Enron and Dynegy Discuss Plan to Cut Price of Acquisition
The Wall Street Journal, 11/27/01
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'
The Wall Street Journal, 11/27/01
'Stimulus' for Enron
The New York Times, 11/27/01
Enron Talking With Dynegy As They Work To Rescue Deal
The New York Times, 11/27/01
Top Companies Issuing Debt At a Fast Pace
The New York Times, 11/27/01
Battered Enron in Search of $1 Billion; Stock's Decline Raises Doubts About Buyout
The Washington Post, 11/27/01
Enron, Dynegy deal back on table
Houston Chronicle, 11/27/01
Sizable staff of 245 lawyers in merger limbo
Houston Chronicle, 11/27/01
Bin Laden threat against pipelines taken seriously
Houston Chronicle, 11/27/01
Current recession differs from others
Houston Chronicle, 11/27/01
Enron Gains on Optimism Dynegy Purchase to Proceed (Update1)
Bloomberg, 11/27/01

Deutsche Banc Alex. Brown's Tice Comments on Enron Corp. Debt
Bloomberg, 11/27/01

Investors bet Enron deal will go bust ; Dynegy could kill deal or drop price
Chicago Tribune, 11/27/01
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.
Los Angeles Times, 11/27/01
GLOBAL INVESTING - A creative approach to property liabilities.
Financial Times, 11/27/01
USA: Enron may cut price of Dynegy deal by 40 percent-WSJ.
Reuters English News Service, 11/27/01
Enron, Dynegy Discuss Plan to Cut Price of Acquisition
Dow Jones Business News, 11/27/01
Report: Enron, Dynegy deal back on table
Associated Press Newswires, 11/27/01
MONEY MAKE-OVER Club Sticks Together Through Thick, Thin
Los Angeles Times, 11/27/01
Enron workers file another suit to recover losses in retirement accounts
AFX News, 11/27/01

Fate of Enron's Forest Products Group Up in the Air, in an Advisory by Industrialinfo.com
Business Wire, 11/27/01

Enron, Dynegy to rework $24B deal
The Daily Deal, 11/27/01
INDIA: Enron India unit, lenders to meet in UK this week.
Reuters English News Service, 11/27/01
Man arrested for issuing e-mail threat to Enron
The Times of India, 11/27/01
COMPANIES & FINANCE THE AMERICAS - Demand for electricity re-energises gas project.
Financial Times, 11/27/01
THE AMERICAS - Bolivia urged to handle its new-found wealth with care.
Financial Times, 11/27/01
USA: UPDATE 1-Enron lawsuit seen as wake-up call for pensions.
Reuters English News Service, 11/26/01
USA: Calif. Attorney Gen'l to examine Dynegy-Enron deal.
Reuters English News Service, 11/26/01
Dynegy May Modify Enron Purchase Terms, People Say (Update2)
Bloomberg, 11/26/01

Enron Faces New Employee Suit Alleging Securities Violations
Bloomberg, 11/26/01

California Agency Must Generate Revenue, Analyst Says (Update3)
Bloomberg, 11/26/01

Enron Plunges, but Dynegy Will Suffer, Too
TheStreet.com, 11/26/01

Enron and Dynegy Discuss Plan to Cut Price of Acquisition
By Rebecca Smith and Robin Sidel
Staff Reporters of The Wall Street Journal

11/27/2001
The Wall Street Journal
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.

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

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
Staff Reporters of The Wall Street Journal

11/27/2001
The Wall Street Journal
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.

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

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
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.''

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.

Financial
Battered Enron in Search of $1 Billion; Stock's Decline Raises Doubts About Buyout
Peter Behr
Washington Post Staff Writer

11/27/2001
The Washington Post
FINAL
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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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

Deutsche Banc Alex. Brown's Tice Comments on Enron Corp. Debt
2001-11-27 07:50 (New York)

     New York, Nov. 27 (Bloomberg) -- Paul Tice, co-head of U.S.
high-grade credit research and who covers the energy sector for
Deutsche Banc Alex. Brown Inc., a unit of Deutsche Bank AG,
comments on the fall in Enron Corp. bond prices.

     ``Whenever you have an information vacuum, bond prices tend
to trade down. The concern is that the Dynegy deal breaks down.
The last information investors got was the 10Q filing, which had a
lot of negative surprises.

     ``The main question is: `What is the cash position right now?
Or, as of the 16th, which was lower than most people were
expecting? Is the falloff in the cash position of the company
stabilizing or not?'

     ``We are still waiting for some follow-up from Enron
management. There is the concern that the deal with Dynegy is
breaking down, and the stock price isn't telling you otherwise.''
Investors are waiting for ``an announcement on the private equity
deal that Enron is looking to raise with its lead banks and for
more information regarding restructuring of its bank debt, which
alluded to in press release'' last week.

     ``Enron needs to push out the maturities on its unsecured
revolvers that it drew down. $2 billion of the $3 billion comes
due in April, that is the main piece of bank restructuring, aside
from the $690 million note'' that is payable.

--Liz Goldenberg in the New York newsroom at (212) 893-3940

Business
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
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(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.

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

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.

GLOBAL INVESTING - A creative approach to property liabilities.
By ALISON BEARD.

