enron mentions - 11 / 29 / 01 enron europe says chosen administrator
bloomberg , 11 / 29 / 01
enron ' s derivatives debt doesn ' t reveal market risk , nyt says
bloomberg , 11 / 29 / 01
enron ' s board was compromised by financial ties ( updatel )
bloomberg , 11 / 29 / 01
enron ' s indian lenders may take over power project ( update 2 )
bloomberg , 11 / 29 / 01
enron bankruptcy would be largest chapter 11 filing ( updatel )
bloomberg , 11 / 29 / 01
enron ' s derivatives debt doesn ' t reveal market risk , nyt says
bloomberg , 11 / 29 / 01
powergen says exposure to enron in u . s . , u . k . ` not material '
bloomberg , 11 / 29 / 01
enron ' s collapse evokes memories of old - time bank run , nyt says
bloomberg , 11 / 29 / 001
rwe says open positions with enron ` much less ' than eul 0 mln
bloomberg , 11 / 29 / 01
enron soared on innovation , fell as debt scared away investors
bloomberg , 11 / 29 / 01
centrica may have to write off $ 43 mln if enron fails ( updatel )
bloomberg , 11 / 29 / 01
enron evaluating whether to pay quarterly dividend ( updatel )
bloomberg , 11 / 29 / 01
enron europe says chosen administrator
2001 - 11 - 29 09 : 08 ( new york )
london , nov . 29 ( bloomberg ) - - enron corp . ' s european
division said has been appointed
administrator for much of its business .
teesside , a power plant jointly owned with innogy plc , enron
direct and some other activities are not part of the u . s .
accounting firm ' s area of oversight , said enron europe spokesman
alex parson .
enron ' s derivatives debt doesn ' t reveal market risk , nyt says
2001 - 11 - 29 07 : 32 ( new york )
houston , nov . 29 ( bloomberg ) - - enron corp . ' s derivatives
trading liabilities at the end of september were $ 18 . 7 billion ,
although nobody is sure just how much money the energy - related
derivatives markets will have at risk if enron fails , the new york
times reported .
while these liabilities , the amount of money it would owe to
other market players if it filed for bankruptcy , were up
` ` slightly ' ' from june levels , they are about $ 1 . 3 billion less
than at the end of last year , the paper said .
the numbers don ' t take into account the unknown amount of
collateral that enron may have posted , the paper said , citing
swaps monitor president paul spraos . the collateral should , in
principle , diminish enron ' s actual liabilities , he said .
in an energy swap , a company enters into a contract to lock
in a fixed price of a certain commodity , like natural gas or
electricity . the other company assumes the risk of future price
changes and quotes a fixed price that includes its own profit .
( nyt 11 - 29 c 7 )
for the web site of the new york times , see { nyti } .
enron ' s board was compromised by financial ties ( updatel )
2001 - 11 - 29 08 : 10 ( new york )
enron ' s board was compromised by financial ties ( updatel )
( updates sixth paragraph with details on cash crunch ; adds
details of how credit ratings were cut . )
new york , nov . 29 ( bloomberg ) - - enron corp . plunged from the
largest energy trader to the verge of bankruptcy under a board of
directors whose independence was undercut by financial ties to
management , according to corporate governance experts .
enron gave seven of its 14 directors consulting contracts ,
sales to their business or donations to their non - profit
institutions , according to company and public records . the
recipients include three members of enron ' s audit committee , which
is responsible for financial oversight .
lord john wakeham , for example , a former leader of the
british house of commons , sits on the audit committee . enron gave
him a $ 72 , 000 - a - year consulting contract . john mendelsohn ,
president of the md anderson cancer center in houston , is also on
the audit committee . in the last five years enron and its chairman
kenneth lay have donated $ 567 , 900 to the cancer center .
` ` to get on a board you have to be ` clubbable , ' but this
looks like collegiality turning to cronyism , ' ' said allan
cleveland , counsel to the new hampshire retirement system , an
enron shareholder .
enron , based in houston , texas handled almost a quarter of
all natural gas and electricity trades . during the past seven
weeks , its board has presided over a $ 26 billion drop in market
value that began after the company wrote down $ 1 . 2 billion in
shareholder equity and reported it had overstated earnings by $ 586
million since 1997 .
as enron ' s shares fell , the company suffered a cash crunch .
it sought an infusion of capital and agreed to be acquired by
dynegy inc . , a houston - based rival . that plan collapsed yesterday
as investors balked at investing $ 1 . 5 billion , prompting dynegy to
withdraw its offer . enron shares closed at 61 cents .
responsibility
corporate boards are responsible for protecting shareholder
interests by reviewing the work of top executives . to accomplish
that , two - thirds of a board should be ` ` independent ' ' from
management , according to the council of institutional investors ,
which represents pension funds .
the council defines an independent director as ` ` a person
whose directorship constitutes his or her only connection to the
corporation . ' '
` ` consulting contracts , donations to non - profit organizations
linked to directors , this eats away at independence , ' ' said ann
yergen , the council ' s director of research .
corporate governance standards established by the new york
and nasdaq stock exchanges say all audit committee members should
be independent .
enron board members , including wakeham and mendelsohn ,
declined repeated requests for interviews . vance meyer , a company
spokesman , said enron could not immediately respond to questions
regarding the board .
compensation
enron ' s board met nine times in 2000 with each member
receiving annual compensation of $ 79 , 000 in cash and stock . every
member attended at least 75 percent of the meetings , except ronnie
chan , chief executive of the hang lung group , a hong kong
development business , according to company filings .
based on enron proxy statements and other documents , the
following relationships existed between enron and board members :
- - herbert s . winokur jr . , 57 , is the managing partner of
capricorn investors l . p . , a holding company that owns the natco
group inc . , a maker of oil and gas production equipment . an enron
board member since 1985 , winokur serves on the executive
committee , chairs the finance committee and was appointed to a
special committee created to look into how enron was managed .
in 2000 , natco had $ 370 , 294 in sales to enron subsidiaries ,
or about 1 . 6 percent of natco ' s total sales .
` compromising '
` ` we think that anything over 1 percent is compromising , ' '
said yergen of the council of institutional investors .
enron said in a proxy statement it believes the terms of the
sales were ` ` no less favorable than the terms of similar
arrangements with third parties . ' '
- - robert a . belfer , 65 , has been on the board since 1983 and
sits on the executive committee . he is enron ' s largest individual
shareholder with 8 . 5 million shares , and is chairman and chief
executive of belco oil & gas corp . , which operates from an office
overlooking new york ' s central park . in 2000 , belco had $ 32
million in trade settlements and $ 1 million in option premiums
with enron trade resources corp . , an enron subsidiary .
- - john urquhart , 72 , a former general electric co . executive ,
sat on the board until last may . he received an annual consulting
fee from enron of almost $ 200 , 000 a year as a special adviser to
the enron chairman .
- - mendelsohn , 64 , is a physician who was formerly head of
medicine at memorial sloan - kettering cancer center in new york . he
pioneered research in controlling cancer through the chemistry of
a tumor ' s growth and was on president george w . bush ' s short list
to head the national institutes of health . since 1996 , mendelsohn
has been president of the md anderson cancer center , part of the
university of texas health system .
donations
mendelsohn joined enron ' s board in 1999 . enron has donated
$ 221 , 650 to the cancer center . lay and a foundation he established
with his wife , the linda and ken lay family foundation , have
donated $ 346 , 250 in the last five years . the enron foundation
pledged $ 1 . 5 million for a new clinic .
