**Please check the front page of today's issue of Gas Daily for articles entitled, "FERC Underestimates Air Effects of Competition, Study Says" and "Dynegy May Renegotiate Enron Takeover."
___________________________________________________________________________________________
US Physical Gas Prices End Up; Still $1 Below Nymex
11/26/2001
Dow Jones Energy Service
Citigroup Has $2.38B Less To Lose On Enron Due To Swaps
11/26/2001
Dow Jones Capital Markets Report
Enron falls 14 pct on mounting concerns over Dynegy deal
11/26/2001
AFX News
Enron shares slide lower as merger doubts intensify.
11/26/2001
Reuters English News Service
Enron lawsuit seen as wake-up call for pensions.
11/26/2001
Reuters English News Service
US Corp Bonds-Bonds tighten, analysts fret on Enron.
11/26/2001
Reuters English News Service
Petrobras, Petros, close to buying Enron's stakes in CEG/CEG Rio - report
11/26/2001
AFX News

Energy Traders' Perfect Storm Stalls
11/26/2001
Dow Jones News Service
India's AV Birla group denies bid for Enron unit.
11/26/2001
Reuters English News Service

Enron's Stock, Bonds Drop on Concern for Dynegy Bid (Update8)
Bloomberg, 11/26/2001
Dynegy Bonds Slip as Enron Purchase May Harm Credit Rating
11/26/2001
Bloomberg
Enron Shares Slides to All-time Low
CBS.MarketWatch.com, 11/26/2001
FBI warns energy companies of possible threat to gas pipelines by Osama bin Laden's network
11/26/2001
Associated Press Newswires
Heads Urge Pipe Safety Passage.
11/26/2001
Natural Gas Week
Enron and Dynegy Discuss Plan to Cut Price of Acquisition
11/27/2001
The Wall Street Journal

Fair Shares?
Why Company Stock
Is a Burden for Many--  And Less So for a Few
11/27/2001
The Wall Street Journal

Gas plan is back in the pipeline.
11/27/2001
Financial Times
Enron shares off 15% on doubts about deal Dynegy's $9-billion buyout offer might not be completed under original terms
11/27/2001
The Globe and Mail
Battered Enron in Search of $1 Billion; Stock's Decline Raises Doubts About Buyout
11/27/2001
The Washington Post
Enron India unit, lenders to meet in UK this week.
11/27/2001
Reuters English News Service
Enron Talking With Dynegy As They Work To Rescue Deal
11/27/2001
The New York Times
U.S. Pipelines a Target / FBI warns gas, oil firms of vague threat
11/27/2001
Newsday
Investors bet Enron deal will go bust ; Dynegy could kill deal or drop price
11/27/2001
Chicago Tribune
'Stimulus' for Enron
11/27/2001
The New York Times
Top Companies Issuing Debt At a Fast Pace
11/27/2001
The New York Times
Enron, Dynegy deal back on table
11/27/2001
Houston Chronicle
Sizable staff of 245 lawyers in merger limbo
11/27/2001
Houston Chronicle
Bin Laden threat against pipelines taken seriously
11/27/2001
Houston Chronicle
Current recession differs from others
11/27/2001
Houston Chronicle
Enron Gains on Optimism Dynegy Purchase to Proceed (Update1)
11/27/2001
Bloomberg
Pressure Mounts on Enron Buyout Energy: Stock drops to its lowest since '87 on doubts Dynegy deal will go through. Workers sue over shrinking 401(k)s.
11/27/2001
Los Angeles Times

Man arrested for issuing e-mail threat to Enron
11/27/2001
The Times of India

Calif. Attorney Gen'l to examine Dynegy-Enron deal.
11/26/2001
Reuters English News Service

Dynegy May Modify Enron Purchase Terms, People Say (Update2)
11/27/2001
Bloomberg

Enron Faces New Employee Suit Alleging Securities Violations
11/27/2001
Bloomberg
Enron Plunges, but Dynegy Will Suffer, Too
11/27/2001
TheStreet.com

Another Sign Investors Don't Trust Enron
11/27/2001
Dow Jones News Service
_______________________________________________________________________________

US Physical Gas Prices End Up; Still $1 Below Nymex

11/26/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)
HOUSTON -(Dow Jones)- U.S. natural gas physical prices mostly rose Monday, but held as much as a full $1 per million British thermal units below the New York Mercantile Exchange's December futures contract, traders said.
Pushing prices upward is a mix of next-month's futures values and the impatience of waiting for winter, traders said.
Traders covered short positions and balanced out pipeline overruns in usual end-of-month trading. Clouding the procedures were concerns about Enron Corp.'s viability and about terrorism attacks on pipelines, as Attorney General John Ashcroft confirmed warnings received by the FBI and other security agencies.
Traders don't expect the cash-to-futures spread to continue much longer, especially with the advent of winter weather and the expiration of the December contract on Wednesday.
However, major constrictions were reported over the weekend and Monday at major Gulf Coast to Northeast pipelines, meaning storage is full and there's little incentive to hedge.
"People have no place to go (with the gas)," said one trader.
In the West, prices strengthened as traders looked ahead to next-month values, one trader said.
"There was absolutely no reason to be buying," said one Gulf Coast trader. He saw some weather forecasts predicting cooler temperatures, but those predictions were still above-normal weather patterns.
"Winter will be here sometime," he said.
Traders also avoided doing physical gas deals with Enron Corp., whose merger with Dynegy Inc. appeared in danger. Enron faces employee lawsuits and a weakening of its bonds. The company is reportedly trying to renegotiate its deal with Dynegy. In the meantime, a trader said Enron's gas bids and offers were well above pricing seen on other boards.
December goes off the board Wednesday. It settled at $2.696 per million British thermal units, down 11.7 cents.
At the benchmark Henry Hub in south Louisiana, traders paid $1.72-$1.90/MMBtu, up 10 cents on the bid, down 39 cents on the offer. First-of-month November index is $3.16/MMBtu, traders said.
Deals at Transcontinental Gas Pipe Line Station No. 65 were done in a $1.72-$1.88/MMBtu range, unchanged on the bid, down 22 cents on the offer from Wednesday's range. November first-of-month index is $3.19/MMBtu, a trader said.
At the Arizona-California Border, where gas from El Paso's pipeline begins delivery to Southern California lines, buyers paid $2.03-$2.50/MMBtu, up 55 cents-78 cents. November first-of-month index is $2.95/MMBtu.
At the Katy hub in East Texas, buyers paid $1.78-$2.05/MMBtu, up 11 cents-16 cents. November index is $3.01/MMBtu. Houston Ship Channel rose 13 cents-15 cents to $1.84-$2.09/MMBtu. Index is $3.12/MMBtu.
At Waha in West Texas, buyers paid $1.88-$2.20/MMBtu, up 33 cents-47 cents. November index is $2.86/MMBtu.
-By John Edmiston, Dow Jones Newswires; 713-547-9209; john.edmiston@dowjones.com

Citigroup Has $2.38B Less To Lose On Enron Due To Swaps
By Christine Richard
Of DOW JONES NEWSWIRES

11/26/2001
Dow Jones Capital Markets Report
(Copyright (c) 2001, Dow Jones & Company, Inc.)
NEW YORK -(Dow Jones)- Citigroup Inc. (C) is expected to extend a hand to Enron Corp. (ENE) by renegotiating a $690 million payment due Nov. 27.
But investors shouldn't be concerned that the financial services giant is too exposed to the embattled energy trading company. Citigroup already may have laid off the loan and other exposure via a series of credit default swap transactions. That means more institutional investors left holding the bag if Enron isn't ultimately rescued from financial collapse by a takeover proposed by Dynegy Inc. (DYN).
Over the last few years, Citigroup has entered into at least six transactions that effectively would allow the bank to lay off the equivalent of $2.384 billion in Enron exposure.
Citigroup was instrumental in setting up Enron Credit Linked Notes Trust, Enron Credit Linked Notes Trust II and Yosemite Securities Trust I, which together raised $1.750 billion; Enron Sterling Credit Linked Notes Trust and Yosemite Securities Co., which raised a combined GBP325 million; and Enron Euro Credit Linked Notes Trust, which issued EUR200 million.
Citigroup, which acts as the default swap counterparty to the trusts, receives the return on the portfolio of single-A-plus-or-better-rated securities, purchased with the proceeds of the offerings, in exchange for providing the payout on the Enron exposure, according to Mary Ryan, director of synthetic securities ratings at Standard & Poor's.
As long as Enron remains out of bankruptcy, Citigroup continues to make payments on the notes, Ryan said.
If Enron defaults, Citigroup would cease making payments to the trust. The single-A-plus-or-higher-rated securities in the trusts would go to Citigroup in exchange for the same nominal amount of now in-default Enron debt obligations. And with speculation mounting that Dynegy will reduce, or maybe even scrap, its offer to buy Enron, the chances of a such a default-driven transfer would appear to be rising.
These notes essentially are synthetic Enron debts, meaning they act like Enron bonds in many respects, but lack key components that make holders true creditors of Enron.
For instance, the holders of these notes, because they don't possess actual Enron obligations - and won't unless the company defaults - are not involved in negotiations to restructure or rollover debt. It has been reported that Enron is engaged in active negotiations over the terms of its debts with creditors.
The synthetic notes all carry a rating equivalent to Enron's rating of triple-B-minus from Standard & Poor's and Baa3 from Moody's Investors Service.
The rating on the securities has been downgraded in recent weeks to reflect the downgrades in Enron's ratings.
Citigroup officials did not respond to requests for further details on the transactions. -By Christine Richard, Dow Jones Newswires; 201-938-2189;
christine.richard@dowjones.com
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

STOCKWATCH Enron falls 14 pct on mounting concerns over Dynegy deal

11/26/2001
AFX News
(c) 2001 by AFP-Extel News Ltd
NEW YORK (AFX) - Shares of Enron Corp were down 14 pct in midsession trading as concerns continued to mount over the energy giant's acquisition by Dynegy Inc, with investors focusing more and more on the deal's breaking clause, dealers said.
At 12.45 pm, Enron shares were trading down 65 cents at 4.06 usd, a decline of 14.0 pct. Dynegy was down 1.60 usd at 38.80, amid broad declines in energy shares as crude prices sank.
The DJIA was up 57.70 points at 9,892.86. The S&P 500 was up 6.24 points at 1,143.27. The Nasdaq composite was up 11.94 points at 1,886.99.
Dealers said that with Enron shares having slid well below the Dynegy offer price of 9.85 usd a share, the ChevronTexaco affiliate may well reconsider its offer, or walk away from the deal all together.
"People are making the bet that perhaps Dynegy may cancel the deal, and that's there a lot more risk in playing the arbitrage," said Jefferies & Co market strategist Art Hogan.
The deal with Dynegy contains a "material adverse change" clause, which could be invoked to call the deal off, he said.
As part of its due diligence, Dynegy is examining details of Enron's filing with the Securities and Exchange Commission last week, which reportedly contained information it had not received previously.
Enron shares have plunged further since the filing, in which Enron revealed a number of new financial problems including a possible obligation to repay a 690 mln usd note due Nov 27.
Enron subsequently received an extension on the repayment until mid-December.
Since the beginning of the year, Enron shares have lost over 90 pct of their value after it was revealed that the company would post hefty third-quarter charges linked to risky investments by the firm's former chief financial officer.
"At this point, with so much smoke around the fire, I think the shares are rightly valued," said Jefferies' Hogan.
ng/gc
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

USA: UPDATE 1-Enron shares slide lower as merger doubts intensify.
By Janet McGurty

11/26/2001
Reuters English News Service
(C) Reuters Limited 2001.
NEW YORK, Nov 26 (Reuters) - Shares of troubled energy giant Enron Corp. continued to lose ground on Monday amid fears that the proposed acquisition of the company by smaller rival Dynegy Inc. will fall through.
Enron stock was down 61 cents, or 12.9 percent, at $4.13 in active midmorning trade on the New York Stock Exchange. Dynegy has agreed to pay $10.55 per share for Enron.
"The market is acting like the deal is not going through or not going through at the original terms," said Michael Heim, an industry analyst at A.G. Edwards & Sons.
Heim said that among three possible scenarios - the deal goes through as planned, it is canceled, or it is restructured - the first is the least likely.
"Escape clauses" built into the Dynegy-Enron deal give the buyer the option to back out if there is serious deterioration in Enron's business or assets.
"Dynegy has a good claim that the 'material adverse condition' clause has already been triggered, either by the $690 million loan being accelerated, earnings (being) down or the ongoing trading business weakness," he said.
Last week Enron said it could be forced to pay a $690 million debt this week because of a credit downgrade, but the payment deadline has been delayed until mid-December.
Enron's recent admission that lower volumes at its trading business - the crown jewel that Dynegy most covets - could cause low fourth-quarter earnings raises the possibility that the trading business is losing its profitability. Continued lower volumes there would remove a key attraction for Dynegy.
"Every day that goes by where Enron trading volumes become less, it decreases the value of the assets Dynegy was trying to buy in the first place," Heim said. "Besides trading and marketing, what value does Enron have?"
The majority of Enron's physical assets are spoken for, with partnerships and creditors getting first dibs and Dynegy getting the first right to exercise its option to acquire Enron's Northern Natural Gas pipeline.
Dynegy, which is 26.5 percent-owned by energy giant ChevronTexaco , is to swap 0.2685 share of its own stock for each share of Enron. Shares of Dynegy were down $1.27, or 3.1 percent, at $39.13 in midmorning NYSE trade.
Enron agreed to a Dynegy buyout after it was overwhelmed by a series of problems, including a U.S. regulatory probe of off-balance-sheet dealings by its officers, a $1.2 billion cut in shareholder equity, and cuts in its credit ratings.
Enron subsequently restated its earnings, but investor unease snowballed and its share began tumbling. The shares were above $90 in August 2000.
Heim said he was not sure that EnronOnline, Enron's online trading platform, is the premier property it once was.
"Two years ago it had some value, but now others have been able to duplicate it. It's not the computer systems - it's the traders and network that Enron had. If those go away, the value lessens.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

USA: Enron lawsuit seen as wake-up call for pensions.

11/26/2001
Reuters English News Service
(C) Reuters Limited 2001.
HOUSTON, Nov 26 (Reuters) - A Washington, D.C., lawyer said Monday he hopes heavy losses suffered by Enron Corp. employees will spur Congress to limit employee investments in their employers' stock through 401 (k) retirement plans.
"How many workers have to lose both their jobs and their retirement savings before Congress steps in and puts a stop to this by placing a cap on the amount of company stock that can be in a 401 (k) plan?" lawyer Eli Gottesdiener asked.
Gottesdiener released a statement Monday saying he had filed a lawsuit on behalf of employees of the beleaguered energy giant who have lost an estimated $850 million on Enron stock held in their 401 (k) retirement accounts.
The suit is the third one filed against Enron that alleges the company breached its fiduciary duty to employees by encouraging them to invest in its stock at artificially inflated prices. All three suits seek class-action status.
Enron's shares have fallen from a high of $90 in August 2000 to less than $5 today, their decline accelerating since Oct 16 amid a series of disclosures about its deteriorating finances.
Like many other companies, Enron makes matching contributions to its employees' 401 (k) retirement accounts in its own stock. It also requires them to hold the stock they receive in matching contributions until they turn 50.
Enron employees were also prevented from selling Enron stock held in retirement accounts for several weeks from mid-October due to a change in the retirement plan's administrator.
Gottesdiener said investment advisors recommend investing no more than 15 percent of a portfolio in a single stock, but that participants in 401 (k) plans offering employer stock as a choice typically hold 33 percent of their portfolio in that stock.
"Congress sensibly placed a 10 percent limit on company stock in traditional defined benefit plans back in 1974, but at the behest of the corporate lobby, it placed no such cap on defined contribution plans," he said.
The absence of such a cap in defined-contribution 401 (k) plans was "completely indefensible," he said.
Gottesdiener's suit alleges that Enron violated federal securities law by offering and selling Enron stock to employees without issuing a prospectus. If proven, this would give workers the right to reverse their purchases, he said.
Gottesdiener is also involved in class action pensions litigation against New York Life Insurance Co. and SBC Communications Inc..
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

USA: US Corp Bonds-Bonds tighten, analysts fret on Enron.