11/27/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

GLOBAL INVESTING - A creative approach to property liabilities - Many big companies use 'synthetic' leases to keep real estate costs off their balance sheets, reports Alison Beard.
Synthetic leases were among the many creative financing techniques used by Enron, the troubled energy trading company. But the structure, which allows companies to keep real estate costs off their balance sheets while claiming the tax benefits of ownership, is legal and used by dozens of companies from Toys R Us to Yahoo!.
"A synthetic lease is a debt alternative," said Michael Rotchford, senior managing director at Cushman & Wakefield, the real estate services firm. "Almost invariably for companies with good standing, (it) will provide them with much lower ongoing expenses than traditional leases."
But shareholders should be wary of companies that are simply disguising their property liabilities. "They've got long-term assets and they're financed them with short-term means," says Anne Coolidge, executive director at WP Carey, the real estate banking firm that specialises in sale leasebacks, an alternative to synthetic leases. "Traditionally equity analysts haven't taken that into account, although debt analysts have. Everyone should know about these things."
Companies choose synthetic leases because traditional options - rental agreements or outright ownership - are often unattractive. Ownership means tying up cash in non-core real estate assets, but renting is more expensive in the long term.
Cisco Systems, the networking equipment company, estimated in the mid-1990s that leasing would cost it 5-6 per cent more a year than owning its properties. At the same time, investors eager for double-digit profit growth were unlikely to tolerate a slowly appreciating real estate asset on the company's balance sheet. So Cisco chose synthetic leases.
The deals works as follows. A lender agrees to pay for a new development or an addition to a property. The company's "rent" is the interest on that financing, set at a rate reflecting its credit standing and priced as a spread over the London Interbank Office Rate. These payments are deducted from the company's taxes.
Meanwhile, the company acts as owner and manager of the property, assuming all risk. It sets aside money to purchase the property at the end of the lease, listing the earmarked funds as "restricted cash" or "long-term assets" on its balance sheet. Sometimes the company can extend the lease at the end of the term or sell the property, but that is at the lender's discretion.
Although depreciation of the property's value is not included on the company's balance sheet, it can be listed as a tax deduction. So far, the Financial Accounting Standards Board has issued few guidelines on synthetic leases. But "it is a loophole (that allows) the ownership and the lease benefits to accrue to the same player," said Gary DeClark, managing director of Integra Realty Resources, the property appraisal and consulting firm. "Sooner or later, it will probably be closed up."
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Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

USA: Enron may cut price of Dynegy deal by 40 percent-WSJ.

11/27/2001
Reuters English News Service
(C) Reuters Limited 2001.

NEW YORK, Nov 27 (Reuters) - Hobbled energy giant Enron Corp. , in an effort to save its planned purchase by smaller rival Dynegy Inc. , may cut the price of the all-stock transaction by more than 40 percent to about $5 billion, the Wall Street Journal reported on Tuesday.
Enron also was negotiating to extend the maturity dates of some of its borrowings in order to stem a growing liquidity crisis according to people familiar with the matter, the paper said.
The move to renegotiate the agreement, and particularly to cut the number of Dynegy shares that Enron holders would receive, two weeks after the pact's signing is virtually unheard of in corporate transactions, the Wall Street Journal said.
Escape clauses built into the deal give Dynegy the option to back out if there is a serious deterioration in Enron's business or assets.
Enron has total debt of about $13 billion, according to the Wall Street Journal, adding that analysts are increasingly worried that the giant energy-trading concern's relatively few hard assets are so burdened by debt that they cannot be used to bolster further borrowing.
Dynegy, which is 26.5 percent owned by energy giant ChevronTexaco Corp. , is to swap 0.2685 share of its own stock for each share of Enron. Shares of Dynegy closed at $29.25 on New York Stock Exchange trade.
Once high-flying 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 to its credit ratings.
Enron subsequently restated its earnings some $600 million lower, and investor unease exploded and sent its shares tumbling. Shares were above $90 in August 2000.
Enron stock closed down 73 cents, or 15.4 percent, at $4.01 on the New York Stock Exchange on Monday. ((-New York Equities Desk (646) 223-6000)).

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

Enron, Dynegy Discuss Plan to Cut Price of Acquisition

11/27/2001
Dow Jones Business News
(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, people familiar with the matter told The Wall Street Journal.
Beleaguered Enron (ENE) 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. Monday 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 (DYN) 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 Monday that would calm its anxious investors, but the situation remained fluid throughout the day. As of Monday 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 Monday 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.
Copyright (c) 2001 Dow Jones & Company, Inc.
All Rights Reserved.

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

Report: Enron, Dynegy deal back on table

11/27/2001
Associated Press Newswires
Copyright 2001. The Associated Press. All Rights Reserved.

HOUSTON (AP) - Executives of Dynegy Inc. plan to announce new terms for their $9 billion buyout offer for Enron Corp. as shares in Enron continue to fall, according to the Houston Chronicle.
Sources familiar with talks between the two companies told the newspaper that the announcement could come as soon as Tuesday.
The sources said officials of the two Houston-based energy traders spent the weekend and Monday discussing a lower exchange rate for rival Dynegy's stock deal to buy Enron, among other issues.
But as of Monday evening, no exchange rate had been agreed to and discussions were continuing, the sources said, cautioning that the situation continued to change.
The sources said Enron and Dynegy 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 was also possible later, the sources said.
Layoffs by Enron were expected to begin sometime this week, according to the report. Enron spokeswoman Karen Denne said any action the company would take concerning job cuts would be communicated first to employees.
Enron shares fell another 15 percent Monday, and briefly traded below their all-time low, as investors continued to doubt that a $9 billion buyout offer from Dynegy would be completed under the current terms.
---
Sizable staff of 245 lawyers in merger limbo
HOUSTON (AP) - The fate of Enron Corp.'s massive legal staff has been a subject of discussion amid talk of possible layoffs at the troubled energy trader.
The company's legal staff size is larger than some law firms.
"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 with about 240 lawyers in Houston.
Enron has about 245 lawyers worldwide, company spokesman Vance Meyer said. 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.
Enron's internal law office has grown along with the huge trading firm, now set to merge with smaller but stronger Dynegy. As Enron's stock plummeted further, Dynegy last week denied rumors it might drop out and leave Enron to face possible bankruptcy.
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 law firm with about 265 lawyers in Houston.
In addition to Enron's in-house legal staff, the company also has hired just about every large firm in Houston over the last few years.
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Business; Financial Desk
MONEY MAKE-OVER Club Sticks Together Through Thick, Thin
GRAHAM WITHERALL
SPECIAL TO THE TIMES

