & co . ,
and owns pipelines and a fiber - optic telecommunications network .
some companies ` ` have positions that they ' re not owning up
to , ' ' said peter fusaro , president of global change associates
inc . , an energy research firm . ` ` enron had long - term deals on the
books , and these may take years to sort out . how could they not
have big exposure ? ' '
enron is poised to file the largest bankruptcy reorganization
in history . the company is saddled with more than $ 15 billion in
debt and had less than $ 2 billion in cash as of last week . it must
pay $ 690 million to lenders by mid - december and is responsible for
another $ 3 . 9 billion in debt owed by affiliated partnerships . the
company ' s credit - rating was downgraded to junk status yesterday .
` ` considering enron ' s size and clout , there are very few
companies in the energy business or electric utility companies
that have not done business with them , ' ' said jon cartwright , a
fixed - income analyst at raymond & james associates . ` ` i don ' t
believe that everyone could have gotten out of their exposure . ' '
limited payments
enron said yesterday it will continue payments necessary to
maintain its trading and other core energy businesses , while
suspending all others . it also resumed limited trading on its
enrononline internet market , after shutting down most of
yesterday .
the new york mercantile exchange , the largest energy market ,
tightened trading restrictions on enron in a move that members
said was made to limit the risk from any new business with the
company .
shares of enron fell 25 cents to 36 cents , compared with $ 70
a year ago .
if enron is unable to pay all it owes , duke and williams said
they would lose no more than $ 100 million each . duke , the largest
u . s . utility owner , didn ' t stop trading with enron until
yesterday , and warned that its earnings may be affected .
` ` we are closely monitoring this unfortunate situation to
determine if a provision against earnings is appropriate , ' '
richard j . osborne , duke ' s executive vice president and chief risk
officer , said in a statement today
` reassure investors '
energy companies that did business with enron are trying ` ` to
reassure investors that they ' re not going to go belly up as a
result of enron ' s demise , ' ' said gordon howald , an analyst at
credit lyonnais securities inc . ` ` investors still need to be
cautious about this industry , because there are a lot of
unanswered questions . ' '
reliant resources inc . said it faces $ 80 million in losses
from transactions with enron involving electricity and natural gas
sales .
dynegy said it faces $ 75 million in losses , though it plans
to exercise its option under the buyout agreement to take the
northern natural gas system in exchange for a $ 1 . 5 billion
investment in enron . mirant corp . , an atlanta - based energy trader ,
said it would lose no more than $ 60 million .
aquila inc . , american electric power co . and el paso corp .
said each estimated their exposure to enron at $ 50 million .
more losses
centrica , the dominant u . k . natural - gas supplier , may write
off contracts worth $ 43 million if enron fails , the company said
in a statement . exelon corp . , owner of utilities in chicago and
philadelphia , said its exposure is less than $ 20 million .
dominion resources inc . , a power and gas utility said its
exposure for past sales is $ 11 million .
rwe , europe ' s fourth - biggest utility owner , said its open
trading positions with enron are ` ` much less ' ' than $ 8 . 9 million .
st . mary land and exploration co . , a denver - based natural - gas
producer , said it has hedged $ 4 . 17 million of production with
enron through 2003 . western gas resources inc . said it faces $ 2 . 6
million in possible losses .
nrg energy inc . announced a potential liability of $ 10
million through its energy trading with enron , and plains
resources inc . said its exposure through to the end of next year
was about $ 630 , 000 .
companies that did business with enron ` ` relied for the most
part on the rating agencies ' ' to determine if enron was
financially sound , credit lyonnais ' howald said . enron ` ` was
investment grade , and they were solidly investment grade for some
time . i don ' t think you can fault these companies for doing
business with a company that represented 20 percent ' ' of the
market .
some companies , such as calpine corp . , said they had no
exposure to enron .
j . p . morgan has a $ 400 million loan secured by enron ' s
transwestern and northern natural gas pipelines , the bank said .
enron ' s problems aren ' t industry problems , felsinger tells cnbc
2001 - 11 - 29 16 : 33 ( new york )
san diego , nov . 29 ( bloomberg ) - - enron corp . ' s problems are
particular to the company and should not reflect on the energy
industry , sempra energy group president donald felsinger said in
an interview with financial news network cnbc .
` ` i ' ve really been surprised and impressed in how well the
energy industry has responded with enron ' s problems , ' ' he said .