11/26/2001
Reuters English News Service
(C) Reuters Limited 2001.
By Jonathan Stempel
NEW YORK, Nov 26 (Reuters) - U.S. corporate bonds outperformed
Treasuries on Monday as traders edged back to their desks
following the Thanksgiving Day weekend, in the midst of a broad
revival for corporate bonds of all stripes.
In secondary trading, spreads, the yield difference between
the bonds and comparable maturity U.S. Treasuries, tightened about
0.01 percentage point.
"I would expect a continuation of the tightening, especially
with Treasury interest rates going up," said one trader. "Absolute
corporate yields are starting to look pretty attractive."
Corporate bonds, especially junk bonds, have outperformed
Treasuries this month as investors developed a new tolerance for
risk. Though absolute returns for investment-grade corporate bonds
are negative, they are even worse in the Treasury market, where
investors appear more convinced that the current U.S. economic
downturn won't be deep or long.
"The successes in Afghanistan and some milder-than-anticipated
economic data have combined to increase investor appetite for
risk," wrote fixed-income research service CreditSights Inc. in a
report dated Monday. "While the severity and swiftness of the bond
market's correction was a surprise, it hasn't changed our basic
view of U.S. corporate bonds and we continue to recommend
overweight positions."
This week's forward calendar remains quiet.
In early trading, 10-year Treasuries rose 10/32, as their
yields fell to 4.971 percent.
ENRON
Market participants are closely watching Houston-based Enron
Corp. as the largest U.S. energy trader tries to merge
with smaller cross-town rival Dynegy Inc. , keep its
investment-grade credit ratings, and manage a load of $9.15
billion of debt and other obligations, much of which is unsecured
and coming due within 13 months.
Of this debt amount, $690 million could come due by
mid-December, and $3.9 billion immediately if Enron falls to junk
status. The key to resolution of this matter, some observers
believe, is Enron's banks.
"The goal of the banks now is to re-cut their exposure to gain
as much structural seniority or asset liens as possible, take out
fees, raise rates, take down total exposure, and generally improve
their risk-profile under multiple scenarios," said CreditSights.
"The very bankers who are supplying liquidity through new
secured bank lines and who are rumored to be considering equity
investments are the ones on the hook (and unsecured) for $3
billion in bank loans," wrote Carol Levenson, an analyst for
GimmeCredit, another fixed-income research service. "If Dynegy
backs out (in the interest of self-preservation), these vital bank
renegotiations might save Enron but leave unsecured bondholders as
the patsies."
Enron's existing 6.4 percent notes maturing in 2006 and 6.75
percent notes maturing in 2009 were bid on Friday at 57 cents on
the dollar, down from around par on October 12, before Enron first
reported third quarter results, which it later revised downward.
Enron shares have fallen 94 percent this year to their lowest
level since early 1989.
DATA
Investment-grade and junk bond spreads narrowed 0.1 and 0.27
percentage point last week, respectively, to 1.68 and 7.84
percentage points, according to Merrill Lynch & Co. Junk bond
spreads have narrowed 1.45 percentage points this month.
For the month, junk bonds have returned 2.996 percent, while
investment-grade corporate bonds have lost 2.355 percent and
Treasuries 3.488 percent, Merrill Lynch said. For the year, the
respective bonds are up 4.777, 9.634 and 6.565 percent.
For a complete list of upcoming or recently priced bond deals,
please click on .
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Petrobras, Petros, close to buying Enron's stakes in CEG/CEG Rio - report

11/26/2001
AFX News
(c) 2001 by AFP-Extel News Ltd
SAO PAULO (AFX) - Petroleo Brasileiro SA and its pension fund Petros are close to winning regulatory approval to purchase Enron Corp's stakes in gas distributors CEG and CEG Rio, daily Valor Economico reported.
Valor said Petrobras last week reached an agreement with the Regulatory Agency for Public Service Concessions of Rio de Janeiro local authorities, under which it agreed to undertake a series of investments in exchange for approval to acquire Enron's 13.38 pct stake in CEG and its 33.75 pct stake in CEG Rio.
It said the deal now passes to Rio de Janeiro governor Anthony Garotinho for approval.
as For more information and to contact AFX: www.afxnews.com and www.afxpress.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

TALES OF THE TAPE: Energy Traders' Perfect Storm Stalls
By Christina Cheddar

11/26/2001
Dow Jones News Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)
Of DOW JONES NEWSWIRES (This story was published originally Friday)

NEW YORK -(Dow Jones)- Here's one 2001 outlook that couldn't have been more wrong.
Around this time last year, pundits and fund managers were touting "the perfect storm" of market forces that were coming together to make the energy trading business one to watch in 2001.
Then came the California power crisis, and allegations of price-gouging and fears of credit defaults began to cloud the outlook for the group. That was followed by renewed volatility in power prices, and this time the prices were headed down, not up.
And then came a crushing blow against trading firms - the unraveling of the industry's largest player, Enron Corp. (ENE).
Simply put, the perfect storm stalled, and a business once buoyed by high gas prices, strong demand and tight supply now lies in tatters.
The stocks of companies whom some say should be valued more like growth stocks than utilities are instead mired at around nine-times earnings - about where traditional utilities trade.
And the chance for recovery in 2002?
Basu Mullick, portfolio manager of the Neuberger Berman Partners fund, is willing to bet there is. He thinks energy traders deserve at least the same price-to-earnings multiple as the broader market's median, which is currently between 16- to 17-times future earnings, he said. It's just a matter of time before the stocks get there.
"They were just recovering from Gray Davis," Mullick said, referring to the governor of California, who had accused "out-of-state" energy traders of artificially inflating the price of power in the state, and triggering the state's energy crisis. "Now, they are recovering from Enron."
The fund manager also blames lower commodity prices, warm weather and poor demand for the recent weak performance in the group.
"Energy convergence companies are putting up terrific growth rates," he said. "I don't think they should get the same valuation as a garden-variety utility."
Still, others think the stock market is continuing to make distinctions between the energy traders by taking a harder look at the companies' strategies and financial disclosures.
Enron's precarious financial situation underscores the importance of accounting issues. Although many of Enron's financial problems aren't solely the fault of mark-to-market accounting issues, there has been growing attention paid to this form of financial reporting because of the earnings volatility it can create.
Answers Elude Investors

Investors are asking hard questions, and not always getting the answers they want.
Using mark-to-market methods, a company calculates the fair market value of a commodity position - whether it's a contract, an option, a swap, etc. - at the time, even if the value of the position is realized over a longer period. The problem with this method is the actual cash a company realizes from the position might not be the same value the company calculated in its original assessment. Also, sometimes it isn't easy to calculate the fair value of the commodity position. This is particularly true in instances where the market for the commodity isn't liquid.
Over time, companies with the highest level of disclosure regarding their mark-to-market gains will most likely trade at higher multiples to counterparts that provide little or no disclosure, said ABN AMRO Inc. analyst Paul Patterson.
Encouragingly, it appears companies may already be responding to the call for added disclosure. According to a survey Patterson conducted, more companies with energy trading units were willing to disclose the details of their mark-to-market accounting practices during third-quarter conference calls compared with those in the second quarter.
Patterson said he prefers earnings that are cash-based.
"All things being equal, we believe reported earnings that more closely reflect the timely realization of cash have a higher quality associated with them than earnings that do not," he said.
He expects investors to become smarter and learn to distinguish between earnings growth through accrual accounting and growth fueled by mark-to-market accounting.
At the end of the day, it is not a matter of simply producing profits, but being able to say where those earnings came from, said one investor, who manages a pension fund.
Some investors also may be placing a greater emphasis on the cash flow the energy merchants produce.
Tim O'Brien, portfolio manager of the Gabelli Utilities Fund, said energy merchants that own the physical power assets to back up their trading positions should trade at a premium to an independent power producers and traditional utility companies. Still, the stocks should be valued at less than the growth rate of the company because of their heavy exposures to commodity prices.
Energy merchants include companies such as Dynegy Inc. (DYN), Duke Energy Corp. (DUK) and Dominion Resources Inc. (D).
According to O'Brien, the group never deserved to have the price-to-earnings multiples above 20- to 30-times earnings, which were once paid for the stocks.
"We all got sucked up by the up-leg of the cycle and forgot just how cyclical these companies are," O'Brien said, adding that the average multiple should be in the high single-digits to the high-teens.
As for independent power producers - which are companies without regulated operations that own power plants to generate electricity to sell and trade in the wholesale market - the group may wind up being valued on the basis of the replacement costs of the assets in their portfolio, according to O'Brien.
"One analogy is that they are basically like commercial real-estate plays," O'Brien said.
That could mean stocks such as Calpine Corp. (CPN), which is already in the lower-half of its trading range, may have further to fall.
-By Christina Cheddar, Dow Jones Newswires; 201-938-5166; christina.cheddar@dowjones.com
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

INDIA: UPDATE 1-India's AV Birla group denies bid for Enron unit.

11/26/2001
Reuters English News Service
(C) Reuters Limited 2001.
(Recasts with denial, comments from financial institution in paragraphs 5-6)
BOMBAY, Nov 26 (Reuters) - The Aditya Vikram Birla Group, a leading Indian conglomerate, on Monday denied newspaper reports it was looking to buy U.S. energy giant Enron Corp's 65-percent stake in the beleaguered Dabhol Power Company.
"There has been no expression of interest in Dabhol. We are not interested," a top AV Birla group official told Reuters.
Two leading Indian business dailies earlier said the group, whose interests range from textiles to cement and carbon black, is eyeing Dabhol to expand its interests in the domestic power sector.
The Economic Times and the Financial Express said the group was exploring the possibility of submitting an expression of interest to Indian financial institutions to buy Enron's stake in the company.
An official of state-run Industrial Development Bank of India, the leading financier of the $2.9 billion project in the western state of Maharashtra, said he has not heard from the Birla group.
"We have not received any official communication from them," the official, who did not wish to be identified, told Reuters.
The spokesman for Dabhol was not available for comment.
FIGHTING FOR SURVIVAL
Enron Corp, which is fighting for survival in the United States amidst investor doubts over its corporate governance practices, owns 65 percent of Dabhol. General Electric Co and Bechtel own 10 percent each, while the Maharashtra State Electricity Board (MSEB) owns 15 percent.
Dabhol and MSEB have been fighting over payment defaults and high tariffs for over a year. The dispute has affected India's efforts to attract foreign investment in the power sector and caused Enron and its U.S. partners to announce plans to exit the project.
Tata Power Company Ltd, India's largest private sector utility firm, and BSES Ltd, another utility company and a member of India's largest conglomerate, the Reliance Group, are already in talks to buy Enron's stake.
The AV Birla Group has adopted the route of mergers and acquisitions in recent years to consolidate its position in key industries.
Last week, one of its group companies, Grasim Industries Ltd, bought a 10-percent stake in India's largest cement maker, Larsen & Toubro Ltd
Earlier this year, Indian Rayon & Industries Ltd, another group company, entered the information technology sector by buying out France's Groupe Bull SA's 50.35 percent stake in PSI Data Systems
But the group's track record in the power sector has been less than impressive.
Two joint ventures with Britain's Powergen Plc to produce over 1,000 megawatts of electricity in two Indian states have not made much headway since they were announced in the mid-1990s.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Enron's Stock, Bonds Drop on Concern for Dynegy Bid (Update8)
2001-11-26 16:45 (New York)

Enron's Stock, Bonds Drop on Concern for Dynegy Bid (Update8)

     (Adds analyst comment in 4th paragraph.)

     New York, Nov. 26 (Bloomberg) -- Enron Corp.'s stock price
declined to a 14-year low and its bonds plunged 10 points on
concern the company won't secure $1 billion in fresh capital,
threatening its plan to be acquired by Dynegy Inc.

     ``The clock is definitely ticking,'' said Jon Kyle
Cartwright, a debt analyst at Raymond James and Associates. ``The
question is the survivability of Enron.''

     J.P. Morgan Chase & Co. and Citigroup Inc. executives met
today to line up investors for as much as $2 billion of bonds
convertible into stock. The company needs the money to operate
until Dynegy completes its $23 billion purchase. Dynegy unveiled
its plan to make the acquisition on Nov. 9.

     Enron shares and bonds, which opened lower, tumbled after 1
p.m. when no announcement for fresh financing was made. Enron's
6.4 percent notes that mature in 2006 plunged to 48 cents on the
dollar, down from 55 cents on Friday. The bonds now yield 26
percent. Enron shares declined 15 percent, or 70 cents, to $4.01.

     Concern that rival Dynegy may change or cancel its bid for
Enron has pushed Enron's stock down 55 percent in the past week.
Enron's shares had plummeted 86 percent since mid-October after
the company reported a $618 million third-quarter loss and said
expansion into water, telecommunications and retail-energy sales
cost it $1.01 billion.

     ``You haven't heard anything from Dynegy today, and that is a
bit scary,'' said Andy Palmer, who doesn't hold Enron bonds in the
$2 billion he helps manage at ASB Capital Management Inc. in
Washington.

     Part of the third-quarter charge was connected with limited
partnerships run by the chief financial officer. He was ousted,
and the U.S. Securities and Exchange Commission started an
investigation into Enron's accounting. The company earlier this
month restated its earnings for the past four years.

                        Talks on $1 Billion

     Under the buyout, Enron investors would receive 0.2685 Dynegy
share for each share held. That valued Enron at $10.41 a share, 21
percent more than Enron's share price that day.

     On Friday, the buyout valued Enron at $10.85 a share, more
than double Enron's closing price of $4.71. The widening of the
difference between the value of the offer and Enron's stock price
indicates investors doubt the buyout will go through.

     Shares of Enron traded as low as $3.76 today, rebounding to
close at $4.01. The stock was the most active in U.S. trading
Wednesday and Friday. Dynegy dropped $1.15, or 2.85 percent, to
$39.25. The stock has fallen 30 percent this year. Both companies
are based in Houston.

     Egan-Jones Ratings Co. lowered its rating on Enron's credit
today to ``BB-'' from ``BB.'' ``Dynegy needs to show its support,
or Enron will slide,'' the firm said in a report.

     Moody's Investors Service hasn't issued a report on Enron
since the company filed its 10-Q quarterly report with the SEC a
week ago. The ratings agency's analysts haven't returned calls for
comment.

     Moody's cut Enron's long-term credit rating on Nov. 9, though
it maintained an investment grade.

                          `More Problems'

     ``Time is not Enron's friend,'' said Stewart Morel, co-head
of investment grade debt research at UBS Warburg LLC. ``There is
increased concern in the market that there may be more problems
that are yet to be disclosed.''

     On Wednesday, Enron got a three-week reprieve from lenders on
a $690 million note due this week, giving the company more time to
restructure its finances. Dynegy Chief Executive Officer Chuck
Watson said he was ``encouraged'' by the commitment to extend the
note payment, as well as the closing of a $450 million credit
facility, and that Dynegy remained committed to the merger.

     Terms of the $690 million note were outlined for the first
time in the Enron filing a week ago. Enron also said that it has
less than $2 billion in cash and credit lines left. If the
company's cash reserves run too low, Enron's credit rating may be
cut below investment grade. That would trigger $3.9 billion in
debt repayments for two affiliated partnerships.

     Enron said in the filing that fourth-quarter profit might be
hurt by a drop in its trading business. Companies such as Aquila
Inc. and Mirant Corp. have reduced their activity with Enron
because of credit concerns.

     ``Should the Dynegy deal fall through, we don't view it
likely that Enron would be able to remain as a stand-alone
company,'' Youngberg of Edward Jones said. ``Without Dynegy, the
credit rating will fall, causing their trading business to dry up
further.''

     Enron, the biggest energy trader, once handled about a
quarter of U.S. gas and power transactions.

     Enron's bankers met with leveraged buyout firms and two
industrial companies to seek an investment, the New York Times
reported last week. J.P. Morgan Chase & Co. and Citigroup Inc.
agreed to terms that give each of them a $250 million equity stake
as part of a transaction to be completed today.

Dynegy Bonds Slip as Enron Purchase May Harm Credit Rating
2001-11-26 15:16 (New York)

Dynegy Bonds Slip as Enron Purchase May Harm Credit Rating

     New York, Nov. 26 (Bloomberg) -- Dynegy Inc. bonds have
fallen as much as 9 percent this month on investor concern the
energy trader's proposed $23 billion purchase of rival Enron Corp.
will erode its credit rating.