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

Like a lot of investors, the Women Taking Stock investment club got to the Great Bull Market of the 1990s just as the party was coming to an end.
Dazzled by watching others reap double-digit returns in the stock market year after year, the group of Westside friends decided to form an investment club and get in on the fun.
It hasn't exactly been a joy ride.
A victim of bad timing, the club made its first purchase in late 1998 and continued building its portfolio over the next three years as the market peaked and then plunged--taking many of the club's holdings with it.
Five of the club's selections have lost more than half their purchase price, and some of the worst performers have shed two-thirds of their value. With their portfolio awash in red ink, club members have been paralyzed into inaction.
"We are not comfortable selling anything," said Gail Berlant, a founder of the 15-member group. "And we are hesitant to buy, although we think it might be a good time."
What makes the downdraft more difficult to stomach is that the club thought it was employing a safe strategy. It chose mostly well-known companies it expected to be steady performers, avoiding riskier choices. And unlike many investment clubs, Women Taking Stock diversified its holdings and resisted the temptation to buy Internet stocks, a once-hot sector that burned many investors when it crashed.
The group's portfolio includes several well-known names in pharmaceuticals, entertainment, energy and financial services. Although their few technology choices, including Cisco Systems and Applied Materials, have contributed to their fall, they've also lost big on non-tech stocks such as retailer Gap.
Despite the declines, the club members are determined not to give up. They intend to stick together--defying the trend among many investment clubs to disband in the face of the grinding bear market. And although they are still solidly on the losing side of the ledger, there are some factors that bode well for the group's future.
For one thing, the stakes are relatively modest: Members contribute $125 to join and chip in $50 a month. No one is counting on the club to pay for a child's college costs or to fund a retirement. The club's entire portfolio is currently worth less than $25,000.
In addition, members see the group as a way to learn about investing, not as a road to instant riches. "We look at this as a learning process," Berlant said.
Perhaps most important, club members learn from their mistakes. For instance, they realize that their stock selection has lacked focus, particularly in the early days.
"Each meeting, people would present stocks they had read about in newspapers and in Better Investing," a publication of the National Assn. of Investors Corp., an umbrella group for clubs, said Sandy Roberts, the club's president.
Using that approach, many of the club's early investments were in companies that members were familiar with, high-profile names such as Disney, Coca-Cola and Gap. "We thought Gap's TV commercials were fantastic," member Susan Osti said.
The results were disappointing, even given the stock market's overall decline. Gap, for example, has lost 61% since the club bought it. The Standard & Poor's index of retail stocks is down about 3% during that same period.
After several of their other early choices tanked--the club's WorldCom shares, purchased in October 1999, are down 80%--the club members decided to adopt a more systematic approach to stock-picking.
"A year ago, a stock broker friend of ours told us that we should focus on certain industries and assign people to research stocks within those industries," member Penny Berro said. "So we divided up some industries [among the members] and started by looking at pharmaceuticals and energy."
In the pharmaceutical field, the group settled on Pfizer, which has risen 15% since the club purchased it in March, and Johnson & Johnson, which also sells consumer products and is up 32% since March.
In energy, the club narrowed its choice to Enron and Dynegy. At the time, Enron was getting bad publicity for its role in California's electricity woes, leaving the women feeling uncomfortable with buying stock in the Houston-based company.
"There were no red flags with Dynegy," Vicki Whitney said. "It was diversified and seemed like it could withstand problems better than Enron."
The choice has proved to a wise one, relatively speaking. Enron, enmeshed in an accounting scandal, is down 91% since July. Dynegy has been hurt by a sharp downturn in energy stocks that accompanied the recent fall in oil prices, but is down a comparatively mild 19% since the club bought it. Ironically, part of Dynegy's current slide is due to its proposed acquisition of Enron.
Club members asked Times Business editors to review their portfolio. In a recent meeting with the group, Senior Markets Editor Tom Petruno encouraged club members not to be too hard on themselves, noting that they avoided the mistake made by many investment clubs: concentrating too much--or all--of their money in volatile tech stocks.
"You have some failures, but you've also done some things right," Petruno said. "You arrived late in the market, but you've got good asset allocation."
But he warned that selecting stocks such as Gap and Disney merely because they are large or well-known is not necessarily a sound strategy. "It used to be that you couldn't go wrong with Gap," Petruno said. "Now you can go very wrong. Just because a company is big and has a huge brand name doesn't guarantee anything."
He suggested that the members stick to their commitment to dig into a company's financial condition and competitive position before investing.
"Read annual reports and quarterly reports and really look at a company's fundamentals," Petruno said. "Ask yourself what's going on with the company. Are you comfortable with management? What's the company's focus? If it's having problems, how does it plan to get back on track?"
Club members should be wary of companies with a lot of debt on their books, he said, particularly if club members expect the current economic downturn to be prolonged. "What's reasonable debt in a good economy may not be reasonable in a bad economy," he said. "Creditors tend to get nervous in a bad economy. Debt can sink a company."
The club should compare debt-to-equity ratios for companies in the same industry to determine if a company's debt load is unusually heavy, Petruno said.
Martin Zimmerman, Times assistant business editor for markets, also warned the club to resist buying stocks that appear to be cheap just because they've fallen a long way from their highs. "Even if you find a viable company that may be priced at $20 [a share] after once being priced at $150, that doesn't make it a bargain," he said. "It may only ever be worth $25, or worse, it may only be worth $10."
The club deserves credit for going against conventional wisdom by buying stocks in industries that may be momentarily out of favor, Petruno said.
Referring to the club's decision in August to buy more shares of Cisco Systems, Petruno said: "I'm glad you're not succumbing to the temptation not to look at anything in tech. A lot of people who lost money in that area won't go near it. But there will be survivors. And fortunes can be made by picking stocks when no one else likes them."
Refining its buying discipline is only one of the club's challenges. Investors also need to know when to sell. Women Taking Stock has sold only one stock in its history, and it sold that one, Compaq Computer, only after the company's shares lost a third of their value and a friend in the securities industry urged them to unload the stock.
Meanwhile, stocks that have shed more than half their value, such as Gap, WorldCom and Applied Materials, remain in their portfolio.
"Our goal was to buy stocks that would double in five years," Berlant said. "That's why we haven't sold anything."
One way to take make the decision easier is for club members to set a limit on how much they're willing to lose on a stock, Petruno suggested. If a stock drops 25%, for example, the club could unload it or at least agree to take a critical look to determine whether it's worth sticking with.
"It's easy to say that a stock is going to come back, but they don't always come back," he said. "Many times, a 25% loss can turn into a 40% or 50% loss. You need a point where you will take a hard look and decide whether you need to cut your losses."
One thing club members agree on: Although their initiation into investing has come during the worst bear market in three decades, they're determined to stay the course.
"We realize that we got into the market late," Roberts said. "But we've learned a lot and we're not discouraged. We're definitely going to hang in there."
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Hanging in There: The Club's Portfolio
The members of Women Taking Stock, a Westside investment club, have seen their portfolio take some big hits over the last three years. But some of their most recent picks have fared better.
Ticker Date No. of Purchase Mon.Pctg.
Company symbol purchased shares price price change
Walt Disney DIS 9/21/98 50 $25.29 $21.39 -15.4%
Wells Fargo WFC 1/26/99 50 35.91 43.37 +20.8
Coca-Cola KO 3/17/99 25 68.94 48.31 -30.0
Computer Motion RBOT 8/17/99 100 10.02 4.03 -59.8
Coca-Cola KO 9/22/99 25 52.63 48.31 -8.2
WorldCom WCOM 10/19/99 50 74.25 14.47 -80.5
Gap GPS 11/16/99 50 38.25 14.95 -60.9
Amgen AMGN 1/11/00 40 71.92 67.39 -6.3
Applied
Materials AMAT 3/21/00 20 96.58 40.06 -58.5
CVS CVS 3/21/00 20 37.63 26.90 -28.5
Cisco Systems CSCO 6/20/00 25 68.99 19.93 -71.1
Consolidated
Water CWCO 6/20/00 75 7.43 10.51 +41.5
General Electric GE 8/22/00 25 56.63 41.32 -27.0
Johnson &
Johnson JNJ 3/20/01 50 45.82 60.50 +32.0
Pfizer PFE 3/20/01 25 38.15 43.90 +15.1
S&P 500 Trust SPY 3/20/01 20 118.21 115.93 -1.9
Dynegy DYN 7/17/01 50 48.54 39.25 -19.1
General Electric GE 8/21/01 20 41.52 41.32 -0.5
Cisco Systems CSCO 8/21/01 25 16.93 19.93 +17.7