- - charles lemaistre , 77 , headed the andersen cancer center
for 18 years until retiring in 1996 . he has been an enron board
member for 16 years , is a member of the executive committee and
chairs the compensation committee . that panel awarded lay a $ 20
million - a - year severance package that he renounced two weeks ago .
- - wendy gramm , 56 , has held positions at the federal trade
commission and the u . s . office of management and budget and was
chairman of the u . s . commodity futures trading commission . she is
director of regulatory studies at the mercatus center of george
mason university in fairfax , virginia . she is married to texas
republican senator phil gramm .
in the last three years , enron and the ken and linda lay
family foundation have donated more than $ 50 , 000 to the university
and the mercatus center , according to university records .
consulting fee
- - wakeham , 68 , a charted accountant and self - made
millionaire , became a force in the government of former u . k . prime
minister margaret thatcher where he was known as her ` ` mr . fix -
it . ' ' he was the target of an irish republican army bomb in 1984
that killed his wife and left him buried under rubble for seven
hours .
enron pays wakeham $ 6 , 000 a month to advise the company on
european business .
enron ' s audit committee poses particular problems , according
to corporate governance experts . the committee is composed of
wakeham , mendelsohn , gramm , chan , robert jaedicke , a retired
stanford university business school dean , and paulo ferraz
pereira , a brazilian banker .
wakeham , gramm and mendelsohn are not independent , according
to corporate governance experts and standards .
` ` for the audit committee , you don ' t even want the appearance
of a conflict , ' ' said charles drott , a forensic accountant who has
testified as an expert witness in bankruptcy and business fraud
cases involving companies such as delorean motor co . and lincoln
savings and loan association .
the committee is spread across the globe , with wakeham in
london , ferraz in rio de janeiro and chan in hong kong .
` ` the question is why this committee ? ' ' drott asked . ` ` for a
big sophisticated company like enron , why did they choose these
people ? ' '
swift descent
enron ' s rapid decline - - standard & poor ' s corp . slashed its
credit rating eight levels this month to junk status - - centered
on its dealings with partnerships the company used to move assets
and debt off the company ' s books . many investors had complained
enron ' s financial reports obscured the partnerships ' businesses to
the point they were impossible to understand . enron ' s former chief
financial officer andrew fastow led some of the partnerships and
earned more than $ 30 million through their dealings with enron ,
the company disclosed .
enron documents filed with the u . s . securities and exchange
commission state that the board determined that fastow ' s
participation in the partnerships would ` ` not adversely affect the
interests of enron . ' ' the documents also say the board approved
all transactions involving partnerships that were brought to it by
lay and other enron executives .
` ` what went wrong at enron ? ' ' said patrick mcgurn , a vice
president at institutional investor services , which evaluates
board candidates for institutional investors . ` ` a lot of it goes
back to the board . ' '
enron ' s indian lenders may take over power project ( update 2 )
2001 - 11 - 29 08 : 32 ( new york )
enron ' s indian lenders may take over power project ( update 2 )
( adds comment from idbi managing director in ninth paragraph ,
legal details starting in seventh paragraph . )
mumbai , nov . 29 ( bloomberg ) - - enron corp . ' s indian lenders
may take over its $ 3 billion power venture to salvage loans of $ 2
billion if the energy trader files for bankruptcy in the u . s .
enron may be forced into the biggest chapter 11
reorganization in history after dynegy inc . walked away from a
rescue . rating agencies cut most of enron ' s $ 15 billion of debt to
junk status , and its shares are almost worthless .
india ' s dabhol power co . , one of enron ' s biggest asian gas
and power units , has been mired in accusations of bribery and
exorbitant power tariffs .
` ` lenders will have to take control of the project , ' ' said
madhav godbole , who headed a panel set up to resolve a payment
dispute between dabhol power , enron ' s india unit , and the
maharashtra state electricity board , its sole customer . ` ` buyers
( for dabhol ) will have to negotiate with the lenders . ' '
enron , which is owed $ 64 million for bills that are more than
10 months overdue , wants $ 1 billion for its 65 percent stake in
dabhol as it exits india . tata power ltd . and bses ltd . , the two
bidders for enron ' s stake , have said the price is too high . both
supply power to mumbai , india ' s commercial capital .
the industrial development bank of india , the country ' s
biggest lender , and the state bank of india are among local
lenders that loaned $ 1 . 4 billion to dabhol . they have the most at
stake if the loans turn bad . the $ 600 million lent by abn amro ,
bank of america corp . and other overseas banks is covered by
government guarantees , while indian bank loans are not .
cancellation notice
enron on may 19 issued a six - month notice canceling power
sales to the electricity board . the deadline lapsed on nov . 19 as
the mumbai high court early this month stopped dabhol from serving
the final termination notice until dec . 3 .
the court ' s move was in response to a suit filed by indian
lenders against dabhol to prevent it from canceling the contract .
they were concerned the loss - making electricity board will be
forced to buy the power plant , making loan recovery difficult .
` ` the matter has become extremely interesting ( for india ) in
the context of dynegy pulling out , ' ' idbi chairman p . p . vora told
reporters at the lenders ' earnings meet . ` ` i can ' t say more as the
matter is in the court . ' '
idbi alone has lent dabhol $ 400 million .
indian lenders won ' t attend a dabhol board meeting or a
summit of creditors , both of which are to be held in london
tomorrow , vora said , without giving any reason . dabhol ' s board is
meeting to authorize k . wade cline , managing director , to serve
the termination notice .
discount ?
enron ' s stake in dabhol may now be worth much less than the
$ 1 billion it is seeking . still , potential buyers may find it hard
to raise the money they will need to finish work on the plant .
construction contractors in june stopped work on expansion of
the power plant because they hadn ' t been paid since april . the
expansion , which was to add 1 , 444 megawatts of capacity to the
existing 740 megawatt capacity , and a 5 million - tons - a - year
liquefied natural gas receiving terminal , is 95 percent complete .
` ` buyers may get a good price but they need $ 500 million to
complete the project , ' ' said pradyumna kaul , an activist who ' s
campaigned against dabhol for eight years . ` ` that is a lot of
money for a project that ' s in distress and whose credibility is at
its lowest ' ' with enron on the verge of collapse .
awaiting ` response '
bses managing director r . v . shahi said he ' s waiting for a
` ` response ' ' from the lenders on the future course of action .
` ` they came to us with ( the project ) and our action will
depend on what their approach is . ' ' bses hasn ' t set a price it
would pay for the project , shahi said . ` ` we ' ve not reached that
stage yet . ' '
tata power officials weren ' t available for comment .