     Dynegy's 6.88 percent coupon notes due in 2011 are trading at
$932 per $1,000 face value, down from $1,024 last month, according
to Merrill Lynch & Co. data. Yield on the debt has risen to 7.9
percent from 6.5 percent as investors demand more return to
compensate for the increased risks of the securities.

     Dynegy's credit is rated ``Baa3'' at Moody's Investors
Service, the lowest rung of investment grade, and ``BBB+'' at
Standard & Poor's, two levels higher. Each ratings company said it
may cut Dynegy's credit rating if it buys Enron, which comes with
about $15 billion in debt and a regulatory inquiry into financial
partnerships set up to keep debt off its books.

     ``If you put Dynegy and Enron together it will have a
detrimental effect on Dynegy's credit rating,'' said Tim Nelson,
senior credit analyst at U.S. Bancorp Piper Jaffray Cos. in
Minneapolis, which holds Dynegy bonds.

     Dynegy's 7.45 percent coupon notes due in 2006 are trading at
$1,019 per $1,000 face value, down from $1,085 last month,
according to Merrill. The notes yield almost 7 percent, up from
5.4 percent.

     Enron's credit is rated ``Baa3'' at Moody's and ``BBB-'' at
S&P, the lowest level of investment grade. Both ratings companies
are reviewing the credit for a possible downgrade and say Dynegy's
buyout plan is what's keeping the grades above junk.

     ``I don't think right now anybody knows exactly what Enron
is,'' said Mark Simenstad, who holds Dynegy bonds in the $5
billion he helps manage at Lutheran Brotherhood.

     ``Dynegy has proven to be pretty well-managed over the years
so you have to give them the benefit of the doubt here,''
Simenstad said. ``The hope is that if there's something they don't
understand they'll walk away.''

     Dynegy has $3.9 billion of bonds outstanding, most of which
come due between 2002 and 2011, according to Bloomberg data.

     Shares of Houston-based Dynegy, which topped $47 two weeks
ago after Chief Executive Chuck Watson said the Enron purchase
would boost earnings by at least 35 percent next year, fell $1.30
to $39.10 in mid-afternoon trading today. Enron's shares, down 92
percent this year, fell as much as 80 cents, or 17 percent, to
$3.91, a the lowest since 1987.

Enron Shares Slides to All-Time Low

By CBS.MarketWatch.com

4:53 PM ET Nov 26, 2001

HOUSTON (CBS.MW) -- Enron shares fell as much as 20 percent Monday,
crashing through the $4 level for part to set an all-time low and cast
additional doubt on the energy merchant's plan to be acquired by rival
Dynegy.

Enron (ENE) set a new all-time low of $3.76 Monday afternoon before
closing at $4.01, off 70 cents. More than 60 million shares changed
hands, making it the most active issue on the New York Stock Exchange.

The stock has lost about half its value since Dynegy announced an
agreement to buy Enron on Nov. 9 and more than 85 percent of its value
in the past month.

Meanwhile, shares of Dynegy (DYN) lost $1.15, or 2.8 percent, to stand
at $39.25.

The collapse in Enron's share price has made it more likely that Dynegy
and Enron will have to renegotiate the terms of their original deal, in
which 0.2685 of a Dynegy share would be exchanged for each outstanding
Enron share.

However, the Financial Times reported that Dynegy remains confident of
its ability to complete a deal for Enron, which has been seeking $500
million in private equity capital to shore up its finances.

"We continue to hear reports the Enron's energy marketing and trading
business, once the crown jewel of the company, has eroded badly with
counterparties only willing to do shorter-term deals," A.G. Edwards
& Sons analysts Charles Fishman and Douglas Fischer wrote in a
research note Friday.

Enron investors do not believe that the merger is likely to occur under
the current terms, the analysts said.

Chance of Dynegy backing out

_______________________________________________________________________

On Monday, Michael Heim, also of A.G. Edwards, attributed Enron's
latest stock drop to "growing belief that the likelihood of the (merger)
deal is not so likely."

He pointed out that the outlook for Enron is "not very favorable" but
in the meantime, it's doing everything it can to stay "afloat" while
working on closing the deal.

Last week, Enron said it got a bank extension on a $690 million note to
mid-December. The note was originally set to come due in 2003, but was
bumped up to Nov. 26 due to a rating downgrade at Standard & Poor's.
<http://cbs.marketwatch.com/news/story.asp?guid=%7B81418CA4%2D11A5%2D4C7C%2DA602%2DCF3DA4BCAA7B%7D>

The payment by itself is manageable because Enron has about $2 billion
in cash on its hands, Heim said, but "the event moves Enron's merger one
step closer to the point in which Dynegy is able to exercise the
merger's material adverse condition clauses and back out of, or
restructure, the merger deal."

Heim has a "sell" rating on the stock.

FBI warns energy companies of possible threat to gas pipelines by Osama bin Laden's network
By H. JOSEF HEBERT

11/26/2001
Associated Press Newswires
Copyright 2001. The Associated Press. All Rights Reserved.
WASHINGTON (AP) - The FBI has warned energy companies that Osama bin Laden may have approved plans to attack North American natural gas pipelines and facilities if he is captured or killed.
Natural gas producers and pipeline companies continued to be on a high state of alert, industry executives said Monday, although they declined to discuss the latest warning, which was sent in a memo to industry security officials last week.
In Bismarck, Williston Basin Interstate Pipeline officials put employees on notice that they need to implement security measures, spokeswoman Laura Lueder said.
The company, a subsidiary of MDU Resources, serves North Dakota, South Dakota, Montana and Wyoming.
"The company always had security measures outlined for these kind of situations, but it did update the measures following the Sept. 11 attacks," Lueder said.
Attorney General John Ashcroft confirmed the FBI warning, though he expressed some doubt that attacks would be conditioned on bin Laden's capture or death.
"It didn't take anything specific to trigger the attacks on the World Trade Center or the Pentagon," said Ashcroft when asked about the alert at a news conference. Even so, "those are the kinds of reports which we take seriously."
The alert did not single out a specific target, but referred to natural gas supplies including the more than 260,000 miles of gas pipelines and hundreds of pumping stations and other facilities.
"We have received uncorroborated information that Osama bin Laden may have approved plans to attack natural gas supplies in the United States," said the memo, according to several industry sources, who spoke on condition of anonymity.
"Such an attack would allegedly take place in the event that either bin Laden or Taliban leader Mullah Omar are either captured or killed," the alert continued.
The FBI alert said the information came "from a source of undetermined reliability" and that "no additional details on how such an attack would be carried out, or which facilities would be targeted" could be learned.
Since the Sept. 11 terrorist attacks, the energy industries - including operators of nuclear power plants, refineries, pipelines and power grids - have scrambled to increase security on a belief that they could be singled out for another round of attacks.
One industry source characterized the FBI warning as similar to one issued earlier this month on potential attacks against West Coast bridges that prompted security alerts. In that case, no further evidence of potential terrorist activity emerged.
The alert was sent on Nov. 17 from FBI headquarters to agency field offices, which then forwarded the information to industry officials. The alert prompted the American Petroleum Institute, which is the lead industry group coordinating with the FBI and Energy Department on security matters, to issue a memo last Wednesday to oil and gas companies.
Energy industry executives were reluctant to discuss the latest alert, or their security measures, although several confirmed the memo and said additional precautions have been taken. Still, the potential for a terrorist attack has left some industry officials jittery.
"We prefer to keep a low profile," said an official of one of the largest natural gas pipeline companies, agreeing to speak only on background so that the company would not publicly be singled out.
"Our facilities are on high alert and they have been since Sept. 11," said Laurie Cramer, a spokeswoman for the Natural Gas Supply Association, which represents natural gas producers.
There are 263,000 miles of natural gas transmission lines crossing the country and another million miles of local distribution lines. Although most of the lines are buried, aerial surveillance of major pipelines has been increased and security tightened at pumping stations, industry officials said.
Access to facilities has been restricted as well, officials said. Also, some detailed information about location of pipelines and other energy infrastructure has been taken off some corporate and government Internet sites.
But the industry is in a quandary over how much information should be withheld about the location of pipelines, which often must be clearly marked to prevent someone from accidentally rupturing one when digging. The availability of maps also has helped to promote acceptance of pipelines in communities.
"We want people to know where they are" to prevent accidents, said Benjamin Cooper, executive director of the Association of Oil Pipe Lines. But he acknowledged the desire for public disclosure now is being tempered somewhat for security concerns.
"The biggest danger to natural gas pipelines on an ongoing basis is (the line) being hit by a backhoe or heavy equipment," said Kelly Merritt, a spokesman for Columbia Gas Transmission Corp., one of the country's biggest pipeline companies.
While a rupture of a gas or oil pipeline could cause significant problems, industry experts emphasized that most lines are relatively isolated and even a major break in a line can normally be repaired fairly quickly.

Heads Urge Pipe Safety Passage.

11/26/2001
Natural Gas Week
P8
(c) 2001 Energy Intelligence Group. All rights reserved
WASHINGTON, D.C. - A letter to US Transportation Secretary Norman Mineta urged passage of an effective and responsible pipeline safety bill.
In the letter, released last week, pipeline leaders offered their assistance to the department and said, "Our industries have joined together to address both regulatory and legislative pipeline safety issues in a unified fashion."
Signing the letter were 14 leaders of the oil and natural gas transmission and distribution pipeline industries and the leaders of the five key trade associations, which include the American Gas Association, American Petroleum Institute, Association of Oil Pipe Lines, American Public Gas Association and Interstate Natural Gas Association of America.
The letter came with the industry's unified position paper calling for regulatory and legislative action on pipeline safety. The industry is urging an adequately staffed and funded Office of Pipeline Safety and other measures to increase safety and enhance public confidence.

Enron and Dynegy
Discuss Plan to Cut
Price of Acquisition
By Rebecca Smith and Robin Sidel

11/27/2001
The Wall Street Journal
Page A3
(Copyright (c) 2001, Dow Jones & Company, Inc.)
Enron Corp., struggling to save its two-week-old deal to be acquired by Dynegy Inc., was in advanced discussions with Dynegy to cut the price of the all-stock transaction by more than 40% to about $5 billion, according to people familiar with the matter.
Beleaguered Enron also was in continuing negotiations to extend the maturity dates of some of its borrowings in order to stem a growing liquidity crisis, these people said. Enron has total debt of about $13 billion. Increasingly, analysts are worried that the giant energy-trading concern's relatively few hard assets are so encumbered by debt that they can't be used to support further borrowing.
Enron stock slid to its lowest level in over a decade at 4 p.m. yesterday on the New York Stock Exchange, falling 70 cents to $4.01 a share. Over the past few months, about $60 billion of Enron's stock value has evaporated, a process that has accelerated since mid-October when the company announced a quarterly loss and a subsequent reduction in its equity base. Since then, revelations that company executives profited from partnerships used to move assets on and off Enron's books have spooked investors and triggered a Securities and Exchange Commission investigation. Recently, the company has twice restated earnings for past periods amid indications that its vaunted energy trading business is showing some signs of stress.
The move to renegotiate the acquisition agreement, and particularly to slash the number of Dynegy shares that Enron holders would receive, only two weeks after the pact's signing is virtually unheard of in corporate transactions. While terms are sometimes altered due to unanticipated developments, that typically doesn't happen until a transaction is nearly completed.
Enron had hoped to finalize arrangements and make an announcement yesterday that would calm its anxious investors, but the situation remained fluid throughout the day. As of yesterday evening, the revised deal still hadn't been formalized.
The deal is critical for Enron. In recent weeks, credit-rating agencies have indicated they will refrain from further cuts to Enron's credit rating so long as a Dynegy purchase appears probable. But if that deal collapses, downgrades could occur that would put Enron below investment grade and in violation of credit agreements with counterparties. This in turn could deal a savage blow to Enron's commodity-trading business that is its lifeblood.
Negotiators for the two companies returned to their home bases of Houston yesterday after spending much of the holiday weekend meeting in suburban New York where they tried to agree on new provisions to the deal, which was announced Nov. 9. Both Dynegy and Enron declined to comment on the discussions.
One apparent sticking point in the talks was arriving at a new stock-exchange ratio. Under the current acquisition agreement, Dynegy would exchange 0.2685 share for each Enron share tendered. Based on yesterday's New York Stock Exchange closing price of $39.25 for Dynegy shares, down $1.15, Enron holders stand to receive $10.53 a share for their stock, or a total of about $9 billion.
People close to the discussions said the new ratio is expected to be less than 0.15 share of Dynegy stock for every share of Enron stock, which would value Enron at less than $6 a share, or about $5 billion.
Another contentious issue concerns the amount of additional capital Enron needs to shore up its finances. A week ago, the company disclosed it may have to post hundreds of millions of dollars or more to honor collateral calls before the end of the year. The problem for potential lenders is finding good assets to back these continued infusions of capital sought by Enron.
As part of the original merger agreement, Dynegy already has injected $1.5 billion into Enron, receiving in exchange preferred stock in its Northern Natural Gas Co. pipeline system that runs from the upper Midwest to Texas. Under the agreement, if the acquisition falls apart, Dynegy "will have the right to acquire 100% of the equity in the Northern Natural Gas subsidiary," thus giving it "the full value of its investment."
But that arrangement is raising questions on Wall Street about whether creditors are throwing good money after bad. Northern Natural Gas already is heavily encumbered with debts. In addition to $500 million in unsecured public debt and $1.5 billion put in by Dynegy and co-investor ChevronTexaco Inc., a bank consortium led by J.P. Morgan Chase & Co. recently put in an additional $450 million in cash backed by Northern's assets. The bank consortium also provided $550 million to Enron, against which assets of Enron's Transwestern Pipeline Co. unit were pledged. This system, a network between Texas and California, is the only other domestic gas-transportation system fully owned by Enron.
That brings total indebtedness to nearly $4 billion for two Enron pipeline systems that only generated transportation revenue of $77 million and $41 million, respectively, in the third quarter. Enron's entire natural-gas pipeline business, which includes two other partially owned systems, produced pretax earnings of $85 million for the third quarter, flat with the year-earlier period. Some observers said that if the Enron deal to be acquired by Dynegy falls apart, this could set the stage for a fight among the different classes of creditors for a priority claim on the pipeline assets.
---
Jathon Sapsford contributed to this article.