` ` the past month the energy players have stepped up and taken over
positions that enron had , and the energy market today is working
very well . ' '
felsinger said $ 15 million in business with enron isn ' t
` ` material ' ' and will not affect sempra energy ' s earnings this
year or next year .
california ' s senator dunn comments on possible enron bankruptcy
2001 - 11 - 29 17 : 03 ( new york )
sacramento , california , nov . 29 ( bloomberg ) - - california
state senator joseph dunn , chairman of a committee investigating
possible price manipulation in the state ' s wholesale power market ,
comments on how an enron corp . bankruptcy would affect the probe :
` ` if we assume enron files for bankruptcy , either through
liquidation or reorganization , our ability to deal with the
corporate entity to get documents and access to witnesses will be
overseen by a bankruptcy court , which means we have to jump
through additional hoops and ladders to get the information we may
require .
` ` substantively , it doesn ' t affect our investigation at all
because the senate ' s investigation is not out to get anybody . we
are tying to get a very thorough understanding of why we got into
the mess we are in and whether any concrete legislative fixes in
the wholesale market need to be taken .
` ` enron was a critical player in setting up the market that
ultimately gave rise to the market power , which in my view is the
ultimate cause of the energy crisis .
` ` there are some pluses and there are some minuses if we
assume that enron disappeared from the energy trading market . it
would create a void that would have to be filled by other players
in the wholesale market .
` ` if those other players that fill that void do not currently
posses market power , that ' s a good thing because the diffusion of
market share , most economists will tell you , is one of the best
ways to eliminate already existing market power .
` ` if enron goes into reorganization bankruptcy rather than
liquidation , and they are purchased by one of the big players that
currently possesses market power , then we are only going to
complicate the crisis that we currently find ourselves in . ' '
cibc says it is owed $ 215 million by cash - strapped trader enron
2001 - 11 - 29 17 : 15 ( new york )
cibc says it is owed $ 215 million by cash - strapped trader enron
toronto , nov . 29 ( bloomberg ) - - canadian imperial bank of
commerce , the country ' s third - biggest bank , said enron corp . owes
it $ 215 million , more than half in unsecured loans , letters of
credit and derivatives .
cibc won ' t revise its fiscal 2002 forecast on loan - loss
provisions because of enron ' s problems , the bank said in a
statement distributed by pr newswire . cibc said monday it expected
loan losses to be about 10 percent higher in the year ending oct .
31 from c $ 1 . 1 billion ( $ 695 . 8 million ) last year
toronto - based cibc said it ' s owed about $ 115 million in
unsecured items and $ 100 million in secured loans by enron .
houston - based enron , once the biggest energy trader , may face
bankruptcy after dynegy inc . withdrew a bid for the
cash - strapped company .
enron is poised to file the largest bankruptcy reorganization
in history . the company has more than $ 15 billion in debt and had
less than $ 2 billion in cash as of last week .
shares of cibc rose c $ 1 to c $ 54 . 15 in toronto . it released
the statement after north american markets closed . enron fell 25
cents to 36 cents .
` intelligent asset ' author bernstein comments on 401 ( k ) plans
2001 - 11 - 29 17 : 23 ( new york )
north bend , oregon , nov . 29 ( bloomberg ) - - william j .
bernstein , author of the investment book ` ` the intelligent asset
allocator , ' ' comments on the disadvantages of corporate pension
plans that hold company stock and place the responsibility and
risk of managing retirement savings with employees . his comments
follow the collapse of enron corp . , whose 401 ( k ) plan held 62
percent of assets in the energy trader ' s common and convertible
preferred stock at the end of 2000 and restricted employees '
ability to sell .
as of the end of 2000 , about $ 1 . 8 trillion was invested in
401 ( k ) plans serving 42 million u . s . workers , according to cerulli
associates . investors in 401 ( k ) plans lost money last year for the
first time since they were introduced in 1981 as stocks fell .
` ` maybe some good will come of ' ' enron ' s collapse in the way
of national pension reform , said bernstein . ` ` it ' s never , ever
prudent to put your company stock in your retirement plan . the
overwhelming majority of plans allow it and a large plurality of
them encourage it . a fairly significant minority of plans have
very large amounts of company stock . you want to diversify your
risks . if your company fails , at least you have a backstop . ' '
bernstein said individual investors ought to consider putting
their retirement savings into a combination of low - cost mutual
funds that track indexes for u . s . stocks and bonds and
international stocks . ` ` the average person has as much business
managing their own retirement as they do taking out their own
appendix , ' ' said bernstein , a neurologist by profession .
in addition , average 401 ( k ) plan expenses of 3 . 5 percent of
assets exceed the projected annual returns of 3 percent from
stocks in coming years after adjusting for inflation , meaning
investors are facing zero long - term real gains , bernstein said .
expenses are lower with traditional corporate pension plans ,
known as defined benefit plans because they guarantee a certain
level of retirement benefits based on pay and years of service .