` ` the equity value ( of enron ) will go down , helping potential
buyers , but that does not solve the basic problem , that of high -
cost power , ' ' godbole said . ` ` all parties linked with the project
will have to make sacrifices ' ' to reduce the cost of power .
dabhol ' s power charges in 2000 rose as high as 7 . 1 rupees , or
15 u . s . cents , a kilowatt - hour , compared with other suppliers '
rates of about 2 . 81 rupees . that led the electricity board to
default on bills , and in may it stopped buying power from dabhol ,
saying it was too expensive .
enron was one of the first major companies to enter india
after the country ' s economy opened up to foreign investment in
1991 . it was awarded the contract to build the power plant 100
miles south of mumbai without competitive bidding .
plant construction was delayed for about two years after
public interest groups filed lawsuits against the project , on the
grounds its power was too expensive .
a state government reworked the contract just five months
after scrapping it , a move that sparked accusations of the company
bribing politicians in return for the contract - - a charge denied
by all parties .
enron bankruptcy would be largest chapter 11 filing ( updatel )
2001 - 11 - 29 08 : 46 ( new york )
enron bankruptcy would be largest chapter 11 filing ( updatel )
( updating with instinet share price , dividend payment . )
washington , nov . 29 ( bloomberg ) - - enron corp . may file for
bankruptcy protection in the biggest chapter 11 reorganization in
history , forcing the largest u . s . energy trader to liquidate
billions of dollars in assets to pay creditors .
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 top
texaco inc . ' s record $ 35 . 9 billion case filed in 1987 .
under chapter 11 protection , enron officials could continue
to control the company while negotiating a recovery plan with
creditors . an ` ` automatic stay ' ' under u . s . bankruptcy law would
block 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 .
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 .
` witches brew '
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 .
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 .
enron ' s shareholders are likely to lose all of their
investment in a chapter 11 case because they would be last in line
to get paid .
shares , the most active in pre - market trading on instinet ,
gained 2 cents to 63 cents after plunging 85 percent yesterday .
the company ' s 6 . 4 percent notes that mature in 2006 were unchanged
at about 22 cents on the dollar , traders said . at that price the
notes yield 53 percent .
enron said this morning it was evaluating whether it will pay
a declared dividend . the company is scheduled to pay a 12 . 5 - cent
quarter dividend on dec . 20
` black hole '
for investors now considering buying enron ' s bonds and other
debts , a major issue is the uncertainty surrounding the company ' s
value .
` ` until the forensic accountants can get in there and sort
things out you just don ' t know what enron ' s worth , ' ' said gary
hindes , managing director of deltec asset management llc . ` ` it ' s a
black hole . ' ' deltec has no investment in enron , hindes said .
enron ' s bond prices reflect the uncertainty . the company ' s
6 . 4 percent bonds , which mature in 2006 , were quoted at 20 cents
on the dollar , down from 53 cents tuesday .
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 , he said .
liability
dynegy might face some liability for canceling 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 .
three credit - rating agencies yesterday cut enron ' s credit
rating to junk status , triggering an acceleration of the company ' s
debt obligations .
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 ' s derivatives debt doesn ' t reveal market risk , nyt says
2001 - 11 - 29 07 : 32 ( new york )
houston , nov . 29 ( bloomberg ) - - enron corp . ' s derivatives
trading liabilities at the end of september were $ 18 . 7 billion ,
although nobody is sure just how much money the energy - related
derivatives markets will have at risk if enron fails , the new york
times reported .
while these liabilities , the amount of money it would owe to
other market players if it filed for bankruptcy , were up
` ` slightly ' ' from june levels , they are about $ 1 . 3 billion less
than at the end of last year , the paper said .
the numbers don ' t take into account the unknown amount of
collateral that enron may have posted , the paper said , citing
swaps monitor president paul spraos . the collateral should , in
principle , diminish enron ' s actual liabilities , he said .
in an energy swap , a company enters into a contract to lock
in a fixed price of a certain commodity , like natural gas or
electricity . the other company assumes the risk of future price
changes and quotes a fixed price that includes its own profit .
( nyt 11 - 29 c 7 )
for the web site of the new york times , see { nyti } .
powergen says exposure to enron in u . s . , u . k . ` not material '
2001 - 11 - 29 04 : 37 ( new york )
powergen says exposure to enron in u . s . , u . k . ` not material '
london , nov . 29 ( bloomberg ) - - powergen plc , the u . k .
electricity generator being bought by germany ' s e . on ag , said
its exposure to enron corp . is ` ` not material . ' ' it declined to
provide detail on its open trading positions with the company .
powergen trades daily with in the u . s . and u . k . with enron ,
the largest u . s . energy trader , which said yesterday that it
may file for bankruptcy protection after dynegy inc . abandoned its
proposed merger with the company .
` ` enron is a regular trading partner of powergen in both the
u . k . and the u . s . - - we do have some exposure , ' ' said spokesman
jonathan smith . ` ` this exposure is managed within clearly defined
risks . it ' s not material in the context of the overall size of
powergen ' s operations . ' '
rwe ag , europe ' s fourth - biggest electricity company , said
today that its open trading positions with enron corp . amount to
` ` much less ' ' than 10 million euros ( $ 8 . 9 million ) .
enron ' s collapse evokes memories of old - time bank run , nyt says
2001 - 11 - 29 06 : 31 ( new york )
houston , nov . 29 ( bloomberg ) - - enron corp . was successful
because the energy trading operation it created was largely an
unregulated financial business and became something like a bank ,
which took depositors ' money and promised to pay it back , floyd
norris wrote in his column in the new york times .
when negotiations on dynegy inc . ' s revised takeover came down
to efforts to find $ 250 million or $ 500 million of enron assets
that could serve as collateral for a new dynegy cash advance , it
became clear that even enron ' s rescuer was demanding collateral
and having trouble finding it , the times reported .
unlike banks , enron had no federal deposit insurance to
reassure customers when rumors spread that it was in trouble , the
paper reported . enron ' s collapse is a reminder for participants in
unregulated markets that their financial health must be beyond
doubt .
unregulated markets can be very profitable for those with
market knowledge , as enron seemed to have . yet , when prices are
visible to all , the value of that knowledge falls . new regulation
can bring more openness , though it also can bring structures , like
clearing systems that reassure traders they need to worry about
the credit of those with whom they trade , the paper said .
( nyt 11 - 29 al )
for the web site of the new york times , see { nyti } .
rwe says open positions with enron ` much less ' than eul 0 mln
2001 - 11 - 29 03 : 13 ( new york )
rwe says open positions with enron ` much less ' than eul 0 mln
essen , germany , nov . 29 ( bloomberg ) - - rwe ag , europe ' s
fourth - biggest electricity company , said its open trading
positions with enron corp . amount to ` ` much less ' ' than
10 million euros ( $ 8 . 9 million ) .
enron , the largest u . s . energy trader , said yesterday it
may file for bankruptcy protection after dynegy inc . abandoned its
proposed merger with the company .
` ` it ' s sad that we may lose such an important trader in the
market , ' ' said ralf schaefer , a spokesman for rwe ' s trading
business . ` ` but there will be no financial losses for rwe . ' '
essen , germany - based rwe has been building up its trading
activities in the last three years and trades electricity , natural
gas and coal . european utilities are seeking to profit from excess
electricity output by selling it on the open market .
enron soared on innovation , fell as debt scared away investors
2001 - 11 - 29 01 : 01 ( new york )
enron soared on innovation , fell as debt scared away investors
houston , nov . 29 ( bloomberg ) - - former enron corp . chief
executive officer jeffrey skilling bragged last year that
traditional energy companies such as exxon mobil corp . were
doomed . in just two years , he built a business that dominated a $ 2
trillion market through trading energy , not producing it .
today , enron is sliding toward bankruptcy , after dynegy inc .
walked away from a takeover of its houston rival . credit rating
companies reduced most of enron ' s $ 15 billion of debt to junk
status . enron ' s shares are almost worthless and the securities and
exchange commission is investigating the company ' s finances .
chairman and ceo kenneth lay , a friend of president george w .
bush who made the short list for secretary of energy , said he
would ` ` work to retain ' ' the employees needed for trading and
certain other businesses . enron employs 21 , 000 people .