*
Note: Johnson & Johnson purchase price is adjusted for a stock split.
Sources: Women Taking Stock investment club, Times research

PHOTO: From left, investment club members Vicki Whitney, Cindy Chang-Salkin and Susan Osti talk stocks with L.A. Times Business editors.; ; PHOTOGRAPHER: LAWRENCE K. HO / Los Angeles Times; PHOTO: Women Taking Stock investment club members meet with Business section editors at The Times' offices for a portfolio make-over, where they pick up some strategies for managing their stock holdings.; ; PHOTOGRAPHER: LAWRENCE K. HO / Los Angeles Times
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Enron workers file another suit to recover losses in retirement accounts

11/27/2001
AFX News
(c) 2001 by AFP-Extel News Ltd

LONDON (AFX) - Enron Corp employees have filed another lawsuit against the company over lost retirement savings due to the recent collapse of its share price, the Wall Street Journal Europe reported.
Eli Gottesdiener, a Washington attorney who filed the latest suit on behalf of employees, said it seeks 850 mln usd in retirement plan losses, in part because the company sold Enron shares to its employees knowing the price was artifically inflated, the newspaper said.
An Enron spokeswoman declined to comment, it added.
Unlike two similar lawsuits recently filed against Enron, this most recent suit contends that Enron offered the share price without the required prospectus, the paper said.
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Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Fate of Enron's Forest Products Group Up in the Air, in an Advisory by Industrialinfo.com