` ` the way defined contribution plans are currently set up
there is not adequate controls on expenses . what you ' re really
getting is an enormous transfer of wealth from plan participants
to the financial services industry . this is an enormous social
experiment that ' s been foisted upon us and it ' s going to be a
failure , ' ' said bernstein .
enron corp . has fourth - busiest day for a u . s . stock : table
2001 - 11 - 29 17 : 17 ( new york )
enron corp . has fourth - busiest day for a u . s . stock : table
new york , nov . 29 ( bloomberg ) - - enron corp . had the fourth
most - active day for a u . s . stock , with 264 . 9 million shares
trading , according to preliminary figures from the new york stock
exchange .
enron fell 25 cents , or 41 percent , to 36 cents a share .
yesterday , the stock set an all - time volume record after dynegy
inc . abandoned a takeover bid , leaving the company that was once
the largest energy trader without enough cash to pay its $ 15
billion in debt .
the following is a list of stocks with the 10 highest one - day
trading volumes in u . s . market history , according to data from the
nyse and the nasdaq stock market .
* t
stock date volume ( in millions )
enron corp . nov . 28 , 2001 345 . 7
intel corp . sept . 22 , 2000 308 . 7
cisco systems inc . feb . 7 , 2001 281 . 6
enron nov . 29 , 2001 264 . 9
oracle corp . march 2 , 2001 224 . 0
cisco systems jan . 10 , 2001 213 . 0
jds uniphase corp . july 26 , 2000 200 . 4
cisco systems oct . 3 , 2001 196 . 5
worldcom inc . nov . 1 , 2000 195 . 5
exodus communications sept . 25 , 2001 193 . 1
* t
enron corp . is poised to file largest - ever bankruptcy ( update 3 )
2001 - 11 - 29 17 : 30 ( new york )
enron corp . is poised to file largest - ever bankruptcy ( update 3 )
( adds investor comment in eighth paragraph . )
washington , nov . 29 ( bloomberg ) - - enron corp . is poised to
file the largest bankruptcy reorganization in history after dynegy
inc . scuttled plans to acquire the energy trader that is saddled
with more than $ 15 billion in debt .
enron , with less than $ 2 billion in cash as of last week ,
must pay $ 690 million to lenders by mid - december and is
responsible for another $ 3 . 9 billion in debt owed by affiliated
partnerships . the company ' s credit - rating was downgraded to junk
status yesterday .
houston - based enron ' s collapse was underscored by new
restrictions on its operations . the new york mercantile exchange
barred floor members from accepting orders from enron without
special written authorization , and the company ' s internet trading
was reduced from about 30 commodities to just natural gas ,
electricity and metals .
a bankruptcy filing by enron , which investors said may come
within a matter of days , would top texaco inc . ' s record $ 35 . 9
billion case in 1987 . creditors would be lining up to claim what ' s
left of the company ' s more than $ 61 billion in assets .
` ` it ' s a black hole , ' ' said gary hindes , managing director of
deltec asset management llc , which has no investment in enron .
` ` until the forensic accountants can get in there and sort things
out , you just don ' t know what enron ' s worth . ' '
duke energy corp . , j . p . morgan chase & co . , williams cos . and
a dozen other companies say they may lose more than $ 1 billion
combined from enron ' s collapse . electricity and natural gas
companies said enron owed them almost $ 600 million as of
yesterday .
european administrator
in london , was appointed administrator
of enron ' s european holding company and some of its operating
companies , a step other companies have taken before filing chapter
11 papers in the u . s .
` ` if i were a betting man , enron going into chapter 11 in the
next week is a bet i ' d make , ' ' said glen hilton , who helps manage
$ 125 million , including dynegy shares , for montgomery asset
management .
enron shares have lost more than $ 26 billion in market value
in the last seven weeks . they fell 25 cents , or 41 percent , to 36
cents . the shares traded at $ 54 . 54 on june 4 .
enron bonds were bid at 23 cents on the dollar in late
trading , little changed from yesterday , traders said . the debt had
been near full value as recently as last month .
quarterly dividend
the company said this morning it was evaluating whether it
will pay a scheduled 12 . 5 - cent quarterly dividend on dec . 20 .
enron hired the law firm weil gotshal & manges llp , which has
the nation ' s largest bankruptcy practice , and the blackstone group
lp investment banking firm . arthur newman , head of restructuring
at blackstone , said his firm was retained and declined to comment
further .
chapter 11 would let enron officials continue to control the
company while negotiating a recovery plan with creditors . a
provision of u . s . bankruptcy law automatically blocks debt -
collection efforts , lawsuits and other actions against the
company .