` ` it ' s a disaster , ' ' said shareholder scott schermerhorn ,
fund manager with colonial management associates . ` ` bankruptcy is
highly likely now . ' '
the same hubris reflected in skilling ' s boast paved the way
for the company ' s disintegration , analysts said . enron asked
shareholders to accept reports of 14 percent annual earnings
growth , even as it used a bewildering series of outside
partnerships to hedge risks and move assets and liabilities off
its books . when accounting for those partnerships turned out to be
wrong , investor confidence evaporated .
standard & poor ' s , whose downgrade of enron ' s debt yesterday
was part of the proposed sale ' s unraveling , removed the company
from its index of 500 stocks . enron shares have lost more than 99
percent , or $ 45 billion in market value , making them the worst
performer in the index this year .
` world ' s greatest company '
a sign at enron ' s headquarters calls it ` ` the world ' s
greatest company , ' ' and for several years many investors agreed .
enron ' s shares rose 50 percent in 1999 , 87 percent last year , and
for most of 2001 were the most highly recommended analyst pick
among s & p 500 companies .
enron ' s high profile extended beyond wall street . the company
accounted for a quarter of u . s . electricity and natural gas trades
this year .
lay attended a bush administration economic forum in january ,
and vice president richard cheney sought his advice on energy
policy . enron , its political action committee and employees gave
almost $ 2 . 5 million to federal candidates and political parties
last year , with about 75 percent of the money going to
republicans , according to campaign finance records .
` ` enron is aligned with all the texas energy exploration and
production money , ' ' said glenn reynolds , an analyst at
creditsights inc . ` ` they know how to do business . ' '
risky strategy
in 1990 , lay hired skilling , who became a force behind the
company ' s growth . he ripped away walls in enron ' s headquarters ,
built trading desks and transformed the company ' s regulated
pipeline and utility units into a business that some analysts say
resembles a hedge fund .
enron reported 1999 profit of $ 893 million and $ 40 . 1 billion
in revenue . that same year , enron expanded into water utilities ,
sewage treatment and trading space on fiber - optic
telecommunication networks . shareholder lawsuits filed in the past
month say those business were money losers from the start and that
executives mislead investors about them .
a junior executive in europe dreamed up an idea in 1999 for
an internet trading site dealing paper , plastics and other
commodities , in addition to the usual natural gas and electricity
offerings . the site handled $ 50 billion in transactions in its
first six months and more than $ 880 billion in trades in two
years , 60 percent of the company ' s total .
` ` enron had a tremendous appetite for risk , ' ' said peter
fusaro , president of global change associates , which did
consulting for enron . ` ` they were the first in many markets , would
take long - term contracts , they were just super - aggressive . they
hired type - a mba ' s from the best schools who learned the energy
business from scratch . ' '
investors in dark
unknown by most investors , some of enron ' s increased revenue
was coming from sales of power plants to enron - affiliated
partnerships . those partnerships paid for the purchases by selling
bonds that were guaranteed by enron .
as a result , enron ' s books showed an increase in cash from
the sales , and a decrease in debt associated with the plants . an
enron restatement of finances earlier this month showed that as
much as $ 3 . 9 billion , or about a quarter of enron ' s total long
term debt , had been shifted from enron ' s books to affiliates .
skilling quit the company in august . former enron chief
financial officer andrew fastow was fired last month , after the
company revealed that fastow had personally profited from
transactions he conducted with enron partnerships . enron has said
it ' s cooperating with an sec probe .
when enron ' s market value was near its high in late 2000 and
early this year , eight top enron executives , including lay and
skilling , sold company stock for a total of $ 73 million . more than
20 securities lawsuits alleging illegal insider trading have been
filed against the company .
lay pledged to provide more information on enron ' s
transactions , starting with the third - quarter earnings report .
on oct . 16 , enron stunned analysts and investors with the
disclosure of $ 1 . 01 billion in losses from investments in
businesses outside the main trading operation , such as in fiber -
optics ventures and the azurix water and sewage companies .
` ` now you have a bankrupt company , ' ' said rob plaza , an
analyst at financial advisers morningstar who owns no enron
shares . ` ` that is the smoke and mirrors of enron . ' '
centrica may have to write off $ 43 mln if enron fails ( updatel )
2001 - 11 - 29 09 : 10 ( new york )
centrica may have to write off $ 43 mln if enron fails ( updatel )
( adds detail on contracts in first paragraph , shares in
fifth , background from sixth . )
london , nov . 29 ( bloomberg ) - - centrica plc , the u . k . ' s
dominant natural - gas supplier , may have to write off gas and
electricity contracts worth 30 million pounds ( $ 43 million ) if
enron corp . goes out of business .
the company agreed to a 10 - year gas contract in 1998 with the
u . s . energy trader , which may be forced into the biggest chapter
11 filing in history after dynegy inc . walked away from a rescue .
enron supplies the u . k . company with more than 5 billion cubic
meters of gas and an undisclosed amount of power .
centrica ` ` is working to reduce its trading exposure to
enron , ' ' it said in a regulatory news service statement . ` ` in the
event enron defaults on its contractual obligations , we remain
confident in our ability to supply all our customers . ' '
centrica , created in 1997 when it was spun off from british
gas , still makes most sales from supplying the fuel to customers
in the u . k . it meets about 20 percent of that demand with gas from
its own fields and buys the rest from other companies .
shares of the slough , england - based company fell as much as
4 . 25 pence , or 2 . 1 percent , to 202 . 75 . they ' ve lost a fifth of
their value this year . enron shares are now almost worthless .
enron provides gas to centrica at prices linked to the
international petroleum exchange natural gas futures contract .
last week , slough , england - based centrica agreed to pay 62 . 3
million pounds for stakes in five natural gas fields in the north
sea to replace dwindling reserves .
enron evaluating whether to pay quarterly dividend ( updatel )
2001 - 11 - 29 08 : 44 ( new york )
enron evaluating whether to pay quarterly dividend ( updatel )
( adds background on dynegy withdrawal in third paragraph . )
houston , nov . 29 ( bloomberg ) - - enron corp . , facing
bankruptcy after dynegy inc . abandoned a buyout of the largest
energy trader , said it is evaluating whether to pay dividends on
its common and preferred stock next month .
enron is scheduled to pay a quarterly dividend of 12 . 5 cents
a share dec . 20 .
dynegy yesterday withdrew its purchase offer , valued at about
$ 23 billion in stock and assumed debt when announced nov . 9 , after
bankers failed to raise $ 1 . 5 billion enron needed to operate until
the acquisition was completed . credit - rating companies lowered
enron ' s rating to junk .
shares of enron fell $ 3 . 50 , or 85 percent , to 61 cents
yesterday . they have fallen 99 percent this year . dynegy fell
$ 4 . 92 , or 12 percent , to $ 35 . 97 . both companies are based in
houston .