Fair Shares?
Why Company Stock
Is a Burden for Many --
And Less So for a Few
---
Workers Often Must Hold On
To Stakes Held in 401(k)s;
Top Brass Have Options
---
Hedging for the `Upper Tier'
By Ellen E. Schultz and Theo Francis

11/27/2001
The Wall Street Journal
Page A1
(Copyright (c) 2001, Dow Jones & Company, Inc.)
In the 1990s, as the stock market climbed year after year, many corporations and their employees entered into a marriage of convenience: The company would dole out its own shares as compensation and benefits. Employees would have a steadily appreciating asset that encouraged loyalty and created an incentive to work hard for the company's success.
They're still doing it. Gillette Co., for example, "believes it is important that employee interests be aligned with company interests," says spokesman Stephen K. Brayton, echoing the explanations of dozens of other companies that use their own stock for executive pay, incentive bonuses, or contributions to 401(k) retirement-savings accounts.
But as share prices have fallen over the past year and a half, it has become clear that not all stock handouts are created equal. Millions of rank-and-file workers at hundreds of companies have found themselves shackled to big chunks of company stock, while executives are able to exercise wide latitude in what they do with theirs. Because of the law capping tax-deductible executive compensation at $1 million a year, many companies top off their executive pay packages with stock options, as well as bonuses and other incentives that are typically paid in stock, much of it unencumbered.
Based on filings with the Securities and Exchange Commission, hundreds of companies use their own stock in lieu of cash as their matching contributions to employees' retirement-savings accounts. And the majority of those restrict the ability of employees to sell the shares and move the proceeds into mutual funds and other alternatives offered through their 401(k)s. Benefits consultants Hewitt Associates found in a recent study that nearly half of 215 firms offering company stock in their 401(k) plans only contribute their own shares to employee accounts, and that 85% of those companies restrict sales of the stock.
Gillette doesn't let employees switch out of its stock contributions to their 401(k)s until age 50, according to government filings. At Coca-Cola Co., it's age 53. Procter & Gamble Co., Qwest Communications International Inc. and troubled Enron Corp. -- now facing lawsuits over employees' 401(k) losses -- are among the many others that impose similar restrictions. So far this year, Gillette employees have had to watch the company-contribution portion of their retirement savings shrink by millions of dollars as the share price has fallen 11%. Employees at Coca-Cola have endured a share-price decline this year of 18%. Procter & Gamble shares have been flat.
The companies point out that executives participate in the same 401(k) plans as other employees, subject to the same restrictions. Still, the bulk of company stock that executives own is usually held outside such restricted accounts.
At Qwest, with a share price down 69% so far this year, top executives and directors have sold a combined $172 million of Qwest shares so far this year, according to SEC data collected by Thomson Financial/Lancer Analytics. Qwest Chief Executive Joseph P. Nacchio alone has sold Qwest shares valued at $89 million.
Likewise, many companies offer supplemental savings plans for executives that don't force them to hold company stock. Some top executives at Coca-Cola can participate in a supplemental retirement-savings plan with a guaranteed annual return of 14%. Executives at Qwest are able to contribute as much as 100% of their salaries and bonuses to a supplemental plan in which they can allocate their own and company contributions as they like.
Executives also can protect themselves -- without selling their shares and triggering taxes -- by using hedging techniques offered for just that purpose by firms such as Goldman Sachs Group Inc., Eaton Vance Corp. and Bessemer Trust Co. Disclosure of these deals to the SEC is generally required but spotty.
"It clearly has been a growing business, and very busy in the last 12 months," says Michael Dweck, head of the Single Stock Risk Management division at Goldman Sachs. (The firms marketing these hedging strategies typically hedge their own side of the transactions to protect themselves, as well.) "People recognize the inherent risk of holding all your wealth in a single stock." His operation generally won't arrange transactions for blocks of stock worth less than $5 million. "It's for the upper tier of management," Mr. Dweck says.
For the rest, companies point out, employees have ample opportunity to diversify their retirement-savings portfolios by investing their own contributions in other options offered. Indeed, many workers have ill-advisedly put a lot of their own 401(k) money into their employers' stock.
Wyn Triska, a 42-year-old power-plant technician for an Enron unit in Estacada, Ore., says he warned many of his co-workers of the dangers of wagering all their retirement savings on Enron. "Even when Enron was going up," he says, "I never put a cent into it -- it just doesn't make sense to load up on one stock." Nonetheless, even he has been unable to sell the stock that Enron has contributed to his 401(k) as the share price has plummeted from $86 a little more than a year ago to around $4 now. Under the company's 401(k) rules, he can't sell until age 50.
For many rank-and-file workers, risk-averse or not, their 401(k)s are their largest assets, apart from their homes. So holding company stock they can't sell has become a source of resentment and frustration. Federal pension law leaves 401(k) plans largely outside the realm of regulation. But lately, some employees have taken their frustration to the courts.
Just this month, in three separate lawsuits -- the latest filed yesterday -- participants in Enron's 401(k) plan allege that Enron misled them about the risks of investing in the company's shares. The suits, all filed in Federal District Court in Houston, note that the company "locked down" the retirement plan from Oct. 17 to Nov. 19 to make administrative changes. That prevented all employees, regardless of age, from selling any Enron shares in their 401(k)s as the stock price collapsed amid financial turmoil at the company and an SEC investigation into its accounting practices. Enron says it doesn't comment on pending litigation.
Those lawsuits, along with a handful filed against other companies recently, don't take on directly the practice of forcing employees to accept and hold company stock in their 401(k)s. That's perfectly legal. So whatever the outcome, a company would still be able to restrict employee sales of company-stock contributions to 401(k) before the price declines. "Even when they've had gains, they can't really lock them in because they can't diversify," says Randall Shoker, an Oxford, Ohio, financial adviser.
Michael Green knows that. The 35-year-old investment specialist joined Dell Computer Corp. in 1995 as a product manager. He and his wife, Lisa, an assistant controller at the company, were thrilled as the stock rose to about $51 a share in late 1999 from $1 in mid-1995, adjusted for splits.
But by the late '90s, the couple felt overexposed to Dell. In addition to the Dell stock that the company had contributed to their 401(k) plans, they had received stock options as bonuses. And they had bought a home in Austin, Texas, where the real-estate market is tied in part to the fortunes of Dell, one of the area's biggest employers.
The Greens sold some of the stock they received as bonuses. But Dell wouldn't let employees sell shares the company contributed to their retirement accounts until they had been at the company for five years. "I tried so hard to sell," Mr. Green says. "We went around and around."
The company changed its policy last year to allow all Dell employees to sell the shares in their 401(k) plan and shift the proceeds into alternatives available through the plan. By then, though, Dell shares had plummeted, erasing $200,000 from the Greens' 401(k) accounts. "That's as much as we paid for our house," Mr. Green says. Both left Dell earlier this year for other jobs.
SEC filings show that Dell executives, though subject to the same restrictions on their regular 401(k) accounts, can participate in a supplementary retirement-savings plan that allows them immediately to reinvest the company's contribution in a variety of options. Executives have seized that opportunity: Just 9% of the supplementary retirement plan was invested in Dell stock at the end of last year, according to the company's latest 11K filing, compared with about 50% of Dell's 401(k) plan.
Dell spokesman T.R. Reid declines to comment on the Greens' circumstances. He says that any employees who lose so much money on company contributions could do so only because they had made a bundle until that point. And providing Dell shares to the employee retirement-savings plan, he says, "certainly provides incentive to not only think but act like a shareholder."
The company ended the five-year lock-down rule, Mr. Reid says, because it was no longer necessary to keep employees focused on improving Dell's shareholder value. And he says Dell executives don't have to hold company stock in their supplementary plan because they "receive a significant portion of their compensation in Dell stock," and thus they already "have the broader interests of the company and shareholders squarely in their sights."
SEC filings show that Dell executives nonetheless have means to protect themselves from exposure to the company's stock. Michael Dell, chairman and chief executive of the computer company he founded, transferred a total of 4.1 million shares, worth $190.7 million, into so-called exchange funds in several transactions between September 1999 and May 2000. (The shares accounted for about 1.3% of Mr. Dell's total company holdings at the time).
Offered by financial firms to the wealthy, exchange funds are, in essence, mutual funds that allow holders of large chunks of a single stock to pool their assets, giving them a stake in a diversified, less-risky basket of securities and, in some cases, postponing tax liabilities. Altogether, the value of Mr. Dell's hedged shares would have fallen in market value by 38%, or $73 million, by earlier this month had he taken no precautions. (The return on the diversified exchange fund isn't disclosed).
Until the five-year rule was lifted, employees like Mr. Green could get out of their Dell 401(k) holdings only by withdrawing money from their accounts, paying income tax and a 10% penalty on the withdrawal, and then reinvesting the difference.
Or, says Dell spokesman Mike Maher, they could have elected "to take their compensation and not put it in their 401(k), and invest it in some other stock." By doing so, however, they would have forgone the company's matching contribution altogether. Mr. Maher declines to comment on Mr. Dell's transactions. He notes that like executives, regular employees who receive options are free to sell their shares. "We're all playing by the same rules," he says.
The hedging maneuvers executives can employ to protect their company holdings fall largely off the radar screens of regulators and shareholders. While the SEC generally requires that key executives report these transactions, experts say the rules are largely ignored. "We really are only able to uncover several a month at most, which leads me to believe that the insiders are not filing these as often as they should," says Lon Gerber, director of research at Thomson Financial/Lancer Analytics, which combs SEC filings to track insider trading trends.
Mr. Dweck, head of the Goldman Sachs division that manages single-stock investments for wealthy investors, says his group's clients disclose their transactions when required. And Qwest Chairman Philip Anschutz recently disclosed that last May, he entered into a "forward-sale agreement" with a brokerage firm, locking in as many as 10 million Qwest shares at close to their then-current price. Qwest's share price has since fallen 68%; the value of Mr. Anschutz's shares covered in the agreement would have plunged to $127 million from $394 million. (Those shares amounted to about 3.3% of Mr. Anschutz's total holding of 300 million shares, or 18% of Qwest's shares outstanding, both directly and through a company he controls.)
A forward-sale agreement wasn't available to Joseph Daugherty. He has been stringing and repairing telephone cable for 23 years, first for Bell South Corp. and then in the Salt Lake City area for U S West, which was acquired by Qwest last year.
A few months ago, he was looking forward to early retirement next summer. But now, he says, he'll have to keep working. The $200,000 in assets he had in his 401(k) in early May has shrunk to roughly $50,000. Part of that loss is attributable to the retirement plan's rules, which don't allow most workers to shift out of company-contributed Qwest shares until age 55. Mr. Daugherty, who concedes he's a risk-taker, blames himself for the rest: He voluntarily sank the remainder of his 401(k) savings into Qwest stock.
Qwest won't comment on the finances of either Mr. Daugherty or Mr. Anschutz. But Steve Hammack, a Qwest spokesman, says U S West established the policy of contributing company stock. He notes that starting Jan. 1, 2001, the company began allowing managers to diversify company stock contributions they receive this year into other investments available through the plan. The restrictions on union members, he says, are covered by the company's collective bargaining agreement.
"The fact is," Mr. Hammack responds in an email, "the majority of companies in the U.S. that match employee contributions do so in their own company stock. A good number also restrict employees from diversifying out of the company match."
Erisa, the federal law governing pension plans, provides employees with little legal traction to complain about their forced 401(k) holdings. Employer contributions to retirement-savings plans aren't generally subject to fiduciary rules. (As for employee contributions, employers are supposed to choose "prudent" investment options.)
Retirement-savings plans are exempt from Erisa diversification rules, too. These rules make it illegal for a company's pension plan to invest more than 10% of its assets in the company's own securities. But savings plans such as 401(k)s can generally invest as much as 100% of the assets in company stock with impunity. Currently, roughly one-third to one-half of retirement-plan assets at large companies are invested in company stock. That suits employers, which would just as soon contribute stock as draw down precious cash, and in the past, they have lobbied successfully to defeat efforts to impose diversification rules on 401(k)s.
That confounds people such as Mr. Triska, the technician at Enron's Portland General Electric unit. "Anyone will tell you that you need to diversify to reduce risk," he says.
Diversification has spared Mr. Triska some of the pain experienced by co-workers who bet big on Enron in their retirement savings. Since Sept. 10, while the Enron shares in his 401(k) have plunged 86%, his shares in Weitz Partners Value Fund have declined only 4.52%, and his shares in Fidelity Growth Company and Janus Global Life Sciences funds have risen 7.3% and 2.2%, respectively.
Enron executives are subject to the same restrictions on Enron's stock contributions to their 401(k)s as other employees: no sales of company-contributed stock until age 50. But company filings with the SEC show that "key management and highly compensated employees" also participate in separate retirement-savings plans that don't require them to hold Enron stock at all. Executives can pile as much as 35% of their salaries and 100% of their bonuses annually into these accounts, allocating the money among a variety of investments.
Further, SEC filings show that so far this year, many Enron executives were steady sellers of company stock they had accumulated beyond the ambit of their 401(k)s. Former Enron Broadband Services Chief Executive Kenneth Rice, for example, sold Enron shares valued at $23.7 million during the period, and former CEO Jeffrey Skilling sold $27.5 million of Enron stock.
"We believe it's important for employees to have a stake in the company," says Karen Denne, a spokeswoman for Enron. "It's also important that we align employee and company performance."
---
Cassell Bryan-Low contributed to this article.

Gas plan is back in the pipeline.

11/27/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved
Gas plan is back in the pipeline
A plan to pipe natural gas from the North Slope in Alaska to markets in the lower 48 states is finally set to be realised by a consortium of six US and three Canadian companies, two decades after its conception. Page 34.
(c) Copyright Financial Times Ltd. All rights reserved.
http://www.ft.com.

Enron shares off 15% on doubts about deal Dynegy's $9-billion buyout offer might not be completed under original terms
KRISTEN HAYS

11/27/2001
The Globe and Mail
Metro
Page B11
"All material Copyright (c) Bell Globemedia Publishing Inc. and its licensors. All rights reserved."
HOUSTON -- Enron Corp. shares fell another 15 per cent yesterday, and briefly traded below their all-time low, as investors continued to doubt that a $9-billion (U.S.) buyout offer from rival Dynegy Inc. would be completed under the current terms.
Enron's stock slide, coupled with traders shying away from Enron's core energy trading business that Dynegy wants most, raises the question of whether the energy giant can maintain enough assets to keep Dynegy interested, said Mike Heim, an analyst with A.G. Edwards & Sons.
"I think Dynegy's really got Enron's back against the wall and at a minimum, I think restructuring is possible," Mr. Heim said.
Dynegy spokesman John Sousa reiterated yesterday that the company is moving forward with the acquisition of its larger, troubled rival and "we are continuing to conduct our confirmatory due diligence."
Enron stock fell as low as $3.76 before rebounding somewhat to close at $4.01, down 70 cents, on the New York Stock Exchange. That's 60 per cent below the current value of Dynegy's offer of $10.54 a share based on Dynegy's close of $39.25, down $1.15 for the day.
Enron's all-time trading low was a split-adjusted $3.94 on Oct. 27, 1987, according to the Center for Research in Security Prices at the University of Chicago Graduate School of Business.
Enron shares have plunged more than 95 per cent from their February 52-week high of $84.87, as the company's complicated finances began to unravel and raised concerns about its financial viability.
The merger agreement between the two Houston-based companies contains an escape clause that would allow Dynegy to back out if Enron suffers serious loss in business or assets.
Mr. Heim said Dynegy has a good argument to trigger that clause, given Enron's predictions of fourth-quarter losses and erosion of traders.
But Raymond James analyst Jon Kyle Cartwright said that while a renegotiation is reasonable, it is doubtful Dynegy will abandon the deal.