11/27/2001
Business Wire
(Copyright (c) 2001, Business Wire)

HOUSTON--(BUSINESS WIRE)--Nov. 27, 2001--The following is an advisory by Industrialinfo.com (Industrial Information Resources Inc; Houston) Energy giant Enron Corporation (NYSE:ENE) (Houston), also the seventh largest newsprint producer in North America, recently agreed to be taken over by energy rival Dynegy Incorporated (NYSE:DYN) (Houston). Dynegy has given the forest products group, which falls under Enron's Wholesale Services business segment, an "under review" status in determining which businesses are core or non-core. Whether Dynegy sheds or retains its papermaking assets may not be known before the summer of 2002, when the transaction is expected to close. The forest products group consists of a mill on the east coast and two in eastern Canada, which will require an infusion of capital for improvements.
Last year, Enron Industrial Markets purchased Garden State Paper from Media General, a communications company, for roughly $72 million. Located in Garfield, N.J., the mill employs 290 people and has a capacity of 240,000 short tons a year of newsprint.
Earlier this year, Enron acquired Daishowa Forest Products Limited to gain ownership of its newsprint mill and related assets in Quebec City, Quebec. The former Daishowa Forest mill, now called Papiers Stadacona is integrated with a Thermo-Mechanical Pulp (TMP) mill that feeds four paper machines and employs over 1,000 employees. The mill has studied the addition of a new de-inking plant, a bio-mass boiler, and modernizations to the four paper machines.
NLK Consultants and Enron share ownership in the Papier Masson mill in Masson-Angers, Quebec. The single machine mill employs over 300 workers and produces approximately 600 metric tons a day of recycled content newsprint.
Upon completion of the merger, the new Dynegy is expected to have revenues exceeding $200 billion and $90 billion in assets.
Dynegy is one of the world's premier energy merchants. Through its global energy delivery network and marketing, trading and risk management capabilities, Dynegy provides innovative solutions to customers in North America and the United Kingdom and Continental Europe.
Industrialinfo.com provides daily news related to the industrial market place including industry alerts and databases for the energy and industrial markets. For more information on trends and upcoming construction activities in the pulp, paper and wood industry as well as other industrial sectors send inquiries to pulpandpapergroup@industrialinfo.com or visit us at www.industrialinfo.com.

CONTACT: Industrialinfo.com, Houston Randy Godet, 713/783-5147
05:00 EST NOVEMBER 27, 2001
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