enron mentions - 11 / 29 / 01
enron europe says chosen administrator
bloomberg , 11 / 29 / 01
enron ' s derivatives debt doesn ' t reveal market risk , nyt says
bloomberg , 11 / 29 / 01
enron ' s board was compromised by financial ties ( updatel )
bloomberg , 11 / 29 / 01
enron ' s indian lenders may take over power project ( update 2 )
bloomberg , 11 / 29 / 01
enron bankruptcy would be largest chapter 11 filing ( updatel )
bloomberg , 11 / 29 / 01
enron ' s derivatives debt doesn ' t reveal market risk , nyt says
bloomberg , 11 / 29 / 01
powergen says exposure to enron in u . s . , u . k . ` not material '
bloomberg , 11 / 29 / 01
enron ' s collapse evokes memories of old - time bank run , nyt says
bloomberg , 11 / 29 / 001
rwe says open positions with enron ` much less ' than eul 0 mln
bloomberg , 11 / 29 / 01
enron soared on innovation , fell as debt scared away investors
bloomberg , 11 / 29 / 01
centrica may have to write off $ 43 mln if enron fails ( updatel )
bloomberg , 11 / 29 / 01
enron evaluating whether to pay quarterly dividend ( updatel )
bloomberg , 11 / 29 / 01
enron europe says chosen administrator
2001 - 11 - 29 09 : 08 ( new york )
london , nov . 29 ( bloomberg ) - - enron corp . ' s european
division said has been appointed
administrator for much of its business .
teesside , a power plant jointly owned with innogy plc , enron
direct and some other activities are not part of the u . s .
accounting firm ' s area of oversight , said enron europe spokesman
alex parson .
enron ' s derivatives debt doesn ' t reveal market risk , nyt says
2001 - 11 - 29 07 : 32 ( new york )
houston , nov . 29 ( bloomberg ) - - enron corp . ' s derivatives
trading liabilities at the end of september were $ 18 . 7 billion ,
although nobody is sure just how much money the energy - related
derivatives markets will have at risk if enron fails , the new york
times reported .
while these liabilities , the amount of money it would owe to
other market players if it filed for bankruptcy , were up
` ` slightly ' ' from june levels , they are about $ 1 . 3 billion less
than at the end of last year , the paper said .
the numbers don ' t take into account the unknown amount of
collateral that enron may have posted , the paper said , citing
swaps monitor president paul spraos . the collateral should , in
principle , diminish enron ' s actual liabilities , he said .
in an energy swap , a company enters into a contract to lock
in a fixed price of a certain commodity , like natural gas or
electricity . the other company assumes the risk of future price
changes and quotes a fixed price that includes its own profit .
( nyt 11 - 29 c 7 )
for the web site of the new york times , see { nyti } .
enron ' s board was compromised by financial ties ( updatel )
2001 - 11 - 29 08 : 10 ( new york )
enron ' s board was compromised by financial ties ( updatel )
( updates sixth paragraph with details on cash crunch ; adds
details of how credit ratings were cut . )
new york , nov . 29 ( bloomberg ) - - enron corp . plunged from the
largest energy trader to the verge of bankruptcy under a board of
directors whose independence was undercut by financial ties to
management , according to corporate governance experts .
enron gave seven of its 14 directors consulting contracts ,
sales to their business or donations to their non - profit
institutions , according to company and public records . the
recipients include three members of enron ' s audit committee , which
is responsible for financial oversight .
lord john wakeham , for example , a former leader of the
british house of commons , sits on the audit committee . enron gave
him a $ 72 , 000 - a - year consulting contract . john mendelsohn ,
president of the md anderson cancer center in houston , is also on
the audit committee . in the last five years enron and its chairman
kenneth lay have donated $ 567 , 900 to the cancer center .
` ` to get on a board you have to be ` clubbable , ' but this
looks like collegiality turning to cronyism , ' ' said allan
cleveland , counsel to the new hampshire retirement system , an
enron shareholder .
enron , based in houston , texas handled almost a quarter of
all natural gas and electricity trades . during the past seven
weeks , its board has presided over a $ 26 billion drop in market
value that began after the company wrote down $ 1 . 2 billion in
shareholder equity and reported it had overstated earnings by $ 586
million since 1997 .
as enron ' s shares fell , the company suffered a cash crunch .
it sought an infusion of capital and agreed to be acquired by
dynegy inc . , a houston - based rival . that plan collapsed yesterday
as investors balked at investing $ 1 . 5 billion , prompting dynegy to
withdraw its offer . enron shares closed at 61 cents .
responsibility
corporate boards are responsible for protecting shareholder
interests by reviewing the work of top executives . to accomplish
that , two - thirds of a board should be ` ` independent ' ' from
management , according to the council of institutional investors ,
which represents pension funds .
the council defines an independent director as ` ` a person
whose directorship constitutes his or her only connection to the
corporation . ' '
` ` consulting contracts , donations to non - profit organizations
linked to directors , this eats away at independence , ' ' said ann
yergen , the council ' s director of research .
corporate governance standards established by the new york
and nasdaq stock exchanges say all audit committee members should
be independent .
enron board members , including wakeham and mendelsohn ,
declined repeated requests for interviews . vance meyer , a company
spokesman , said enron could not immediately respond to questions
regarding the board .
compensation
enron ' s board met nine times in 2000 with each member
receiving annual compensation of $ 79 , 000 in cash and stock . every
member attended at least 75 percent of the meetings , except ronnie
chan , chief executive of the hang lung group , a hong kong
development business , according to company filings .
based on enron proxy statements and other documents , the
following relationships existed between enron and board members :
- - herbert s . winokur jr . , 57 , is the managing partner of
capricorn investors l . p . , a holding company that owns the natco
group inc . , a maker of oil and gas production equipment . an enron
board member since 1985 , winokur serves on the executive
committee , chairs the finance committee and was appointed to a
special committee created to look into how enron was managed .
in 2000 , natco had $ 370 , 294 in sales to enron subsidiaries ,
or about 1 . 6 percent of natco ' s total sales .
` compromising '
` ` we think that anything over 1 percent is compromising , ' '
said yergen of the council of institutional investors .
enron said in a proxy statement it believes the terms of the
sales were ` ` no less favorable than the terms of similar
arrangements with third parties . ' '
- - robert a . belfer , 65 , has been on the board since 1983 and
sits on the executive committee . he is enron ' s largest individual
shareholder with 8 . 5 million shares , and is chairman and chief
executive of belco oil & gas corp . , which operates from an office
overlooking new york ' s central park . in 2000 , belco had $ 32
million in trade settlements and $ 1 million in option premiums
with enron trade resources corp . , an enron subsidiary .
- - john urquhart , 72 , a former general electric co . executive ,
sat on the board until last may . he received an annual consulting
fee from enron of almost $ 200 , 000 a year as a special adviser to
the enron chairman .
- - mendelsohn , 64 , is a physician who was formerly head of
medicine at memorial sloan - kettering cancer center in new york . he
pioneered research in controlling cancer through the chemistry of
a tumor ' s growth and was on president george w . bush ' s short list
to head the national institutes of health . since 1996 , mendelsohn
has been president of the md anderson cancer center , part of the
university of texas health system .
donations
mendelsohn joined enron ' s board in 1999 . enron has donated
$ 221 , 650 to the cancer center . lay and a foundation he established
with his wife , the linda and ken lay family foundation , have
donated $ 346 , 250 in the last five years . the enron foundation
pledged $ 1 . 5 million for a new clinic .