Battered Enron in Search of $1 Billion; Stock's Decline Raises Doubts About Buyout
Peter Behr

11/27/2001
The Washington Post
FINAL
Page E01
Copyright 2001, The Washington Post Co. All Rights Reserved
Shunned by investors and deserted by many former customers, Enron Corp. is searching this week for up to $1 billion in cash from lenders to sustain its once dominant energy-trading business.
Enron stock fell yesterday to new low of $4.01 a share, down 70 cents, continuing the latest plunge that began last week when the Houston company disclosed still more damaging detail about its financial condition.
A year ago, Enron stock traded for more than $78 a share, based on its leading position then as a trader of power, natural gas, various industrial and telecommunications products and financial contracts linked to these commodities.
Dynegy Inc., Enron's Houston rival, said yesterday it was not moving away from its $23 billion cash and debt offer to buy Enron. Enron declined to comment on its financial problems.
But Enron's stock has dropped more than 50 percent since the Dynegy deal was announced Nov. 9. Investors believe that Dynegy will renegotiate the deal at a cheaper price or even try to abandon it, said Brian Youngberg, a financial analyst with Edward D. Jones & Co. in St. Louis.
"The [Dynegy] deal values Enron at more than $10 a share. For a company that's trading at $4, that doesn't make much sense," said Youngberg, who last week recommended that customers sell Enron shares.
As part of the Dynegy deal, Enron received $1.5 billion in cash, secured by stock in one of its pipelines. But without another large infusion of cash, the company faces what Youngberg called a "death spiral."
Along with investors, many energy buyers and traders have lost confidence in Enron's ability to make good on the long-term energy contracts it specializes in, Youngberg said. Enron's most important operations involve contracts to deliver natural gas, electric power and other energy products to industries and utilities in the future. It also sells financial instruments designed to protect customers against sharp swings in energy prices.
These deals are the one part of Enron that Dynegy wants.
"Their core business has dropped off sharply," said Andrew Meade, an analyst with Commerzbank Securities in New York. Enron remains a sizable player in the huge daily trading of energy products, but is being frozen out of long-term markets and relegated to less profitable short-term trades, said Meade.
The lengthy span of Enron's crisis, which began a month ago when it reported a $1.2 billion reduction in shareholder equity, has given companies time to close out contracts with Enron or limit their potential losses if Enron were to fail, said Louis B. Gagliardi, an analyst with John S. Herold Inc. in Connecticut.
"If Enron went to a Chapter 11 bankruptcy, or failed, it would unsettle the market slightly. But it wouldn't catch people by surprise. So there's not much danger of a crisis on the natural gas or power side" of energy trading, Gagliardi said. Other market participants cautioned that the extent of Enron's obligations to trading partners is not known to outsiders, making the impact of an Enron failure hard to assess.
Dynegy and its partner, ChevronTexaco Corp., could pump billions of dollars into Enron's operations if the purchase went through, but under the best of circumstances, regulatory review of the deal will drag on for another six months. Investors and traders are increasingly doubtful that Enron can hang around that long by itself, "That just adds to the uncertainty about the stock," Gagliardi said.
Dynegy's offer for Enron caused a brief rally in Enron's stock price and outlook.
But that flurry of optimism was halted by a new financial report last week to the Securities and Exchange Commission detailing even more serious debt obligations than the company had previously acknowledged.
Enron was able to negotiate a three-week extension on a $690 million note that was coming due this week and finished arrangements on a $450 million line of credit, part of a $1 billion infusion it had previously announced.
However, the $690 million obligation, disclosed in the SEC filing, was a very pointed alert to investors about Enron's growing cash needs, Meade said.
And the new details of Enron's plight in last week's filing further damaged the credibility of the company's financial reporting, Meade said.
"I don't think they have fully restated their earnings. There is probably more to come, Meade said."
Enron's board has turned to an outside committee to assess the company's financial condition, after acknowledging last month that Enron had overstated earnings by $586 million over the past four years.
The restatement was caused primarily by accounting decisions that concealed losses in a series of limited partnerships that Enron had helped create to buy various energy, water supply and Internet network properties it wanted to dispose of, the company said.
On Nov. 14, Enron's new chief financial officer, Jeff McMahon, briefed analysts on a series of steps the company would take to raise cash, including the current quest for $500 million to $1 billion in loans. Enron, its executives said, will reorganize the company around its business that generated the strongest cash flow -- energy trades, gas pipeline and coal operations. Other assets, worth $8 billion in book value, would be put up for sale "in an orderly fashion."
Then came the new disclosures last week, reinforcing analysts' concerns that the depths of Enron's liabilities have not yet been plumbed.
"The issues that brought Enron to this point are unresolved. It's a balance sheet that doesn't stand still and continues to deteriorate," Gagliardi said.

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INDIA: Enron India unit, lenders to meet in UK this week.

11/27/2001
Reuters English News Service
(C) Reuters Limited 2001.
BOMBAY, Nov 27 (Reuters) - Enron Corp's troubled Indian unit and its foreign lenders will hold separate meetings this week to decide the fate of a power project once considered the showpiece of India's reform programme, a banking source said on Tuesday.
The meetings, to be held in London on Friday and Saturday, will consider proposals to allow the Dabhol Power Company, which is 65 percent owned by Enron, to pull the plug on a contract to sell power from a giant power project, he said.
The $2.9 billion, 2,184 MW project, which is India's largest foreign direct investment, has been shut since June this year following a dispute with its sole buyer the Maharashtra State Electricity Board (MSEB).
The departure of Enron and its partners would be another blow to attempts to attract foreign investment into the domestic power sector.
Five foreign companies have either pulled out or announced plans to exit the sector, fed up with bureaucratic delays and legal wrangling over the past few years.
At the same time, parent Enron Corp of the United States is struggling to ward off bankruptcy and save its proposed buyout by smaller rival Dynegy Inc.
Its share price has already taken a beating this year over widespread investor doubts about its corporate governance practices. Enron shares closed down 73 cents, or 15.4 percent, at $4.01 on the New York Stock Exchange (NYSE) on Monday, after dipping to at least an 18-year-low of $3.76.
A Dabhol spokesman in Bombay confirmed that the Dabhol board is meeting in November 30 in London. But he declined to disclose the agenda.
The banking source said the Dabhol board will consider giving the management authorisation to issue a final termination notice to the MSEB.
Foreign lenders, led by Citibank and Bank of America, are meeting in London on the same day and will also consider giving Dabhol permission to issue such a notice.
Under a 1995 agreement between Dabhol and MSEB in 1995, the company needs lenders' permission before issuing a terminating notice.
Once issued, the notice would trigger international arbitration to resolve arguments over damages.
MEGA PROJECT
Dabhol and MSEB have been feuding for more than a year over payment defaults and high tariffs. The dispute stopped work on the second phase of the unit which is 97 percent complete.
Enron and its fellow U.S. investors General Electric Co and Bechtel, fed up with payment defaults, have already announced their intentions to exit the project.
They have agreed to sell their stake of 85 percent to either the Indian government or a private power company. At the same time, they have also proceeded with plans to cancel the contract.
A preliminary cancellation notice was issued in May this year. This was to be followed up by a final termination notice after six months. That six-month deadline expired on November 19.
But Dabhol was prevented from taking the final step by a Bombay court. Acting on an urgent petition by Indian lenders, who were against the termination, the court asked Dabhol not to issue such a notice until December 3.
The banking source said Dabhol is only trying to secure all approvals and would not actually issue the notice on November 30.

Enron Talking With Dynegy As They Work To Rescue Deal
By By RICHARD A. OPPEL Jr. and ANDREW ROSS SORKIN

11/27/2001
The New York Times
Page 1, Column 5
c. 2001 New York Times Company
The Enron Corporation and its would-be rescuer, Dynegy Inc., are renegotiating the terms of their deal, originally valued at $9 billion, executives close to the discussions said yesterday.
There were several issues still on the table last night, and the situation was very fluid, the executives said. But they said that the companies hoped to announce, perhaps as early as today, a series of changes: a lower price for the takeover; a cash infusion of $500 million; an agreement by some banks to extend the repayment dates of Enron debt until after the deal closes; and possibly an agreement making clear that the merger would not be derailed by litigation over Enron's devastated employee-retirement plan.
The sides were also negotiating ways to tighten clauses in the merger agreement so that Dynegy would not be able to use information from Enron's recent filing with the Securities and Exchange Commission as a reason for backing out of the deal.
Both companies declined to comment on whether renegotiations were taking place.
But according to executives close to the talks, the new terms would lower the ratio of Dynegy stock to be exchanged to roughly 0.15 share for each share of Enron. The original deal, announced Nov. 9, called for each Enron share to be exchanged for 0.2685 share of Dynegy. But Enron's shares have been plunging steadily, and yesterday the current offer was valued at 163 percent over Enron's closing price.
The companies hope that by releasing some good news, they can stem the slide in the price of Enron's stock and traded debt. Enron shares, which have been plunging since mid-October when the company began to disclose a series of losses and accounting errors, closed yesterday at $4.01, down 14.9 percent, or 70 cents. Shares of Dynegy closed at $39.25 yesterday, down 2.9 percent, or $1.15.
More important, the executives close to the talks said, the companies hope to restore confidence in Enron's energy-trading operation, which showed signs of deterioration yesterday. In recent years, Enron has traded more natural gas and electricity than its two biggest competitors combined, and its trading floor is viewed as its most valuable franchise, accounting for most of the company's profit.
Dynegy's biggest worry, according to the executives, is that this core business is deteriorating. The company fears that if other energy traders further curtail their business with Enron -- either on their own or in response to another cut in Enron's credit rating -- then much of the value of the company could be wiped out, they said.
The urgency of the situation has been made clear by the way in which Enron is being treated in the energy-trading markets, some analysts and executives at rival energy companies say. Though some large traders are still doing business with Enron, many other traders have curtailed their dealings with the company for fear they may not get paid if Enron collapses and files for bankruptcy protection.
In addition, some of the energy trading Enron is doing is costing it more money because of credit concerns. For example, analysts and energy executives say, Enron is in some cases being forced to pay 3 cents to 6 cents more per million British thermal units of natural gas. That means instead of paying perhaps $1.80 per million B.T.U.'s in some trades, it may be paying $1.84.
Jeff Dietert, an analyst with Simmons & Company in Houston, said the price discrepancies on some trades were also showing up on EnronOnline, the Internet platform that accounts for much of the company's trading with other parties.
''We're seeing Enron's prices,'' Mr. Dietert said, ''be about a nickel higher on EnronOnline versus some of the competing Internet-based exchanges.'' If these credit premiums should continue, it could erode Enron's trading profits and worsen its already tenuous liquidity situation.
An Enron spokeswoman, Karen Denne, said trading volumes were ''below average,'' yesterday, but she declined to be more specific. She did say the company was in discussions about a new equity infusion of $500 million to $1 billion.
According to executives close to the talks, details were still being worked out on the cash infusion, which would come from Citigroup and J. P. Morgan Chase. Dynegy may also add cash to the deal while reaffirming the company's commitment to the merger.
Executives at rival trading companies said Dynegy needed to do something to bolster confidence in Enron's trading operations.
''In places, Enron is paying up to 4 or 5 or 6 cents more for next-day gas,'' said an executive at one large energy trader. ''Some producers out there don't want to sell additional discretionary gas to Enron, so they're having to pay up.''
The executive also said most energy traders expected that Dynegy would obtain a much lower merger price because Enron had little or no room to fight a renegotiation.
''If Enron hasn't lined something else up, their other choice is bankruptcy,'' he said. ''You can guess what shareholder value is going to look like if that's the case.''

Report: U.S. Pipelines a Target / FBI warns gas, oil firms of vague threat
Tom Brune. WASHINGTON BUREAU

11/27/2001
Newsday
NASSAU AND SUFFOLK
Page A49
(Copyright Newsday Inc., 2001)
Washington - According to an unverified intelligence report, Osama bin Laden has ordered retaliatory attacks on U.S. natural gas supplies should he or the Taliban's leader be killed or captured, Attorney General John Ashcroft said yesterday.
The U.S. oil and natural gas industry confirmed yesterday that it went on a higher stage of alert within the past two weeks after the FBI advised the American Petroleum Institute and other national industry groups of the vague, alleged threat.
On Nov. 17, the FBI sent e-mails to its 56 field offices across the country - but not to state and local law enforcement officials - about the alleged threat, which is being taken seriously although the agency has not determined whether it is credible, Justice officials said.
The notice warned that bin Laden may have approved plans to attack natural gas supplies in the event he or Taliban leader Mullah Mohammad Omar was captured or killed. The FBI said the information "was from a source of undetermined reliability."
Asked about the notice yesterday, Ashcroft said, "Frankly, those are the kinds of reports which we take seriously ... and we work to elevate our security to alert the interested industry groups, to alert law enforcement."
Ashcroft sought to downplay the threat as an act of retaliation ordered by bin Laden, the U.S. government's prime suspect in the Sept. 11 attacks and the leader of al-Qaida terrorist network now being pursued by U.S. forces in Afghanistan.
"I don't believe al-Qaida operates on the basis of triggering attacks. ... This is an organization motivated by hate," Ashcroft said. "We are at risk not based on our activities, but based on their malicious despising of the United States."
Justice officials said the natural gas threat lacked the verification that led Ashcroft and FBI Director Robert Mueller to publicly issue nationwide alerts twice last month.
The notice about the natural gas threat was one of many the FBI has sent to its field offices for vigilance and communication to those who might be affected, a Justice official said.
The notice of the natural gas threat came after Sen. Barbara Mikulski (D-Md.) on Nov. 7 forced federal regulators to reconsider a permit that would allow the reopening of a liquefied natural gas plant at Cove Point in Maryland. She warned that "the Cove Point facility is within three miles of the Calvert Cliffs nuclear power plant, and the ships carrying liquefied natural gas from Algeria or other countries will be under foreign flag with foreign crews."
Energy companies have stepped up security at refineries, pipeline pumping stations and other facilities since the Sept. 11 terrorist attacks in New York and Washington and the U.S. retaliatory attacks in Afghanistan.
There are thousands of miles of natural gas and petroleum pipelines crossing North America, making protection difficult. Aerial monitoring has increased and security has been intensified at pipeline pumping stations, industry officials, who spoke on condition of anonymity, told The Associated Press.
Also, some detailed information about locations of pipelines and other energy infrastructure have been taken off some corporate and government Internet sites. Access to facilities has been tightened as well, officials said.

Investors bet Enron deal will go bust ; Dynegy could kill deal or drop price
James P Miller, Tribune staff reporter Reuters news service contributed to this report

11/27/2001
Chicago Tribune
North Sports Final ; N
Page 1
(Copyright 2001 by the Chicago Tribune)
As Dynegy Inc. continued to scrutinize merger partner Enron Corp.'s tangled finances, Wall Street traders bet that Dynegy is on the verge of either calling off the Enron buyout it announced three weeks ago or renegotiating a much cheaper price for its once- highflying rival.
"The market is acting like the deal is not going through or not going through at the original terms," said A.G. Edwards analyst Michael Heim.
The New York Times reported the companies as early as Tuesday could announce a new deal, which could reduce by nearly half Dynegy's $9 billion takeover offer.
Under terms of the original agreement between the two Houston- based energy concerns, Enron stockholders are to swap each of their shares for little more than a quarter-share of Dynegy stock, which closed Monday at $39.25. That would value Enron shares at $10.54.
If investors believed the stock-for-stock deal was likely to go through, they would be willing to pay something very close to that price for Enron shares--but they're not.
As investor doubts have grown, so has the gap between the buyout price and the trading price of Enron's stock. On Monday, Enron's battered shares slid to their lowest level in years, dropping 70 cents, or 15 percent, to close at $4.01.
Enron's market capitalization--the value of the company's approximately 850 million shares--has plunged to $3.41 billion. In February, Enron's market cap was about $70 billion.
With Monday's slippage, Enron shares are trading at a 62 percent discount to the Dynegy offer. The shares of acquisition targets typically trade at a less than 10 percent discount to the deal price after a merger announcement.
Dynegy saying little
As Dynegy's audit team continued its in-depth review of Enron's books Monday, a company spokesman declined to discuss rumors swirling around the deal. "The due diligence continues," said John Sousa, the Dynegy spokesman. "We're looking closely at Enron."
Asked about one analyst's recent projection that Dynegy may renegotiate the transaction's exchange ratio and give Enron holders just 0.15 Dynegy shares for each Enron share, rather than the agreed upon 0.2685 ratio, Sousa said, "We don't comment on speculation."
There is no shortage of speculation of late in the "soap opera that is Enron," said commentator Carol Levenson of the Gimme Credit bond market newsletter.
Levenson suggested that "there's a game of chicken going on between Enron, its bankers, its ostensible merger partner, Dynegy, and the rating agencies." Any of the parties "could send this company over the edge at any moment," she said, and Enron "is in an increasingly weak negotiating position."
Enron's fall from grace has been astonishingly swift and painful for its stockholders, some of whom are suing the company for allegedly using misleading accounting measures to conceal the shaky state of its finances.
With Monday's drop, Enron shares have tumbled 95 percent from the $82 they commanded just 10 months ago.
Once a regional pipeline operator known as Houston Natural Gas, Enron transformed itself during the 1990s through an ambitious expansion plan. It acquired electric utility operations, built overseas power plants and developed an innovative energy trading operation.
Partnership woes
The strategy made Enron a stock market darling, but it also periodically strained the company's liquidity. To help keep its credit ratings strong, the company created limited partnerships that allowed Enron to keep billions of dollars in debt obligations off its books and out of sight of most investors.
While Enron's power trading group has experienced operating problems of late, it is the limited partnerships--some of which were managed by Enron officials--that proved to be the company's downfall.
In October, Enron disclosed that it had shrunk its shareholder equity by $1.2 billion to buy back 55 million shares it had issued to the partnerships. The charge associated with "unwinding" the web of partnerships stunned investors by giving the company an unforeseen $618 million third-quarter loss. It also spurred a markdown of Enron's credit ratings to just above junk-bond status, as well as a Securities and Exchange Commission investigation into Enron's partnership practices.
As further accounting difficulties surfaced, Enron's finances have turned increasingly shaky, and some other trading companies, fearing exposure to Enron's problems, have become reluctant do new transactions with the company.
As part of the buyout arrangement, Dynegy's 26 percent owner, Chevron-Texaco Corp., has given Enron $1.5 billion in upfront cash; in exchange, Dynegy obtained rights that would allow it to acquire the desirable Northern Natural Gas Co. pipeline if the deal falls through.
Dynegy has the right to walk away from the deal if Enron suffers what's known as a "material adverse change." But as Tyson Foods Inc. found out this year when it unsuccessfully sought to break its agreement to buy meatpacker IBP Inc. after an accounting mess at IBP, proving such a claim can be difficult.