M and A
Enron, Dynegy to rework $24B deal
by Claire Poole in Houston

11/27/2001
The Daily Deal
Copyright (c) 2001 The Deal LLC

Houston energy company Dynegy has reportedly reopened talks with its ailing crosstown rival since the collapse of Enron's stock price, which has been sliced in half since the acquisition was announced.
Houston energy company Dynegy Inc. has returned to the bargaining table and is talking with ailing crosstown rival Enron Corp. and related parties about modifying their $24 billion merger agreement, according to sources close to the deal.
The two power traders are in a "friendly renegotiation," sources say. "All the parties are talking as it relates to terms and conditions," one person said.
The main reason for rekindling the talks is the collapse of Enron's stock price, which has been sliced in half since the acquisition was announced Nov. 9 for $24 billion in cash, stock and debt assumption.
The deal valued Enron's shares at $10.41, a 20% premium over its $8.63 close before the announcement. But Enron's shares have fallen steadily since, closing Monday at $4.01, down nearly 15% on the day.
Dynegy's stock has also lost about 11% of its value since the deal was announced, closing down 2.85% Nov. 26 to $39.25.
John Olson, a longtime Enron follower at Sanders Morris Harris in Houston, thinks Dynegy might be pushing for $5.25 per share. "That's closer to the reality of the current market," he said.
If Dynegy can't work out a better deal, another course might be to allow Enron to slip into bankruptcy, according to sources.
With Enron's stock price slipping and only $1 billion in cash remaining, Olson thinks it's the wiser of the two options. "Would Enron be better off to go bankrupt or get nickeled and dimed to death by Wall Street that is not in love with this deal?" he asks. "Chapter 11 looks more sensible to me."
Olson said if Enron can get $3 billion in debtor financing, bankruptcy would be preferable to anything else. "The lower stock price, the higher probability [of Chapter 11]," he said. "Investors, creditors and bankers all want some closure on this."
Olson speculates that only the sick part of Enron -- the parent and the trading operations, which are worth about $12.5 billion -- would file for bankruptcy, while the healthy part -- the pipeline and energy outsourcing assets, which are worth around $5 billion -- would be left out.
"You'd end up with a 'good bank, bad bank' profile," he said, referring to the strategy many financial firms followed when they went bust in the 1980s.
Dynegy would be an obvious buyer of the pipeline and energy outsourcing assets. It already has an option to buy Enron's Northern Natural Gas Co. pipeline system if the deal doesn't go through, in exchange for its $1.5 billion investment in Enron at the deal's signing, provided by investor ChevronTexaco Corp., of San Francisco.
If Dynegy walks away from the deal, it would have to pay a $350 million breakup fee plus $10 million in expenses.
Enron spokesman Vance Meyer wouldn't comment on whether it was renegotiating the deal with Dynegy. He also wouldn't speculate on whether the firm was considering bankruptcy as an option if a new deal with Dynegy couldn't be worked out.
A Dynegy spokesman said the status of the proposed merger has not changed. "Our due diligence is ongoing," he said.
Right now, credit rating agencies are hesitating before they downgrade Enron's ratings to junk status, which could further pressure Enron's day-to-day business operations and lead it faster to insolvency.
"It's a fluid situation," said Ralph Pellecchia, senior director at New York rating agency Fitch Inc., which has Enron's bond ratings at one level above junk. "There's a lot of conjecture about Enron's dealings with Dynegy and the banks. We'll just have to wait until there's another event or announcement before we act."
According to Fitch, Enron is sitting on about $1.8 billion in cash, $1.4 billion as it reported in its quarterly report to the U.S. Securities and Exchange Commission Nov. 19 and $450 million it took down last week from a $1 billion credit line extended by its investment bankers on the Dynegy deal, J.P. Morgan and Salomon Smith Barney Inc.
Late last week, Enron also managed to extend the deadline on $690 million in partnership-related debt that was due Monday until mid-December, although Fitch would like to see it extended further. "Mid-December doesn't help Enron much," Pellecchia said.
The payment obligation arose because a clause in a financial agreement was triggered when rating agency Standard & Poor's reduced Enron's senior unsecured debt rating to triple-B-minus Nov. 12.
If its credit rating is further reduced, Enron admitted it risks triggering $3.9 billion in additional debt payments, which would result in the company failing to be a "going concern," according to quarterly filing. Paying off these debts would mean the company could not service its revolving credit accounts.
Fixed-income research service CreditSights said 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."
Carol Levenson, an analyst for GimmeCredit, another fixed-income research service, thinks it will leave the unsecured bondholders holding the bag.
"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,'' she wrote in a research report issued Monday. "If Dynegy backs out (in the interest of self-preservation), these vital bank renegotiations might save Enron but leave unsecured bondholders as the patsies.''
Investors and employees, meanwhile, are still suing Enron.
Eli Gottesdiener, an attorney in Washington, D.C., said Monday he had filed a lawsuit on behalf of Enron employees who have lost an estimated $850 million on Enron stock held in their 401(k) retirement accounts. He charges that Enron violated federal securities law by offering and selling Enron shares to employees without issuing a prospectus.
The suit is the third filed against Enron alleging the company breached its fiduciary duty to employees by encouraging them to invest in its stock at artificially inflated prices. All three seek class-action status.
Gottesdiener is also involved in pension class actions against New York Life Insurance Co. and SBC Communications Inc. of San Antonio.
Reworking the details Dynegy has returned to the bargaining table and is talking with ailing crosstown rival Enron and related parties about modifying their $24 billion merger agreement, according to sources close to the deal.
Company Enron
CEO Kenneth L. Lay
Headquarters Houston
Date Action
7/29/01 Bank of America, Citibank, ABN Amro, Overseas Private Investment Corp. of the U.S. and seven other lenders with $440 million in loans asked India's highest court for the right to support Enron in its bid to withdraw from a $2.9 billion power plant investment near Mumbai, India
9/15/01 Enron's CEO Jeff Skilling, who held the post for six months, said he was leaving for personal reasons. The stock drops 6.83% on the day.
10/03/01 BG Group plc buys Enron's production assets on the west coast of India for $388 million in cash
10/08/01 Enron sells Portland General Electric for $2.9 billion to Northwest Natural Gas Co.
10/22/01 Enron's stock falls 10% as the SEC begins an investigation into the company's relationship with two limited partnerships
10/30/01 Enron's stock price continues to take a beating
11/05/01 Enron feverishly looks to sell billions of dollars in assets to generate cash
11/06/01 Enron begins talking with private equity firms as it struggles to raise $2 billion in financing
11/08/01 Dynegy confirms its in talks to acquire Enron
11/09/01 Dynegy to buy Enron for $7.8 billion
11/12/01 Dynegy faces challenge to Enron deal
11/19/01 Enron puts Wessex Water on the block
11/20/01 FERC under pressure to approve the Dynegy-Enron merger
11/21/01 Dynegy says it would try to quicken the pace of the companies' $24 billion merger
11/26/01 Enron, Dynegy are reworking terms of their possible merger
Source: The Deal
www.TheDeal.com

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

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.

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.

COMPANIES & FINANCE THE AMERICAS - Demand for electricity re-energises gas project.
By DAN WESTELL.