- - charles lemaistre , 77 , headed the andersen cancer center
for 18 years until retiring in 1996 . he has been an enron board
member for 16 years , is a member of the executive committee and
chairs the compensation committee . that panel awarded lay a $ 20
million - a - year severance package that he renounced two weeks ago .
- - wendy gramm , 56 , has held positions at the federal trade
commission and the u . s . office of management and budget and was
chairman of the u . s . commodity futures trading commission . she is
director of regulatory studies at the mercatus center of george
mason university in fairfax , virginia . she is married to texas
republican senator phil gramm .
in the last three years , enron and the ken and linda lay
family foundation have donated more than $ 50 , 000 to the university
and the mercatus center , according to university records .
consulting fee
- - wakeham , 68 , a charted accountant and self - made
millionaire , became a force in the government of former u . k . prime
minister margaret thatcher where he was known as her ` ` mr . fix -
it . ' ' he was the target of an irish republican army bomb in 1984
that killed his wife and left him buried under rubble for seven
hours .
enron pays wakeham $ 6 , 000 a month to advise the company on
european business .
enron ' s audit committee poses particular problems , according
to corporate governance experts . the committee is composed of
wakeham , mendelsohn , gramm , chan , robert jaedicke , a retired
stanford university business school dean , and paulo ferraz
pereira , a brazilian banker .
wakeham , gramm and mendelsohn are not independent , according
to corporate governance experts and standards .
` ` for the audit committee , you don ' t even want the appearance
of a conflict , ' ' said charles drott , a forensic accountant who has
testified as an expert witness in bankruptcy and business fraud
cases involving companies such as delorean motor co . and lincoln
savings and loan association .
the committee is spread across the globe , with wakeham in
london , ferraz in rio de janeiro and chan in hong kong .
` ` the question is why this committee ? ' ' drott asked . ` ` for a
big sophisticated company like enron , why did they choose these
people ? ' '
swift descent
enron ' s rapid decline - - standard & poor ' s corp . slashed its
credit rating eight levels this month to junk status - - centered
on its dealings with partnerships the company used to move assets
and debt off the company ' s books . many investors had complained
enron ' s financial reports obscured the partnerships ' businesses to
the point they were impossible to understand . enron ' s former chief
financial officer andrew fastow led some of the partnerships and
earned more than $ 30 million through their dealings with enron ,
the company disclosed .
enron documents filed with the u . s . securities and exchange
commission state that the board determined that fastow ' s
participation in the partnerships would ` ` not adversely affect the
interests of enron . ' ' the documents also say the board approved
all transactions involving partnerships that were brought to it by
lay and other enron executives .
` ` what went wrong at enron ? ' ' said patrick mcgurn , a vice
president at institutional investor services , which evaluates
board candidates for institutional investors . ` ` a lot of it goes
back to the board . ' '
enron ' s indian lenders may take over power project ( update 2 )
2001 - 11 - 29 08 : 32 ( new york )
enron ' s indian lenders may take over power project ( update 2 )
( adds comment from idbi managing director in ninth paragraph ,
legal details starting in seventh paragraph . )
mumbai , nov . 29 ( bloomberg ) - - enron corp . ' s indian lenders
may take over its $ 3 billion power venture to salvage loans of $ 2
billion if the energy trader files for bankruptcy in the u . s .
enron may be forced into the biggest chapter 11
reorganization in history after dynegy inc . walked away from a
rescue . rating agencies cut most of enron ' s $ 15 billion of debt to
junk status , and its shares are almost worthless .
india ' s dabhol power co . , one of enron ' s biggest asian gas
and power units , has been mired in accusations of bribery and
exorbitant power tariffs .
` ` lenders will have to take control of the project , ' ' said
madhav godbole , who headed a panel set up to resolve a payment
dispute between dabhol power , enron ' s india unit , and the
maharashtra state electricity board , its sole customer . ` ` buyers
( for dabhol ) will have to negotiate with the lenders . ' '
enron , which is owed $ 64 million for bills that are more than
10 months overdue , wants $ 1 billion for its 65 percent stake in
dabhol as it exits india . tata power ltd . and bses ltd . , the two
bidders for enron ' s stake , have said the price is too high . both
supply power to mumbai , india ' s commercial capital .
the industrial development bank of india , the country ' s
biggest lender , and the state bank of india are among local
lenders that loaned $ 1 . 4 billion to dabhol . they have the most at
stake if the loans turn bad . the $ 600 million lent by abn amro ,
bank of america corp . and other overseas banks is covered by
government guarantees , while indian bank loans are not .
cancellation notice
enron on may 19 issued a six - month notice canceling power
sales to the electricity board . the deadline lapsed on nov . 19 as
the mumbai high court early this month stopped dabhol from serving
the final termination notice until dec . 3 .
the court ' s move was in response to a suit filed by indian
lenders against dabhol to prevent it from canceling the contract .
they were concerned the loss - making electricity board will be
forced to buy the power plant , making loan recovery difficult .
` ` the matter has become extremely interesting ( for india ) in
the context of dynegy pulling out , ' ' idbi chairman p . p . vora told
reporters at the lenders ' earnings meet . ` ` i can ' t say more as the
matter is in the court . ' '
idbi alone has lent dabhol $ 400 million .
indian lenders won ' t attend a dabhol board meeting or a
summit of creditors , both of which are to be held in london
tomorrow , vora said , without giving any reason . dabhol ' s board is
meeting to authorize k . wade cline , managing director , to serve
the termination notice .
discount ?
enron ' s stake in dabhol may now be worth much less than the
$ 1 billion it is seeking . still , potential buyers may find it hard
to raise the money they will need to finish work on the plant .
construction contractors in june stopped work on expansion of
the power plant because they hadn ' t been paid since april . the
expansion , which was to add 1 , 444 megawatts of capacity to the
existing 740 megawatt capacity , and a 5 million - tons - a - year
liquefied natural gas receiving terminal , is 95 percent complete .
` ` buyers may get a good price but they need $ 500 million to
complete the project , ' ' said pradyumna kaul , an activist who ' s
campaigned against dabhol for eight years . ` ` that is a lot of
money for a project that ' s in distress and whose credibility is at
its lowest ' ' with enron on the verge of collapse .
awaiting ` response '
bses managing director r . v . shahi said he ' s waiting for a
` ` response ' ' from the lenders on the future course of action .
` ` they came to us with ( the project ) and our action will
depend on what their approach is . ' ' bses hasn ' t set a price it
would pay for the project , shahi said . ` ` we ' ve not reached that
stage yet . ' '
tata power officials weren ' t available for comment .