Editorial Desk; Section A
Letters to the Editor
'Stimulus' for Enron

11/27/2001
The New York Times
Page 18, Column 4
c. 2001 New York Times Company

To the Editor:
Re ''In New Filing, Enron Reports Debt Squeeze'' (Business Day, Nov. 20):
As Congress and federal investigators begin looking into a host of questions about management's role in the company's collapse, I note that the Bush-G.O.P. ''stimulus'' plan calls for United States taxpayers to give Enron $254 million.
Since it was Enron management's greed that ran the company into multibillion-dollar debt, why should we citizens pay for its irresponsibility?
ARLIE SCHARDT
Washington, Nov. 20, 2001

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Business/Financial Desk; Section C
Top Companies Issuing Debt At a Fast Pace
By STEPHANIE STROM

11/27/2001
The New York Times
Page 1, Column 5
c. 2001 New York Times Company

In the weeks since the attack on the World Trade Center, blue-chip corporations have issued a torrent of debt.
Ford, General Electric, I.B.M., Kraft, AT&T, General Motors and other companies have doubled and even trebled their initial plans for bond offerings as investors, disenchanted with the stock market, have all but begged to buy their debt. In all, companies have issued 31.5 percent more debt in the last 11 weeks than they did in the period a year earlier.
The companies are taking advantage of the chance to raise cash at bargain basement prices, thanks to low interest rates, and to retire more expensive debt.
But they may also have little-discussed concerns that money will be scarce in the future, particularly if the economic downturn persists and the recovery is less vigorous than economists now hope. Bank lending is at a 30-year low, according to the Conference Board, and buyers are hard to find for commercial paper, the short-term, cheap debt that corporate purebreds rely on. Standard & Poor's says the amount of commercial paper issued by nonfinancial companies has shrunk roughly 30 percent this year.
''Companies now can lock in substantially lower overall borrowing costs,'' said William Cunningham, director of credit strategy at J. P. Morgan. ''They have an opportunity to build a war chest to help them get through the hard times, and they're taking advantage of it.''
Before the terrorist attacks, analysts were expecting the issuing of debt to slow late this year after a tremendous first half.
So much for expectations. Ford originally planned to raise $3 billion; it was able to raise $9.4 billion and is said to be thinking about trying to raise $7 billion more.
Kraft Foods, part of the Philip Morris Companies, had planned to issue $2 billion worth of bonds. Instead, it offered $4 billion.
AT&T raised $10.1 billion, twice as much as it originally planned. AT&T's and Ford's issues rank as the second- and third-largest ever.
All told, 573 corporations have issued $181 billion of debt since Sept. 11, compared with 692 companies that raised $138 billion in the period last year, according to Thomson Financial/First Call.
''When you look at other asset classes, the corporate bond market offers some of the better values,'' said Bob LoBue, head of the investment-grade fixed-income syndicate at J. P. Morgan, which has underwritten roughly half the issues that have come to market since Sept. 11. ''There's still a lack of confidence in stock valuations based on the weakness we're seeing in earnings.''
Issuers and their underwriters most often cite the low interest rates on Treasury bills as the reason for the surge in corporate debt. Corporate bonds are often priced in relation to United States government debt, and thanks to a cascade of interest rate cuts by the Federal Reserve this year, well-heeled companies can borrow at extremely attractive rates.
International Business Machines, for instance, recently sold $1.5 billion worth of five-year notes with the lowest coupon it has ever issued, 4.875 percent.
Others, though, read the stampede of premier companies to issue debt as a sign that credit is getting tight. Investment-grade companies typically juggle a smorgasbord of debt -- short, intermediate and long term -- but they are definitely skewing the mixture toward the long end these days. No doubt, that is because debt is cheap -- but it also suggests that they may foresee a time when money will be more scarce and are accumulating the war chests Mr. Cunningham referred to.
It was not so long ago, after all, that companies experienced a credit shortage. ''A credit crunch was brewing last year,'' Mr. Cunningham said, ''until the Fed stepped in and started aggressively lowering interest rates, which averted it.''
But a cash problem persists in some ways despite the Federal Reserve's series of interest rate cuts. ''We are in a cash crisis like none we have experienced in recent memory,'' said James Padilla, a Ford executive, in a recent memorandum to his staff.
Many companies with less-than-pristine credit ratings have trouble raising money and may be having more because of the stampede by blue-chip companies.
''When companies like Ford or General Electric come into the market, they squeeze a lot of other, somewhat riskier credits out,'' said Gail D. Fosler, the chief economist at the Conference Board.
Jack Ablin, chief investment officer at the Harris Trust and Savings Bank, said that the economic recovery depended on companies' being able to get credit.
''My primary concern is the lack of available credit across the spectrum,'' he said. ''We are forecasting an economic recovery in the middle of next year, but the one thing that could go wrong with that forecast is if the availability of credit stays where it is or gets worse.''
Another concern is that debt is piling up with negative consequences. ''The Fed is trying to prevent the bubble from bursting by keeping the forces of credit exuberance alive,'' Barton M. Biggs, chief global strategist at Morgan Stanley, wrote to investors earlier this month. ''The trouble is, although it may work in the short run, in the long run the debt burden will be bigger and the adjustment process more painful.''
The automakers, for example, are using the money they have raised in part to support the customer incentive programs that offer zero-interest financing. They are paying as much as 7.25 percent, in other words, to lend money to car buyers for nothing.
Some of the new debt is being used to retire commercial paper. But companies are taking on more than they need to accomplish that goal.
The longer-term money they are borrowing is more expensive than the commercial paper, even if it is cheaper than it has been in a long time. The spread -- the difference in interest rates between Treasuries and corporate bonds -- has generally widened since Sept. 11, although not across the board.
''There is a cost factor involved, but we try to minimize that,'' said David Moore, manager of fixed-income investor relations at Ford Credit, which accounted for the bulk of the $9.4 billion that Ford borrowed last month. ''We're mindful of our liquidity, and want to make sure we ensure it.''
Like many of the companies issuing debt, Ford is curbing its dependence on the commercial paper market. For the year through Oct. 16, Ford had cut the amount of paper it had outstanding by almost 60 percent, to $17 billion. ''That puts us in a very good position, given our rating,'' said Mr. Moore, who was one of the few executives willing to discuss his company's strategy.
Ford, like a host of other companies, has had its credit ratings cut. Many buyers of commercial paper, like money market funds, lend to only the highest-rated companies. So far this year, Standard & Poor's has knocked 57 companies out of the top ratings for commercial paper, compared with 49 last year.
The total amount of outstanding commercial paper has fallen 30 percent this year, according to Diane Vazza, head of global financial investment research at Standard & Poor's, thanks to that downgrading and to great caution among investors. ''We've seen some issuers driven out of the market,'' Ms. Vazza said.
According to several credit analysts, DaimlerChrysler was scheduled to roll over $7 billion of commercial paper in June but decided to take the offering to Europe, where investors are less particular about ratings quality.
Similarly, Enron careered into its crisis when it was forced to redeem commercial paper as its credit ratings fell.
The decline in AT&T's commercial paper ratings was one reason for its big issue last week.
But underwriters of corporate debt insist that the decline in the commercial paper market has more to do with companies' ability to borrow for the long term cheaply than with their inability to issue short-term debt. ''Short-term financing does come with a maturity risk in that you constantly have to roll it over in order to maintain liquidity,'' said Mr. LoBue of J. P. Morgan.
The underwriters concede, however, that lending by banks has all but dried up, falling to its lowest level in three decades. Bank lending has been curtailed at the behest of Federal regulators like the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency at the Treasury Department, putting them seemingly at cross-purposes with the Fed.
The chief executive of EchoStar, Charles W. Ergen, had to put up $2.75 billion of his own money to complete the purchase of the Hughes Electronic Corporation. The bankers at UBS Warburg, EchoStar's adviser on the deal, had offered to provide the financing, but only with a proviso that would have let the bank back out of the deal under certain conditions.
Although the company later got financing from Credit Suisse First Boston and Deutsche Bank, many other bankers have privately applauded UBS Warburg's caution.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Nov. 27, 2001
Houston Chronicle
Enron, Dynegy deal back on table
Energy traders said to be renegotiating premium for shares
By LAURA GOLDBERG
Copyright 2001 Houston Chronicle
Dynegy and Enron Corp. could announce new terms for Dynegy's deal to buy Enron as soon as today, according to sources familiar with talks between the two companies.
The two Houston-based energy traders, the sources said, spent the weekend and Monday discussing, among other issues, a lower exchange rate for Dynegy's stock deal to buy Enron.
As of Monday evening, no exchange rate had been agreed to and discussions were continuing, the sources said, cautioning that the situation was fluid.
Also Monday:
? Enron and Dynegy, the sources said, were working to finalize terms for an equity infusion into Enron of around $500 million that's expected to come from J.P. Morgan Chase & Co. and Citigroup. Another equity infusion from other parties could come later, the sources said.
? Enron, Dynegy and a group of banks were negotiating terms for a so-called "override" agreement that would extend, until after the merger closed, maturity dates for certain debt Enron is due to repay or that could come due before, the sources said. It was unclear how much of approximately the $9 billion in obligations Enron could have coming due in the next 12 months that would be covered by that restructuring.
? It was expected that Enron would start layoffs sometime this week.
Karen Denne, an Enron spokeswoman, said her only comment was that any action the company would take concerning job cuts would be communicated first to employees.
? California Attorney General Bill Lockyer, not known for harboring a favorable attitude toward Enron or other Texas energy companies, has started reviewing the planned merger, looking for potential antitrust problems, his office said. Dynegy has power plants there, while Enron sells power and natural gas into the state.
? Shares in both companies fell, with Enron closing down 70 cents at $4.01, while shares in Dynegy ended the day down $1.15 at $39.25.
The talks between Enron and Dynegy come amid Wall Street expectations that Dynegy will renegotiate the merger terms or back out of the deal completely. The sources said that at the moment, the companies aren't discussing canceling the deal.
On Nov. 9, the day Dynegy announced it would acquire its troubled rival, shares in Enron closed at $8.63, while shares in Dynegy closed at $38.76.
The merger agreement calls for Enron shareholders to get 0.2685 share of Dynegy per Enron share. Based on the Nov. 9 closing prices, Dynegy would be paying $10.41 a share for Enron.
But since, Enron's share prices have dropped significantly amid increasing concerns about its ability to maintain its core trading business and troubling new disclosures about its financial shape.
Based on Monday's closing prices, Dynegy would be paying more -- $10.54 a share -- for Enron, which is worth considerably less based on market capitalization than when the deal was announced.
Last week, one stock analyst said he thought a ratio of no more than 0.15 share of Dynegy per Enron share might be more realistic.
Dynegy spokesman John Sousa said Monday that Dynegy was continuing its "due diligence" review of Enron's books and "looking at everything very closely."
Unless the merger with Dynegy goes through, Enron could be forced into bankruptcy protection.
Enron's core trading business has eroded, the Securities and Exchange Commission is investigating its finances and it faces a pile of debt as well as an increasing number of shareholder and employee lawsuits.
Enron and Dynegy hoped the merger deal, which included an immediate infusion of $1.5 billion of equity into Enron, would stabilize Enron.
But new financial disclosures have had the opposite effect.
For example, on Nov. 19, Enron revealed $690 million in debt would come due sooner than expected because of a credit-rating downgrade.
The news came as a surprise even to Dynegy.
Dynegy has escape hatches in its merger agreement, including a "material adverse change" clause that applies generally to Enron's financial state.
Also, if the amount of legal and shareholder claims Enron must pay out is greater than $3.5 billion, the deal can be called off.
Sousa described the escape clauses as "broad provisions" to ensure Dynegy is adequately protected.

Nov. 27, 2001
Houston Chronicle
Sizable staff of 245 lawyers in merger limbo
By MARY FLOOD
Copyright 2001 Houston Chronicle
Whether troubled Enron Corp. merges, falls or stays the course, it is likely to deeply affect one of Houston's largest law offices: the one within the embattled company.
"We've always regarded them as one of the big law firms in Houston," said Howard Ayers, managing partner of Andrews & Kurth, one of the city's largest firms with about 240 lawyers in Houston alone.
Enron has about 245 lawyers worldwide, company spokesman Vance Meyer said. That's a large legal stable even for a company with more than 25,000 employees. With about 145 lawyers in Houston, if it were a private firm it would have been the city's sixth-largest, according to the Chronicle 100 survey released in May.
Energy trader Enron's internal law office has burgeoned along with the huge trading firm, now set to merge with a smaller but stronger local competitor, Dynegy. As Enron's stock plummeted further, Dynegy last week denied rumors it might drop out and leave Enron to face a possible bankruptcy.
Whatever the company's fate, there are rough waters ahead for Enron lawyers.
Although most lawyers interviewed said they hope everybody remains employed and that it is premature to discuss the fate of Enron's legal staff, speculation in the legal community runs the gamut from rumors that dozens of lawyers could be laid off as early as this week to the idea that Enron will hold on tightly to its talent.
"My guess is they'll need their lawyers while they get things in a more steady state. There's a lot of legal work to go through," said Joel Swanson, a senior partner at Baker & Botts, a Houston law firm with about 265 lawyers here.
Not only does Enron have a large cadre of lawyers inside its company, but it also has hired just about every large firm in Houston over the last few years. Several of the biggest Houston firms are working on the merger for either Enron or Dynegy, and others are standing by wondering which outside firms will get the biggest pieces of legal work when the new company is created.
Enron's legal department has siphoned talent from Houston's top law firms over the years. Heads of law firms said they have seen plenty of promising lawyers lured away by Enron's competitive pay combined with stock options, which were a lucrative draw until recently, as shares have lost 95 percent of their value.
"Enron has one of the premier legal departments in the country," said Jeff Love, managing partner of Locke Liddell & Sapp, a Houston-based firm with about 175 of its lawyers here.
Enron has hired a lot of what are called "laterals," or lawyers who have had a couple years training, often at a big firm.
Although jobs in corporate counsel offices are generally considered easier than big-firm life, that's not the reputation of Enron's legal eagles.
As with the company itself, the general counsel's office has been known as innovative and hard driving.
"I don't think anybody lateraled into Enron with the expectation of an ordinary life," Ayers said.
In the Houston market, where big-firm first-year lawyers start at around $110,000 a year, the advantages of going to an expanding company like Enron were the stock options and the opportunity to grow with the company.
If heavily anticipated layoffs occur at Enron, top Houston lawyers expect casualties to land on their feet. Looming recessions are not always bad for job-hunting lawyers. Bankruptcy, litigation and mergers all can boom in rough times.
Several Houston-based law firms said they have recruited a slightly larger starting class of lawyers for 2002, meaning they don't expect to scale back their business in the immediate future.
Should the merger succeed, Enron's 245 lawyers will join Dynegy's 43.
"The question of how you integrate the two staffs, as with a lot of things associated with the merger, won't be worked out for some time," Dynegy spokesman Steve Stengel said.