` ` a chapter 11 filing can be a great thing for a cash - starved
company being attacked from all sides , ' ' said nancy rapoport , dean
of the university of houston law center .
thousands affected
an enron bankruptcy would affect thousands of people ,
including the company ' s 21 , 000 employees , its customers ,
suppliers , investors and other creditors . the court - supervised
recovery process would give enron a chance to change strategies
and fix mistakes . it might take years to complete and may end in
the company ' s liquidation .
in addition to its energy trading operation , enron operates a
nationwide gas pipeline system spanning 25 , 000 miles . it also owns
portland general electric , which generates and distributes power
to about 725 , 000 customers in the pacific northwest . the company ' s
enron broadband services is building a global fiber - optic
communications network .
chapter 11 reorganization lets companies abandon onerous
contracts and unprofitable leases .
` ` every bad business deal enron got into they ' ll walk away
from , ' ' said peter chapman , a distressed - debt investor who also
publishes newsletters on high - profile bankruptcy reorganizations .
recovery
the goal in chapter 11 is a recovery plan that allows a
company to pay creditors and come out of bankruptcy . a plan
typically must be approved by a majority of creditors representing
two - thirds of a company ' s debts . then a company would ask a
bankruptcy judge for final approval .
the recovery plan divides a company ' s value among various
classes of creditors . under a hierarchy set by the u . s . bankruptcy
code , secured creditors - - those with collateral backing their
claims - - are paid ahead of unsecured creditors , such as
bondholders and suppliers .
financial advisers to creditors and companies in large
bankruptcies say a chapter 11 recovery plan for enron would be
particularly difficult to produce .
` ` you have a host of intangible assets combined with a morass
of contingent liabilities creating a potential witches ' brew of a
bankruptcy , ' ' said jeff werbalowsky of houlihan lokey howard &
zukin , an investment banking firm that has been contacted for
advice by enron bondholders .
shareholders
enron ' s shareholders are likely to lose all of their
investment in chapter 11 because they would be last in line to get
paid .
some recovery for enron creditors in a bankruptcy case may
come from lawsuits , said russell a . belinsky , an investment banker
with chanin capital partners , which also has been approached for
advice by enron bondholders .
` ` there ' s a lot of juicy legal issues , ' ' said belinsky .
potential targets include enron ' s accounting firm and its officers
and directors . ` ` disentangling all the pieces in a reorganization
is going to be a painstaking job . ' '
liability
dynegy might face some liability for cancelling its purchase
of enron . dynegy invoked terms of the buyout agreement that gave
it the right to purchase an enron natural gas pipeline if the
takeover fell apart . dynegy received the right to the pipeline in
exchange for a $ 1 . 5 billion investment in enron by chevrontexaco
corp . , which owns one - fourth of dynegy .
enron might use bankruptcy to prevent dynegy from walking
away from the buyout and claiming ownership to the pipeline .
the dynegy acquisition , valued at $ 23 billion when it was
proposed on nov . 9 , collapsed as bankers failed to raise the $ 1 . 5
billion enron needed to operate until the deal was completed . the
lack of funds and a credit downgrade contributed to dynegy ' s
decision .
bankers led by j . p . morgan chase & co . vice chairman james b .
lee tried for two weeks to raise the cash enron needed . investors
turned them down because of heightened concern enron wouldn ' t be
able to pay its debts .
unraveling
enron ' s unraveling began in october after it said
shareholders ' equity was reduced by $ 1 . 2 billion because of the
way the company accounted for outside partnerships it created . the
announcement prompted lawsuits and an investigation by the u . s .
securities and exchange commission , and enron ended up restating
earnings for almost five years .
as shares plunged , enron ' s trading partners lost confidence
the company would have the cash to pay bills . trading partners
such as mirant corp . either demanded more collateral to trade or
restricted trading with the company .
` ` the situation is dire , ' ' said deltec ' s hindes . ` ` no one ' s
going to trade with enron right now because you could wind up
being an unsecured creditor tomorrow . ' '