` ` the equity value ( of enron ) will go down , helping potential
buyers , but that does not solve the basic problem , that of high -
cost power , ' ' godbole said . ` ` all parties linked with the project
will have to make sacrifices ' ' to reduce the cost of power .
dabhol ' s power charges in 2000 rose as high as 7 . 1 rupees , or
15 u . s . cents , a kilowatt - hour , compared with other suppliers '
rates of about 2 . 81 rupees . that led the electricity board to
default on bills , and in may it stopped buying power from dabhol ,
saying it was too expensive .
enron was one of the first major companies to enter india
after the country ' s economy opened up to foreign investment in
1991 . it was awarded the contract to build the power plant 100
miles south of mumbai without competitive bidding .
plant construction was delayed for about two years after
public interest groups filed lawsuits against the project , on the
grounds its power was too expensive .
a state government reworked the contract just five months
after scrapping it , a move that sparked accusations of the company
bribing politicians in return for the contract - - a charge denied
by all parties .
enron bankruptcy would be largest chapter 11 filing ( updatel )
2001 - 11 - 29 08 : 46 ( new york )
enron bankruptcy would be largest chapter 11 filing ( updatel )
( updating with instinet share price , dividend payment . )
washington , nov . 29 ( bloomberg ) - - enron corp . may file for
bankruptcy protection in the biggest chapter 11 reorganization in
history , forcing the largest u . s . energy trader to liquidate
billions of dollars in assets to pay creditors .
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 top
texaco inc . ' s record $ 35 . 9 billion case filed in 1987 .
under chapter 11 protection , enron officials could continue
to control the company while negotiating a recovery plan with
creditors . an ` ` automatic stay ' ' under u . s . bankruptcy law would
block 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 .
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 .
` witches brew '
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 .
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 .
enron ' s shareholders are likely to lose all of their
investment in a chapter 11 case because they would be last in line
to get paid .
shares , the most active in pre - market trading on instinet ,
gained 2 cents to 63 cents after plunging 85 percent yesterday .
the company ' s 6 . 4 percent notes that mature in 2006 were unchanged
at about 22 cents on the dollar , traders said . at that price the
notes yield 53 percent .
enron said this morning it was evaluating whether it will pay
a declared dividend . the company is scheduled to pay a 12 . 5 - cent
quarter dividend on dec . 20
` black hole '
for investors now considering buying enron ' s bonds and other
debts , a major issue is the uncertainty surrounding the company ' s
value .
` ` until the forensic accountants can get in there and sort
things out you just don ' t know what enron ' s worth , ' ' said gary
hindes , managing director of deltec asset management llc . ` ` it ' s a
black hole . ' ' deltec has no investment in enron , hindes said .
enron ' s bond prices reflect the uncertainty . the company ' s
6 . 4 percent bonds , which mature in 2006 , were quoted at 20 cents
on the dollar , down from 53 cents tuesday .
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 , he said .
liability
dynegy might face some liability for canceling 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 .
three credit - rating agencies yesterday cut enron ' s credit
rating to junk status , triggering an acceleration of the company ' s
debt obligations .
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 ' s derivatives debt doesn ' t reveal market risk , nyt says
2001 - 11 - 29 07 : 32 ( new york )
houston , nov . 29 ( bloomberg ) - - enron corp . ' s derivatives
trading liabilities at the end of september were $ 18 . 7 billion ,
although nobody is sure just how much money the energy - related
derivatives markets will have at risk if enron fails , the new york
times reported .
while these liabilities , the amount of money it would owe to
other market players if it filed for bankruptcy , were up
` ` slightly ' ' from june levels , they are about $ 1 . 3 billion less
than at the end of last year , the paper said .
the numbers don ' t take into account the unknown amount of
collateral that enron may have posted , the paper said , citing
swaps monitor president paul spraos . the collateral should , in
principle , diminish enron ' s actual liabilities , he said .
in an energy swap , a company enters into a contract to lock
in a fixed price of a certain commodity , like natural gas or
electricity . the other company assumes the risk of future price
changes and quotes a fixed price that includes its own profit .
( nyt 11 - 29 c 7 )
for the web site of the new york times , see { nyti } .
powergen says exposure to enron in u . s . , u . k . ` not material '
2001 - 11 - 29 04 : 37 ( new york )
powergen says exposure to enron in u . s . , u . k . ` not material '
london , nov . 29 ( bloomberg ) - - powergen plc , the u . k .
electricity generator being bought by germany ' s e . on ag , said
its exposure to enron corp . is ` ` not material . ' ' it declined to
provide detail on its open trading positions with the company .
powergen trades daily with in the u . s . and u . k . with enron ,
the largest u . s . energy trader , which said yesterday that it
may file for bankruptcy protection after dynegy inc . abandoned its
proposed merger with the company .
` ` enron is a regular trading partner of powergen in both the
u . k . and the u . s . - - we do have some exposure , ' ' said spokesman
jonathan smith . ` ` this exposure is managed within clearly defined
risks . it ' s not material in the context of the overall size of
powergen ' s operations . ' '
rwe ag , europe ' s fourth - biggest electricity company , said
today that its open trading positions with enron corp . amount to
` ` much less ' ' than 10 million euros ( $ 8 . 9 million ) .
enron ' s collapse evokes memories of old - time bank run , nyt says
2001 - 11 - 29 06 : 31 ( new york )
houston , nov . 29 ( bloomberg ) - - enron corp . was successful
because the energy trading operation it created was largely an
unregulated financial business and became something like a bank ,
which took depositors ' money and promised to pay it back , floyd
norris wrote in his column in the new york times .
when negotiations on dynegy inc . ' s revised takeover came down
to efforts to find $ 250 million or $ 500 million of enron assets
that could serve as collateral for a new dynegy cash advance , it
became clear that even enron ' s rescuer was demanding collateral
and having trouble finding it , the times reported .
unlike banks , enron had no federal deposit insurance to
reassure customers when rumors spread that it was in trouble , the
paper reported . enron ' s collapse is a reminder for participants in
unregulated markets that their financial health must be beyond
doubt .
unregulated markets can be very profitable for those with
market knowledge , as enron seemed to have . yet , when prices are
visible to all , the value of that knowledge falls . new regulation
can bring more openness , though it also can bring structures , like
clearing systems that reassure traders they need to worry about
the credit of those with whom they trade , the paper said .
( nyt 11 - 29 al )
for the web site of the new york times , see { nyti } .
rwe says open positions with enron ` much less ' than eul 0 mln
2001 - 11 - 29 03 : 13 ( new york )
rwe says open positions with enron ` much less ' than eul 0 mln
essen , germany , nov . 29 ( bloomberg ) - - rwe ag , europe ' s
fourth - biggest electricity company , said its open trading
positions with enron corp . amount to ` ` much less ' ' than
10 million euros ( $ 8 . 9 million ) .
enron , the largest u . s . energy trader , said yesterday it
may file for bankruptcy protection after dynegy inc . abandoned its
proposed merger with the company .
` ` it ' s sad that we may lose such an important trader in the
market , ' ' said ralf schaefer , a spokesman for rwe ' s trading
business . ` ` but there will be no financial losses for rwe . ' '
essen , germany - based rwe has been building up its trading
activities in the last three years and trades electricity , natural
gas and coal . european utilities are seeking to profit from excess
electricity output by selling it on the open market .
enron soared on innovation , fell as debt scared away investors
2001 - 11 - 29 01 : 01 ( new york )
enron soared on innovation , fell as debt scared away investors
houston , nov . 29 ( bloomberg ) - - former enron corp . chief
executive officer jeffrey skilling bragged last year that
traditional energy companies such as exxon mobil corp . were
doomed . in just two years , he built a business that dominated a $ 2
trillion market through trading energy , not producing it .
today , enron is sliding toward bankruptcy , after dynegy inc .
walked away from a takeover of its houston rival . credit rating
companies reduced most of enron ' s $ 15 billion of debt to junk
status . enron ' s shares are almost worthless and the securities and
exchange commission is investigating the company ' s finances .
chairman and ceo kenneth lay , a friend of president george w .
bush who made the short list for secretary of energy , said he
would ` ` work to retain ' ' the employees needed for trading and
certain other businesses . enron employs 21 , 000 people .