Nov. 27, 2001
Houston Chronicle
Bin Laden threat against pipelines taken seriously
Ashcroft: Unconfirmed warning linked to leader's death, capture
By MICHAEL DAVIS
Copyright 2001 Houston Chronicle
The FBI confirmed Monday that it has warned the energy industry that Osama bin Laden may have ordered strikes against U.S. natural gas facilities if he is caught or killed.
The agency issued the warning last week, Attorney General John Ashcroft said at a news conference Monday. It had uncorroborated information that bin Laden may have approved plans for such attacks, Ashcroft added.
The FBI warning said "such an attack would allegedly take place in the event that either bin Laden or Taliban leader Mullah Omar are either captured or killed."
The warning hit home in Houston because while the warning did not single out a target, it referred specifically to natural gas infrastructure, such as pipelines. Houston is the hub of this industry and is at the center of a dense web of gas pipelines.
The warning was considered similar to the one issued earlier about potential attacks against West Coast bridges.
Ashcroft said the government is in regular communication with companies that own the nation's energy infrastructure, such as refineries, natural gas pipelines and nuclear plants.
Federal law enforcement officials received the uncorroborated report of undetermined reliability about a potential attack against natural gas supplies about 10 days ago, Ashcroft said.
Since the terrorist attacks on Sept. 11, all energy companies have established more stringent security measures. Pipelines, however, are considered especially vulnerable since they are accessible above ground in remote areas with typically little more than a padlock and a metal fence to keep out someone wanting to damage the line.
Reliant Energy Entex, the natural gas distribution company that serves the Houston area, was notified about the warning but has not added any new security measures as a result, company spokeswoman Alicia Dixon said.
"We've been on a heightened state of alert since Sept. 11 so nothing is different today than it was yesterday," Dixon said. "We have very strong security in place already because of the nature of our business. We have to be prepared to deal with a variety of emergencies."
Dixon said the company recieved word of the warning from the American Gas Association. The American Petroleum Institute also passed the warning on to energy companies, API spokesman Juan Palomo said.
Enron notified its employees of the warning and also has been on heightened state of alert since Sept. 11, company spokeswoman Gina Taylor said.
"We take all threats seriously," Taylor said.
Enron monitors its pipelines and related facilities such as compression stations using planes, cars and on foot, she said. The company has not added staff to beef up its security as a result of the warning, she said.
"We routinely patrol the right of way," she said.
There are thousands of miles of natural gas pipelines running throughout the nation. Thirty interstate gas pipelines carry 90 percent of the natural gas transported, according to the Interstate Natural Gas Association of America.
Detailed information about locations of pipelines and other energy infrastructure has been taken off some corporate and government Internet sites. Access to facilities has been tightened as well, officials said.
Federal regulators have offered help to pay for the added protection by speeding rate hike requests for beefed-up security.
If a pipeline were attacked with an explosive, for example, the operator could shut off the flow of natural gas, oil or refined products from either side of the break.

Nov. 27, 2001
Houston Chronicle
Current recession differs from others
By JIM BARLOW
Copyright 2001 Houston Chronicle
So it's official. The United States is in a recession.
That was the word Monday from the National Bureau of Economic Research. A recession, by the by, comes about after six months of declining economic activity. In this case, the bureau said, the recession started last March, so we're already through almost nine months of slowdown.
But there's something very different about this recession, different from all the others we've experienced in the past four or five decades. We were not led into it by a huge oversupply of all kinds of real estate and a collapse in those prices.
The current recession was sparked by a high-tech collapse, led by a glut of technology products.
That doesn't mean real estate will sail through untouched this recession. There are places that will be hurting. San Francisco comes to mind. It is a high-tech center, and there was a lot of building to accommodate that industry.
There is also one real estate sector in trouble -- the hotel industry. It had already been hurt by a downturn in business travel. The Sept. 11 terrorist attacks sent it, and air travel, reeling.
Recall see-through buildings?
But there's nothing like we saw back in the mid-1980s. Remember when Houston enriched the nation's vocabulary by coming up with the term see-through buildings? Those were the many skyscrapers in Houston that had been built but never finished inside. So you could look right through them because there were no interior walls.
Indeed, if real estate is a bright spot in this recession, real estate in Houston is a great shining light.
Houston's office building market is tight. The downtown office market has an 8.9 percent vacancy rate, and prime Class A space prized by major corporations is effectively full. There should be some easing of that rate. Enron Corp., with its well-publicized freefall, has almost completed a new headquarters. Even more space will be coming onto the market when the 32-story Calpine Center office tower is completed at 717 Texas Ave. in 2003.
Century Development has announced it is working on a 40-story office tower downtown. Crescent Real Estate Equities is building a tower on the other side of Main Street. All this, plus cutbacks at Continental Airlines and the pending sale of Compaq Computer Corp. to Hewlett-Packard Co., will doubtless hurt the office market. But no one is predicting disaster.
The Houston apartment market may be the nation's healthiest, with 93.5 percent of Houston's apartments occupied in the third quarter of this year. That figure is almost a full percentage point higher than the year before. Prices for apartments are up, as are rents.
Sales of used homes in October were the highest ever, with the median price up 3.9 percent. New-home sales are setting records.
Developers are optimists
So how did we escape the usual? Credit lenders.
Real estate developing is full of optimists. Ask any developer -- even in the midst of a bust -- and he'll tell you. It won't affect his building, which somehow is nicer, sexier or even more depression-proof than the next guy's. Give a developer money, and he will build.
Lenders have been as tight as the bark on trees. That has forced developers to pre-lease buildings and seek partners with equity -- primarily pension funds -- before the banks would loan them money for new projects.
Several things happen to the real estate business during a recession. Prices fall or stabilize -- and in this particular recession the bet is probably on stabilization. The banks and others that loan that money generally tighten credit standards, cutting off weaker real estate players. And the Federal Reserve Board helps out the economy by lowering rates, which aids bargain hunters with deep pockets.
In any recession, even one that is as benign to real estate as this one, some properties won't survive the economic downturn and owners will have to sell or file for bankruptcy.
With the current low interest rates, companies with good credit will move in and buy those properties. Remember the so-called vulture funds of the 1980s?
How soon this process starts will determine the length of this recession. Because real estate is in good shape this time, the process is not as important as it was in the 1980s. Still, if investors promptly snap up distressed properties, that will increase the odds that this recession will be a short one.

Enron Gains on Optimism Dynegy Purchase to Proceed (Update1)
2001-11-27 07:59 (New York)

     (Updates to add Instinet trading, comment by Tice.)

     Houston, Nov. 27 (Bloomberg) -- Enron Corp. shares rose as
much as 3.5 percent on Instinet amid optimism Dynegy Inc. will
proceed with its proposed acquisition of the rival U.S. energy
trader after renegotiating the terms of its offer.

     Shares of the energy trader plunged 55 percent last week on
concern the merger would unravel after Enron said it had more debt
and less cash than previously announced, threatening its ability
to operate until Dynegy completes the purchase.

     Executives of the two companies discussed possible changes in
the terms over the weekend, people familiar with the matter said
yesterday. Dynegy is now talking about paying less than 0.15
shares for each of Enron's, valuing the company's equity at about
$5 billion, or less than $6 per share, the Wall Street Journal
reported, citing people close to the discussions.

     ``The choices are fairly stark: Renegotiate the deal or file
for Chapter 11,'' said John Olson, an analyst with Sanders Morris
Harris, a Houston-based financial services company.

     Enron shares rose as much as 14 cents to $4.15 on Instinet.
The original Dynegy bid valued Enron at $10.54 a share in Dynegy
stock. The discount reflects skepticism among investors the
acquisition will be completed under the original terms.

     Bond investors were less optimistic. The company's 6.4
percent bonds that mature in 2006 declined to 45 cents on the
dollar from 48 cents on the dollar yesterday, traders said. At
that price, the bonds yield 28.5 percent.

     ``The concern is that the Dynegy deal breaks down,'' said
Paul Tice, co-head of U.S. high-grade credit research who covers
the energy market for Deutsche Bank. Last week's Securities and
Exchange Commission filing ``had a lot of negative surprises.''

     Investors have become concerned because Enron hasn't been
able to complete a proposal to raise $2 billion through a private
equity sale and Moody's Investors Service is weighing whether to
downgrade the company's credit rating.

                           Extension?

     The companies may announce as early as today an extension by
some banks on the repayment of Enron's debt, a $500 million cash
infusion from Citigroup Inc. and J.P. Morgan Chase & Co., and an
agreement that would keep the purchase intact despite lawsuits
over Enron's employee-retirement plan, the New York Times said.

     Neither Enron spokeswoman Karen Denne nor Dynegy spokesman
John Sousa would comment on whether talks on a new buyout
agreement are underway.

     Current terms call for an exchange ratio of 0.2685 share of
Dynegy stock for each Enron share. Given recent disclosures about
Enron's debt and the drop in the stock price, a fairer ratio would
be 0.15 share of Dynegy, said Ronald Barone, a UBS Warburg analyst
who rates Dynegy a ``strong buy.''

     ``If they can renegotiate the deal to half (the original
price), that's where you get really attractive earnings,'' said
Gordon Howald, an analyst at Credit Lyonnais who rates Dynegy a
``buy.''

                         Enron's Debt

    Under current terms, the deal makes sense for Dynegy only if
Enron earns 85 cents or more, Howald said. Barone has reduced his
estimate of Enron's 2002 earnings from $1.65 a share to 75 cents.

     Dynegy shares fell $1.15, or 2.9 percent, to $39.25
yesterday.

      New terms may not be necessary if Enron can get the
additional $2 billion in financing it's seeking, some investors
said.

     ``If people who've looked at Enron are willing to put in that
kind of money, it sends a message that their core businesses --
trading, pipelines and energy management -- are still sound,''
said Kathleen Vuchetich, who helps manage $1.4 billion in assets
in the Strong Utilities Fund, 4.3 percent of which is Dynegy
stock.

    Enron has debt payments of more than $9 billion due before the
end of 2002, and has less than $2 billion in cash and credit lines
left, the company said in a filing last week. If its cash reserves
run too low, Enron's credit rating may be cut below investment
grade. That would trigger $3.9 billion in debt repayments for two
affiliated partnerships.

                           Reprieve

     Moody's Investors Service hasn't issued a report on Enron
since the company filed a 10-Q quarterly report with the
Securities and Exchange Commission last week. On Nov. 9, it rated
Enron's debt one notch above junk. The rating company's analysts
didn't return calls seeking comment.

     Egan-Jones Ratings Co. lowered its rating on Enron's credit
today to ``BB-'' from ``BB,'' a level below investment grade.
     The Houston-based company also said in the filing that it had
a $690 million note due this week, and that it may have to reduce
fourth-quarter earnings by $700 million. The write-off would come
because it used stock to guarantee debt owed by an affiliated
partnership, and the value of that stock has plunged.

     On Wednesday, Enron got a three-week reprieve from lenders on
the $690 million note and closed on a $450 million credit line.
Dynegy Chief Executive Officer Chuck Watson said he was
``encouraged'' by the developments.

     Enron is negotiating to restructure its other debt, Denne
said yesterday. J.P. Morgan and Citigroup executives met today to
line up investors willing to buy $2 billion in bonds convertible
into Enron stock.

                       Deteriorating Daily

     Many of Enron's trading partners are shunning the company,
and some analysts now say Enron's 2002 earnings may hurt, rather
than boost, Dynegy's earnings, as Watson has projected.

     ``The value of the assets Dynegy is trying to buy -- the
trading and marketing businesses -- are deteriorating on a daily
basis as more counterparties back off on trading and dealing with
Enron,'' said Mike Heim, a securities analyst at A.G. Edwards &
Sons Inc.

     Watson said on Nov. 9 that the merger would increase Houston-
based Dynegy's 2002 earnings by 35 percent to $3.40 to $3.50 a
share.

     To realize those gains, Watson will have to help Enron stay
out of bankruptcy by helping it get financing, Vuchetich said.

    ``Dynegy needs to make sure there's no hint the trading
operation is worth less than they thought,'' Vuchetich said. ``It
has to be kept running to maintain its value.''

--Eileen O'Grady in Houston, (713) 353-4876

Business; Financial Desk
Pressure Mounts on Enron Buyout Energy: Stock drops to its lowest since '87 on doubts Dynegy deal will go through. Workers sue over shrinking 401(k)s.
THOMAS S. MULLIGAN
TIMES STAFF WRITER

11/27/2001
Los Angeles Times
Home Edition
C-1
Copyright 2001 / The Times Mirror Company

NEW YORK -- Enron Corp. shares Monday sank to a low not seen since the 1987 stock market crash, as investors continued to mark down the chances of the energy trader's completing its pending buyout by rival Dynegy Inc.
Enron stock tumbled 70 cents, or 15%, to $4.01 on the New York Stock Exchange. Dynegy fell $1.15, or 3%, to $39.25 on the Big Board.
The pressure on Enron is mounting not just from Wall Street but from regulators, bond-rating agencies, the energy trading community and Enron's own employees, many of them angered by the devastation of their retirement accounts as the company's stock has plunged 95% this year.
An employee lawsuit was filed Monday in federal court in Houston, alleging that Enron misled workers about its profitability and breached its fiduciary duty by inducing them to buy company stock for their 401(k) retirement plans.
About 15,000 Enron employees are owed a total of $890 million in compensation for losses sustained in their retirement accounts, said Eli Gottesdiener, whose Washington firm represents the plaintiffs.
One of the plaintiffs, Gary Kemper, a maintenance foreman with Enron's Portland General Electric unit in Oregon, said the total value of his 401(k) account has shrunk to $129,000 from $317,000 this year as his Enron holdings collapsed to about $9,000 from $197,000.
"It wouldn't tick me off so bad except that they were sending us e-mail after e-mail [last summer] saying things are fine," Kemper said in an interview Monday, referring to company executives. "Of course, we find out later that they were dumping their own stock, millions of dollars at a time."
Enron Chairman Kenneth L. Lay cashed in stock and options worth $123 million last year, when the stock was near its peak.
Kemper and his wife had been planning to retire early, four years from now, but it is no longer clear that they will be able to afford it, he said.
Another law firm representing Enron employees, Seattle-based Hagens Berman, is looking into the possibility of adding Enron's accounting firm as a defendant, partner Karl Barth said Monday.
The accountant, Andersen, has been criticized for failing to catch irregularities that caused Enron to restate its earnings dating back to 1997 and declare its previous financial reports unreliable.
Egan-Jones Ratings Co., a credit-rating agency in suburban Philadelphia, on Monday cut its rating on Enron's senior debt by one notch, saying the company will need $1 billion to $1.5 billion in the next 45 days to fund operating losses and other liabilities.
Egan-Jones dropped Enron's bonds to the sub-investment-grade, or junk, level in August, about when the company's chief executive, Jeffrey K. Skilling, abruptly resigned. The agency's view is more severe than those of larger rivals Moody's Investors Service and Standard & Poor's, which both continue to keep Enron's debt in the investment-grade category.
Sean Egan, a managing director of Egan-Jones, said he views the chances of the merger going through at less than 50-50. And if the merger falls through, Enron's chances of survival are not very high, he said.
Dynegy has kept mum about the deal since Wednesday, when it said it was trying to speed regulatory approvals. Wall Street analysts have noted that Dynegy could invoke terms of a "material adverse change" clause allowing it to modify or walk away from the deal if it determines that Enron's condition is markedly worse than it was when the deal was struck Nov. 9.
Under the merger deal, Enron shareholders would receive 0.2685 Dynegy share for each of their shares. That implied a value of $10.54 a share, more than double Enron's closing price Monday. The gap indicates Wall Street's doubts about whether the deal will get done.
Elsewhere Monday, the office of California Atty. Gen. Bill Lockyer reiterated that it will scrutinize the Dynegy-Enron merger on antitrust grounds.
Analysts say California could use its power to delay the deal as a way to squeeze Dynegy for better prices on long-term power contracts it negotiated during the height of the state's energy crisis this year.
Enron already is under investigation by the Securities and Exchange Commission over controversial deals involving limited partnerships organized and run by former company executives.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Man arrested for issuing e-mail threat to Enron

11/27/2001
The Times of India
Copyright (C) 2001 The Times of India; Source: World Reporter (TM)

PUNE: If youre thinking of sending scary, anonymous emails, think again.The police are fast catching up on the technology to trace such mails. On Friday, the Ratnagiri police arrested Pune-based computer professional Habibuddin Sheikh 20).
A former employee of the Dabhol Power Corporation DPC) Sheikh had sent an email threatening to blow up DPCs Guhagar plant.
According to the Ratnagiri police, DPC received the threatening mail last month.The company was being targeted because it was a venture of the American giant Enron, the mail said. Superintendent of police Vinaykumar Chaube immediately formed a special team and tracked the mail down to a cybercafe in Wanowrie in Pune.
The cybercafe records revealed that Sheikh had used the cyber cafe at the time and day on which the mail was received by DPC.The investigators were already working on the hunch that the mail must have been the handiwork of one of the 1,000 workers retrenched by the company. Sheikhs handwriting in the companys records too matched.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

USA: Calif. Attorney Gen'l to examine Dynegy-Enron deal.

11/26/2001
Reuters English News Service
(C) Reuters Limited 2001.