11/27/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

COMPANIES & FINANCE THE AMERICAS - Demand for electricity re-energises gas project - After more than 20 years, gas pipeline companies are revisiting US/Canadian plans. writes Dan Westell.
The vision of a booming demand for electricity has brought a large part of the North American natural gas pipeline industry together to revive a 20-year-old mega-project.
It was the late 1970s when the US and Canadian governments first approved a consortium to bring gas from the North Slope in Alaska to markets in the lower 48 states.
That project foundered as gas prices sagged, but last week, the original pipeline partners - six US and three Canadian companies - agreed to make a new approach to the Alaskan gas producers by the end of the year.
A second gas project, a proposal by Canadian producers who own undeveloped fields in Canada's Arctic, is also hoping to launch a pipeline project this year.
After coming to terms with indigenous peoples in the north, the Canadian group hopes next month to begin preparing regulatory filings for a pipeline from the Mackenzie River Delta down the Mackenzie valley to the south.
After years of quiet in the northern energy front, there is a very real prospect that gas from one project, or perhaps even both projects, could be flowing by 2008.
Certainly, politics has something to do with the change, especially the reactions to California's electricity problems and worries about security of supply, heightened by terrorism and problems in the Middle East.
For the companies, however, long-term pipeline projects are driven by forecasts showing a nearly 50 per cent increase in US gas consumption by 2010.
The extra gas will largely be used to generate electricity, said Rocco Ciancio, spokesman for Foothills Pipe Lines, one of the three Canadian companies in the pipeline group that is preparing its pitch to the Alaskan producers.
The pipelines' revived interest in moving Alaskan gas was propelled by gas spot prices, which hit USDollars 10.53 per mmBTU on January 2.
Other groups were already in motion, including the Canadian producers (led by Imperial Oil), which have large undeveloped gas fields in the Mackenzie River Delta.
The North Slope producers - ExxonMobil, BP and Phillips - began their own study early this year to assess two routes: 1,800 miles running east under the Beaufort Sea from Prudhoe Bay to the Mackenzie Delta, then south, or 2,100 miles following existing roads through the Alaskan interior to Alberta.
The higher prices are now a memory as gas has slid back to USDollars 2.50 per mmBTU, but the wheels on all three proposals continue to turn.
The pipeline group - Canada's TransCanada Pipelines and Westcoast Energy (which together own Foothills) and affiliates of US companies Williams, Duke Energy, Sempra Energy International, Enron, PG&E and El Paso - is planning a USDollars 9.7bn project to carry 4bn cu ft a day. It needs a price of USDollars 3 per mmBTU to be viable.
The North Slope companies produce about 8bn cu ft of gas a day (a byproduct with oil) in Prudhoe Bay, but reinject it into the ground. There is no way of getting it or the known reserves of 35,000bn cu ft, let alone the potential reserves of 100,000 cu ft, to market.
The preliminary results of their study, however, show a price of USDollars 3 per mmBTU and falls short of the 15 per cent return on equity target set in the study, said spokesman Curtis Thayer.
They want to ship more gas than the pipelines are proposing, requiring a bigger pipe, and believe the project will require not just the new northern pipeline, but expansion of the existing 1,800-mile system between Alberta and Chicago to handle the increased volume.
All in, they have priced the Alaska route at USDollars 17.2bn, and the Beaufort-Mackenzie route at USDollars 15.1bn.
New technology or changes in project parameters could cut the cost, bridging some of the gap between the Foothills group and the producers. But the producers are also pushing governments to lower regulatory costs and bring more certainty to tax issues.
(c) Copyright Financial Times Ltd. All rights reserved.
http://www.ft.com.

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

THE AMERICAS - Bolivia urged to handle its new-found wealth with care.
By PAUL KELLER.

11/27/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

THE AMERICAS - Bolivia urged to handle its new-found wealth with care - GAS RESERVES - The country needs to diversify its customer base if energy discoveries are to prove a long-term cure for economic ills - and an alternative to the cocaine trade. Paul Keller reports.
The discovery of large natural gas reserves in Bolivia has led some to believe that the landlocked South American country has found a long-term cure for its economic ills - and an alternative to the cocaine trade.
True, reserves are plentiful, analysts say, but an excess of supply and the risk that this fragile Andean economy comes to rely too heavily on hydrocarbon revenues suggest Bolivia must handle gas with care.
"We have told the government, gas is not the saviour of Bolivia," says Steven Hopper, the general manager of Transredes, the Enron-Shell gas transport utility. "This is a critical time for Bolivia as it has to find markets for its gas. The industry is generally optimistic. The worst scenario is that gas demand in Brazil doesn't grow."
The strategy of President Jorge Quiroga, a 41-year-old technocrat who took over from ailing ex-President Hugo Banzer in August, is to help Bolivia go from being a world coca leaf grower to gas producer and regional energy hub. It is a strategy, analysts say, already paying dividends.
"Bolivia is only now beginning to realise some of the return on its gas flowing to Brazil," says one western observer. "Gas is seen as leading element in mid-to long-term recovery."
To speed up the anticipated benefits, Bolivia is considering selling securities backed by tax receipts from future gas sales. The government plans to securitise one-third of the income from gas sales to Brazil over the next 19 years.
The $8.3bn mining and agriculture-dominated economy, one of Latin America's smallest, has been in a three-year downturn as internal demand evaporates and the value of exports plummets. US-sponsored eradication of coca and cocaine production also removed a significant chunk of revenue.
Thus the riches and influence promised by gas symbolise hope in a country better known in recent decades for social turmoil, military coups, Nazi asylum-seekers and the once-omnipresent drugs trade.
Oil and gas were the only industrial sectors to show growth this year. In the first seven months gas production rose by 47.9 per cent year on year. Output of oil - extracted during gas production - grew 16.1 per cent.
Gearing up for greater Brazilian demand, capacity is being increased on Bolivia's existing gas pipeline. A Petrobras, Repsol-YPF and TotalFinaElf consortium hopes to start building a rival pipeline.
But for the multinationals that have invested in Bolivia's gas market, the worry is that southern cone demand will not keep pace with supply.
Although not as big as Bolivia's reserves, Argentina and Peru also have gas to develop and export. While Brazil has vast energy needs, Bolivia needs to diversify its gas customer base, analysts say.
With proven and probable Bolivian reserves of 46,800bn cu ft and another 23,200bn cu ft of possible reserves, only Venezuela, with 143,000bn cu ft of reserves, has more gas in South America.
The amount of gas found has grown eightfold since Bolivia opened up its gas market in 1997. However current demand for gas in the southern cone is estimated at around only 10,500bn cu ft.
In the quest for new markets, the government has backed a plan to ship natural gas to the energy-hungry US West Coast. But even with strong commercial backing, the $6bn project - led by Pacific LNG, a consortium made up of Spain's Repsol-YPF, British Gas and British Petroleum - must still negotiate a number of political and technical hurdles to succeed, analysts say.
The project in its present form requires a $1bn, 700km pipeline across the Andes linking the Chilean coast with Bolivia's largest gas field, Margarita, owned by the consortium.
Liquefied gas could then be shipped to Mexico and piped into the US. It all needs careful negotiation both with the governments involved and US gas distributors. But La Paz is optimistic that the project will be shipping gas to the US within five years.
Mr Quiroga, who steps down next year, has spearheaded efforts to open up the US gas market. He recently predicted gas would "open doors" for Bolivia.
He also hopes to persuade Chile to grant it access to the Pacific in return for choosing a Chilean port as the site for a $2bn liquefaction plant needed in the Pacific LNG project. Peru is vying to receive Bolivian gas, but analysts expect Chile to win out.
However, analysts continue to warn Mr Quiroga not to overplay the "gas card", bearing in mind both that the industry will not create masses of new jobs as well as the country's over-reliance in the past on expendable resources such as silver and tin.
Luis Felipe Rivero, the general manager of the financial group Bisa, says: "There are great expectations that gas will become one of the principal generators of revenue and a creator of investment in Bolivia.
"But because of these expectations, there is a risk of letting slip the country's basic problems which are a lack of education, a lack of health services, lack of job opportunities and corruption."
(c) Copyright Financial Times Ltd. All rights reserved.
http://www.ft.com.