` ` it ' s a disaster , ' ' said shareholder scott schermerhorn ,
fund manager with colonial management associates . ` ` bankruptcy is
highly likely now . ' '
the same hubris reflected in skilling ' s boast paved the way
for the company ' s disintegration , analysts said . enron asked
shareholders to accept reports of 14 percent annual earnings
growth , even as it used a bewildering series of outside
partnerships to hedge risks and move assets and liabilities off
its books . when accounting for those partnerships turned out to be
wrong , investor confidence evaporated .
standard & poor ' s , whose downgrade of enron ' s debt yesterday
was part of the proposed sale ' s unraveling , removed the company
from its index of 500 stocks . enron shares have lost more than 99
percent , or $ 45 billion in market value , making them the worst
performer in the index this year .
` world ' s greatest company '
a sign at enron ' s headquarters calls it ` ` the world ' s
greatest company , ' ' and for several years many investors agreed .
enron ' s shares rose 50 percent in 1999 , 87 percent last year , and
for most of 2001 were the most highly recommended analyst pick
among s & p 500 companies .
enron ' s high profile extended beyond wall street . the company
accounted for a quarter of u . s . electricity and natural gas trades
this year .
lay attended a bush administration economic forum in january ,
and vice president richard cheney sought his advice on energy
policy . enron , its political action committee and employees gave
almost $ 2 . 5 million to federal candidates and political parties
last year , with about 75 percent of the money going to
republicans , according to campaign finance records .
` ` enron is aligned with all the texas energy exploration and
production money , ' ' said glenn reynolds , an analyst at
creditsights inc . ` ` they know how to do business . ' '
risky strategy
in 1990 , lay hired skilling , who became a force behind the
company ' s growth . he ripped away walls in enron ' s headquarters ,
built trading desks and transformed the company ' s regulated
pipeline and utility units into a business that some analysts say
resembles a hedge fund .
enron reported 1999 profit of $ 893 million and $ 40 . 1 billion
in revenue . that same year , enron expanded into water utilities ,
sewage treatment and trading space on fiber - optic
telecommunication networks . shareholder lawsuits filed in the past
month say those business were money losers from the start and that
executives mislead investors about them .
a junior executive in europe dreamed up an idea in 1999 for
an internet trading site dealing paper , plastics and other
commodities , in addition to the usual natural gas and electricity
offerings . the site handled $ 50 billion in transactions in its
first six months and more than $ 880 billion in trades in two
years , 60 percent of the company ' s total .
` ` enron had a tremendous appetite for risk , ' ' said peter
fusaro , president of global change associates , which did
consulting for enron . ` ` they were the first in many markets , would
take long - term contracts , they were just super - aggressive . they
hired type - a mba ' s from the best schools who learned the energy
business from scratch . ' '
investors in dark
unknown by most investors , some of enron ' s increased revenue
was coming from sales of power plants to enron - affiliated
partnerships . those partnerships paid for the purchases by selling
bonds that were guaranteed by enron .
as a result , enron ' s books showed an increase in cash from
the sales , and a decrease in debt associated with the plants . an
enron restatement of finances earlier this month showed that as
much as $ 3 . 9 billion , or about a quarter of enron ' s total long
term debt , had been shifted from enron ' s books to affiliates .
skilling quit the company in august . former enron chief
financial officer andrew fastow was fired last month , after the
company revealed that fastow had personally profited from
transactions he conducted with enron partnerships . enron has said
it ' s cooperating with an sec probe .
when enron ' s market value was near its high in late 2000 and
early this year , eight top enron executives , including lay and
skilling , sold company stock for a total of $ 73 million . more than
20 securities lawsuits alleging illegal insider trading have been
filed against the company .
lay pledged to provide more information on enron ' s
transactions , starting with the third - quarter earnings report .
on oct . 16 , enron stunned analysts and investors with the
disclosure of $ 1 . 01 billion in losses from investments in
businesses outside the main trading operation , such as in fiber -
optics ventures and the azurix water and sewage companies .
` ` now you have a bankrupt company , ' ' said rob plaza , an
analyst at financial advisers morningstar who owns no enron
shares . ` ` that is the smoke and mirrors of enron . ' '
centrica may have to write off $ 43 mln if enron fails ( updatel )
2001 - 11 - 29 09 : 10 ( new york )
centrica may have to write off $ 43 mln if enron fails ( updatel )
( adds detail on contracts in first paragraph , shares in
fifth , background from sixth . )
london , nov . 29 ( bloomberg ) - - centrica plc , the u . k . ' s
dominant natural - gas supplier , may have to write off gas and
electricity contracts worth 30 million pounds ( $ 43 million ) if
enron corp . goes out of business .
the company agreed to a 10 - year gas contract in 1998 with the
u . s . energy trader , which may be forced into the biggest chapter
11 filing in history after dynegy inc . walked away from a rescue .
enron supplies the u . k . company with more than 5 billion cubic
meters of gas and an undisclosed amount of power .
centrica ` ` is working to reduce its trading exposure to
enron , ' ' it said in a regulatory news service statement . ` ` in the
event enron defaults on its contractual obligations , we remain
confident in our ability to supply all our customers . ' '
centrica , created in 1997 when it was spun off from british
gas , still makes most sales from supplying the fuel to customers
in the u . k . it meets about 20 percent of that demand with gas from
its own fields and buys the rest from other companies .
shares of the slough , england - based company fell as much as
4 . 25 pence , or 2 . 1 percent , to 202 . 75 . they ' ve lost a fifth of
their value this year . enron shares are now almost worthless .
enron provides gas to centrica at prices linked to the
international petroleum exchange natural gas futures contract .
last week , slough , england - based centrica agreed to pay 62 . 3
million pounds for stakes in five natural gas fields in the north
sea to replace dwindling reserves .
enron evaluating whether to pay quarterly dividend ( updatel )
2001 - 11 - 29 08 : 44 ( new york )
enron evaluating whether to pay quarterly dividend ( updatel )
( adds background on dynegy withdrawal in third paragraph . )
houston , nov . 29 ( bloomberg ) - - enron corp . , facing
bankruptcy after dynegy inc . abandoned a buyout of the largest
energy trader , said it is evaluating whether to pay dividends on
its common and preferred stock next month .
enron is scheduled to pay a quarterly dividend of 12 . 5 cents
a share dec . 20 .
dynegy yesterday withdrew its purchase offer , valued at about
$ 23 billion in stock and assumed debt when announced nov . 9 , after
bankers failed to raise $ 1 . 5 billion enron needed to operate until
the acquisition was completed . credit - rating companies lowered
enron ' s rating to junk .
shares of enron fell $ 3 . 50 , or 85 percent , to 61 cents
yesterday . they have fallen 99 percent this year . dynegy fell
$ 4 . 92 , or 12 percent , to $ 35 . 97 . both companies are based in
houston .