SACRAMENTO, Calif., Nov 26 (Reuters) - California's attorney general will examine Dynegy Inc.'s bid to buy its much larger energy rival, Enron Corp. , officials said Monday, adding a potential new wrinkle to the troubled $9 billion merger proposal.
"We are reviewing the merger for anti-trust concerns," said Sandra Michioku, spokeswoman for Attorney General Bill Lockyer.
Michioku said it was still far too early to say what position California would take on the proposed merger, which involves two companies often publicly blamed for helping to create California's energy crisis this year.
Dynegy was among five energy companies named in a lawsuit filed in May by Lt. Gov. Cruz Bustamante alleging energy price manipulation at several southern California power plants it owns. Dynegy has denied the accusation.
Enron, while owning no generation plants in California, is a major national player for energy trading and natural gas transmission - which if merged with Dynegy's market presence in the state could create a major new energy powerhouse.
The proposed merger, which has been plagued by uncertainty amid news of major new Enron debt and a resulting slump in its share price, is already being examined by the Federal Trade Commission and the Federal Energy Regulatory Commission.
California regulators could present a roadblock to successful completion of the deal. But the state could also leverage its influence over the merger to renegotiate a number of long-term energy deals with Dynegy, which it signed months ago at the height of its power crisis and which are now being criticized as a bad deal for the state's consumers.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Dynegy May Modify Enron Purchase Terms, People Say (Update2)
2001-11-27 00:23 (New York)

Dynegy May Modify Enron Purchase Terms, People Say (Update2)

     (Adds reports on stock ratio and bank extensions in seventh
and eighth paragraphs.)

     Houston, Nov. 26 (Bloomberg) -- Dynegy Inc. may renegotiate
terms of its proposed $22.9 billion purchase of Enron Corp., whose
shares have fallen 54 percent since the merger was announced,
people familiar with talks between the companies said.

     Executives of the two energy-trading companies discussed
possible changes in the terms over the weekend, the people said.
The offer made on Nov. 9 values Enron at $10.54 a share in Dynegy
stock. Enron's stock closed at $4.01, indicating investors don't
believe the sale will be completed under the original terms.

     Enron is seeking as much as $2 billion in equity investment
and Moody's Investors Service is weighing whether to downgrade the
credit rating of the energy trader, which said last week its debt
was higher than earlier reported. Enron needs to offer more
attractive terms or risk losing the support of Dynegy investors
for a deal needed to save the company, analysts said.

     ``The choices are fairly stark: Renegotiate the deal or file
for Chapter 11,'' said John Olson, an analyst with Sanders Morris
Harris.

     Neither Enron spokeswoman Karen Denne nor Dynegy spokesman
John Sousa would comment on whether talks on a new buyout
agreement are underway.

     Current terms call for an exchange ratio of 0.2685 share of
Dynegy stock for each Enron share. Given recent disclosures about
Enron's debt and the drop in the stock price, a fairer ratio would
be 0.15 share of Dynegy, said Ronald Barone, a UBS Warburg analyst
who rates Dynegy a ``strong buy.''

                            Half Price?

     Enron and Dynegy are talking about cutting the ratio to less
than 0.15, which would value the stock portion of the transaction
at about $5 billion, or less than $6 per Enron share, the Wall
Street Journal reported, citing people close to the discussions.

     In addition, the companies may announce as early as today an
extension by some banks on the repayment of Enron's debt, a $500
million cash infusion from Citigroup Inc. and J.P. Morgan Chase &
Co., and an agreement that would keep the purchase intact despite
lawsuits over Enron's employee-retirement plan, the New York Times
said.

     ``If they can renegotiate the deal to half (the original
price), that's where you get really attractive earnings,'' said
Gordon Howald, an analyst at Credit Lyonnais who rates Dynegy a
``buy.''

    Under current terms, the deal makes sense for Dynegy only if
Enron earns 85 cents or more, Howald said. Barone has reduced his
estimate of Enron's 2002 earnings from $1.65 a share to 75 cents.
     Dynegy shares fell $1.15, or 2.9 percent, to $39.25.

                       Additional Financing

     New terms may not be necessary if Enron can get the
additional $2 billion in financing it's seeking, some investors
said.

     ``If people who've looked at Enron are willing to put in that
kind of money, it sends a message that their core businesses --
trading, pipelines and energy management -- are still sound,''
said Kathleen Vuchetich, who helps manage $1.4 billion in assets
in the Strong Utilities Fund, 4.3 percent of which is Dynegy
stock.

    Enron has debt payments of more than $9 billion due before the
end of 2002, and has less than $2 billion in cash and credit lines
left, the company said in a filing last week. If its cash reserves
run too low, Enron's credit rating may be cut below investment
grade. That would trigger $3.9 billion in debt repayments for two
affiliated partnerships.

     Moody's Investors Service hasn't issued a report on Enron
since the company filed a 10-Q quarterly report with the
Securities and Exchange Commission last week. On Nov. 9, it rated
Enron's debt one notch above junk. The rating company's analysts
didn't return calls seeking comment today.

     Egan-Jones Ratings Co. lowered its rating on Enron's credit
today to ``BB-'' from ``BB,'' a level below investment grade.

                             Write-Off

     The Houston-based company also said in the filing that it had
a $690 million note due this week, and that it may have to reduce
fourth-quarter earnings by $700 million. The write-off would come
because it used stock to guarantee debt owed by an affiliated
partnership, and the value of that stock has plunged.

     On Wednesday, Enron got a three-week reprieve from lenders on
the $690 million note and closed on a $450 million credit line.
Dynegy Chief Executive Officer Chuck Watson said he was
``encouraged'' by the developments.

     Enron is negotiating to restructure its other debt, Denne
said today. J.P. Morgan and Citigroup executives met today to line
up investors willing to buy $2 billion in bonds convertible into
Enron stock.

     Many of Enron's trading partners are shunning the company,
and some analysts now say Enron's 2002 earnings may hurt, rather
than boost, Dynegy's earnings, as Watson has projected.

                        Deteriorating Daily

     ``The value of the assets Dynegy is trying to buy -- the
trading and marketing businesses -- are deteriorating on a daily
basis as more counterparties back off on trading and dealing with
Enron,'' said Mike Heim, a securities analyst at A.G. Edwards &
Sons Inc.

     Watson said on Nov. 9 that the merger would increase Houston-
based Dynegy's 2002 earnings by 35 percent to $3.40 to $3.50 a
share.

     To realize those gains, Watson will have to help Enron stay
out of bankruptcy by helping it get financing, Vuchetich said.

    ``Dynegy needs to make sure there's no hint the trading
operation is worth less than they thought,'' Vuchetich said. ``It
has to be kept running to maintain its value.''

--Eileen O'Grady in Houston, (713) 353-4876

Enron Faces New Employee Suit Alleging Securities Violations
2001-11-26 21:53 (New York)

Enron Faces New Employee Suit Alleging Securities Violations

     Houston, Nov. 26 (Bloomberg) -- Enron Corp., the energy
trader and producer whose shares hit a 14-year low today, is being
sued for allegedly violating federal securities law by selling
employees company stock without a prospectus.

     The suit was filed in Houston by Gary Kemper, a 57-year-old
maintenance foreman at an Enron affiliate, and seeks to recover
$850 million in losses, said his attorney, Eli Gottesdiener. The
suit claims Enron prevented employees under the age of 50 from
selling stock they received from the company as 401(k) matching
contributions.

     Houston-based Enron, whose bond and stock prices fell amid
concern Dynegy Inc. may abandon its $23 billion proposed bid for
the company, faces at least two other lawsuits seeking to recover
losses from employee 401(k) accounts. The previous suits did not
raise the prospectus claim.

     Enron shares fell 70 cents to $4.01 after trading as low as
$3.76 today. They've dropped 95 percent this year. Company
spokeswoman Karen Denne declined to comment on the suit, citing
the company's policy on pending litigation.

--Vivien Lou Chen in San Francisco, (415) 743-3506

Enron Plunges, but Dynegy Will Suffer, Too
By Peter Eavis <mailto:peavis@thestreet.com>
Senior Columnist
TheStreet.com
11/26/2001 06:54 PM EST
URL: <http://www.thestreet.com/markets/detox/10004469.html>

In the Enron (ENE:NYSE - news - commentary) endgame, both players look set to lose.
The other player is energy trader Dynegy (DYN:NYSE - news - commentary) , which this month agreed to buy Enron. Since the deal was announced, Enron's fundamentals have rapidly deteriorated, making Dynegy's offer look ridiculously generous. But even if the deal gets done at more advantageous terms, Dynegy will struggle to revive a disembowled Enron and absorb its hefty debt load.
Making matters worse, Dynegy could suffer just as much if it backs out of the deal. Without a merger, Houston-based Enron almost certainly goes to the wall, causing disruption, stress and profit-sapping change in the energy market. How can Dynegy not get wounded in that environment? The stock market doesn't seem to agree, however; Dynegy shares remain above their predeal levels.
Wishful Thinking
A Dynegy spokesman says his company can post annual earnings growth of 20% to 25% over the next two years even without Enron. He declined to comment on the merger negotiations, except to say that Dynegy is "continuing its due diligence" of Enron. An Enron spokesman declined to comment on deal talks.
Where do things stand as of Monday evening? Well, the deal looks increasingly unlikely to happen (at least on the terms of Nov. 9). After a sickening slide last week, Enron tanked again Monday, dropping 15% to $4.01. Current deal terms have Dynegy paying around $10.50 an Enron share based on its current stock price. A 60% gap says the deal won't get done. But, as the world and his wife now know, the deal needs to go through for Enron to maintain the investment grade credit rating necessary for its survival.
Clearly, every hour counts in this fast-unwinding situation. Enron's core trading business is in deep trouble as power market players cut exposure to the company, draining it of precious cash.
As a result, two options exist from here. The first is a rescue effort involving Dynegy, the rating agencies and bank creditors like J.P. Morgan Chase and Citigroup, working to revise the merger agreement and find more cash to buy Enron time. This could involve changing the stock-swap ratio to give Dynegy a cheaper price, with the banks possibly extending debt and joining with other investors to inject equity.
The other scenario has Dynegy, after seeing the cash hemorrhage and the skeletons in the closet, deciding to back out altogether, leaving Enron with no rescuer and no future. But Dynegy's resilient stock price suggests that the market hasn't grasped the impact an Enron bankruptcy would have on Dynegy and other trading firms.
Don't be at all surprised if, any moment now, we see one last attempt to salvage Dynegy's rescue merger with new terms. Several banks are exposed to Enron and, presumably, they will try almost anything -- including extending debt -- to keep the company afloat. By keeping deeply distressed Enron at an investment-grade rating, rating agencies such as Moody's have shown themselves willing to bend to the banks' wishes, so they will probably capitulate again if pressured by bank honchos.
Be Careful What You Wish For
But swallowing Enron would hardly be good for Dynegy, which appears to have underestimated the former's problems.
Amazingly, just a couple of weeks back, the company expected Enron to make $1.50 per share in 2002. Goldman Sachs is now expecting 50 cents, even if the merger gets done. If Dynegy ended up paying, say, $3 a share for Enron, people would no doubt hail that as a low-enough price to cover worsened fundamentals, legal liabilities and any nasty surprises that could spring from Enron's notoriously murky books. But recall that Dynegy also would be taking on Enron's $13 billion of debt. Include the debt in some return-on-capital calculations and the deal still looks untenable.
Alternatively, Enron may be deteriorating too fast to save. That's also bad for Dynegy. The damage done to the company by depleted energy market activity has been recognized, as has the risk that an Enron collapse could leave Dynegy dangerously unhedged on many of its trades. What does that mean and why is it dangerous? Let's say Dynegy agreed to buy power from Company X over a period of time and then sell it to Enron. If Enron goes down, its obligation to buy from Dynegy obviously disappears, but Dynegy can't easily back out of the commitment to buy power from Company X.
And there's another potential risk that the market really hasn't recognized. Enron allegedly was very aggressive in booking upfront profits on forward market deals. An Enron spokesman declined to comment on that allegation. Those deals had to be done with other trading houses, possibly Dynegy.
In other words, Enron's ways may have contaminated the whole market because, as we are frequently told, Enron was the energy market, just as Drexel Burnham was the junk bond market in the '80s. In Enron's absence, many of the aggressive deals may have to be unwound. Meanwhile, auditors, in a frantic bid to cover their behinds, would start telling trading companies to be a lot more conservative in how much profit they book on forward deals. Suddenly, fat margin deals evaporate and earnings estimates get slashed.
Checkmate -- for both sides.

IN THE MONEY: Another Sign Investors Don't Trust Enron

11/27/2001
Dow Jones News Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)
  (This column was first published Monday)

   By Michael Rapoport
   A Dow Jones Newswires Column

NEW YORK -(Dow Jones)- If you needed any further proof that investors no longer trust Enron Corp. (ENE), here's another piece of evidence - one that goes to the heart of the recent plunge in the company's stock.
Enron doesn't simply trade for less than its book value; it fell below that milestone weeks ago. No, now it trades for less than ONE-THIRD of its book value.
That's a rare level for a company of Enron's size and prominence. And it may mean, among other things, that investors have decided that they simply can't place any further faith in the veracity of Enron's earnings and balance-sheet figures, much-revised as they've been - something that has unnerving implications for any attempt to value the company fairly.
First, let's be clear about what this means. Enron stock is currently about $4 a share; the company's reported book value is about $12.90 a share. In other words, Enron stock sells for less than one-third of what shareholders would get if the company were to liquidate - were to turn all its assets into cash, pay off all its liabilities on its balance sheet and give what's left over to shareholders.
This is an uncommonly dismal level for any company, even a troubled one. For comparison's sake, Dynegy Inc. (DYN), which has agreed to buy Enron, trades at about three times book value, as does El Paso Corp. (EPG), a competitor of both companies. In fact, Enron has the second-lowest price-to-book ratio of any company in the Standard & Poor's 500-stock index - only Conseco Inc. (CNC), another troubled company, is lower, by an eyelash.
Part of the problem is undoubtedly the continuing fear among investors that Dynegy's agreement to buy Enron will fall apart, and the belief that Enron will have to file for bankruptcy if it does, in which case Enron shareholders would be hard-pressed to realize any value. The Dynegy deal now amounts to about $10.60 per Enron share, itself well under Enron's book value; the huge premium that level offers over Enron's current stock price is an indication of the big risk investors see that the deal won't be consummated in its current form.
But given Enron's current woes, it's certainly also possible that Enron is trading at such a big discount to book value because investors don't feel they can trust the earnings and balance-sheet numbers coming out of Enron. Those numbers, after all, are the raw material that form the basis for valuing Enron, or any other company, by computing figures like price-to-book and price-to-earnings ratios.
And the Enron debacle has been all about the quality of those numbers, with Enron shifting assets off its balance sheet to outside limited partnerships from which some of its executives benefitted. In terms of those numbers, the ground has shifted underneath investors three separate times now - when the company slashed its reported shareholder equity by $1.2 billion to unwind its transactions with one of those partnerships, when it restated nearly five years' worth of earnings downward by a total of $586 million, and when it revealed that it could take further charges and was facing an imminent deadline to post collateral on a $690 million note. (That deadline has now been extended until Dec. 14.)
When you've gotten punched in the face three times, it's not unreasonable to fear there'll be a fourth blow, no matter how much the puncher assures you there won't be. Given Enron's insanely complicated structure, and the way bad financial news has dribbled out of the company over the past several weeks, who can guarantee there aren't more such shocks yet to come?
That's what investors appear to be fearing, and that may be part of the reason Enron stock has fallen so precipitously. Thanks to Enron's repeated demonstrations that its numbers can't be relied on, investors no longer have a firm, trustworthy basis on which to value the stock. And so, not surprisingly, the value is getting ratcheted down to the most conservative, bare-minimum level.
An Enron spokesman couldn't be reached for comment.
It's ironic, in a way. For a long time, it was hard to properly value Enron because its structure and finances were so complex and hard to decipher. Now it's hard to properly value Enron because the company's attempts to clarify its finances have made it clear that it's hard to expect investors to trust in their accuracy.
-By Michael Rapoport, Dow Jones Newswires; 201-938-5976; michael.rapoport@dowjones.com