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

USA: UPDATE 1-Enron lawsuit seen as wake-up call for pensions.
By Andrew Kelly

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 one of four 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.
Two similar suits were announced last week and the Seattle law firm of Dalton Gotto Samson & Kilgard also announced one on Monday. All four 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: 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

California Agency Must Generate Revenue, Analyst Says (Update3)
2001-11-26 19:49 (New York)

California Agency Must Generate Revenue, Analyst Says (Update3)

     (Adds long-term contract proposal in 11th to 14th
paragraphs.)

     Sacramento, California, Nov. 26 (Bloomberg) -- California's
new power authority may have a hard time paying off bonds, as it
shifts focus from building power plants to financing conservation
programs, a state analyst said.

     The authority plans to encourage power conservation by paying
for solar power-panels on houses and other energy-efficiency
programs. That won't provide the revenue needed to secure long-
term bonds and entice investors, said Keely Bosler of the state
Legislative Analyst's Office. Power-plant bonds are secured by the
sale of electricity.

     ``Given the current focus of the power authority on demand-
side management projects, it's essentially unclear how the bond
authority will work,'' Bosler said at a Senate hearing to evaluate
the authority. ``We may want to look at other ones that would be
more efficient and effective in terms of providing the
financing.''

     The California Consumer Power and Conservation Financing
Authority was created in August. It has the authority to sell $5
billion in bonds to ensure the state has enough electricity to
meet demand. Millions of Californians saw their power go out this
year when officials ordered rolling blackouts on days when demand
threatened to exceed supply.

     The authority scaled back it focus on building plants that
are run on fossil fuels because the state is now expected to have
a surplus of electricity next year. The authority had planned on
spending $4 billion on building power plants and $1 billion on
conservation efforts. The surplus is the result of new power
plants and state-wide conservation efforts.

                         Boom Time

     ``We think that we are in a boom at the moment,'' said Steve
Larson, executive director of the California Energy Commission.
     The authority wants to build or own a 15 percent reserve of
energy supply to prevent further blackouts. With a surplus
predicted for next year, how the authority builds that reserve is
in question.

     The authority has suspended several letters of intent signed
with power generating companies for fossil fuel plants, said S.
David Freeman, chairman of the authority. Enron Corp. and Reliant
Energy Inc. both have agreements to build and operate gas-fired
plants. It was unclear if those contracts were affected.

     ``The bulk of our work, almost all of our projects, will
occur after we've completed our investment plan,'' Freeman said.
``Right now our main job is to determine the feasible use of
conservation and renewable sources.''

     The authority has a budget of $10 million, loaned by the
state Legislature to manage its operations through the fiscal year
ending June 30, 2002. Following that, the authority is expected to
finance it operations from revenue bond proceeds.

                     Long-Term Contracts

     The authority has acknowledged that it won't be able to sell
any of its $5 billion in bonds as long as state leaders and
regulators are deadlocked over repaying electricity-buying costs.
That same dispute is holding up the sale of $12.5 billion in bonds
needed to pay back the state's general fund spent buying
electricity.

     Freeman suggested that the power authority could take over
management of the $43 billion in long-term power contracts the
state signed in January to buy power for insolvent utilities. Once
the power authority has control of the contracts, it could promise
generators cheap loans from bond proceeds if the companies agree
to renegotiate the contracts.

     California Governor Gray Davis has said the contracts were
needed to bring stability to California's energy market. Since
then, the cost of power has dropped, leaving California with
contracts to buy electricity above spot-market prices.

     ``It's an abstract thought and I don't have any numbers
behind it,'' Freeman said. ``It could be something that could bear
fruit, and it might not.''

--Michael B. Marois in Sacramento (916) 503-1612

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.