Headed For A Fall ; Companies issued special zero-coupon bonds, assuming they'd never have to pay them off. Now shareholders could be on the hook for a $65 billion tab.
Fortune Magazine, 11/26/01
Manager's Journal: What Enron Did Right
The Wall Street Journal, 11/19/01
J.P. Morgan Wins (by Not Losing as Much)
The Wall Street Journal, 11/19/01
German Bank Is in Talks With Enron To Buy a Unit
The New York Times, 11/19/01
Bond Boom Isn't Likely to Lift Economy As Corporations Swap Old Debt for New
The Wall Street Journal, 11/19/01
Preview / WEEK OF NOV. 19-25 Investors Looking for Answers in Enron Filing
Los Angeles Times, 11/19/01
COMPANIES & FINANCE INTERNATIONAL - Dynegy bid faces long wait.
Financial Times, 11/19/01
Russia Fund Surges Amid Global Woes
The Wall Street Journal, 11/19/01
Wessex Water
The Financial News, 11/19/01
India BSES:Dabhol Pwr Proj Due Diligence Done Jan -Report
Emerging Markets Report, 11/19/01
India Dabhol Pwr: No Termination Notice Until Crt Verdict
Dow Jones International News, 11/19/01
Fears raised on Enron deal: $15.6-billion rescue bid
National Post, 11/19/01
Blackout in the power sector
Business Standard, 11/19/01

Features/Toxic Bonds
Headed For A Fall ; Companies issued special zero-coupon bonds, assuming they'd never have to pay them off. Now shareholders could be on the hook for a $65 billion tab.
Janice Revell

11/26/2001
Fortune Magazine
Time Inc.
131
(Copyright 2001)

It was an irresistible proposition: Borrow billions of dollars, pay no interest, reap millions in tax breaks, and then wait for the debt to simply disappear. That was the promise of zero-coupon convertible bonds, and companies from Enron to Merrill Lynch binged on what seemed like free money.
But, of course, there was a catch: For this scenario to play out, a company's stock price had to rise sharply--and quickly. That's because investors bought the bonds in the hope of converting them into equity--if the stock tanked, the bonds would no longer be worth converting. So to make them more attractive to buyers, companies had to build in an escape hatch: If the stock price failed to rise sufficiently, investors could "put" (that is, sell) the bonds back to the company--in many cases, after just one year.
And that's exactly what's about to happen--to the tune of some $65 billion over the next three years. Stock prices have fallen so far that for at least half of these special hybrids, the prospect of conversion is now absurd. It simply won't happen. So bondholders are looking to get their money back the first chance they can. And because of the put feature, that is possible. Suddenly companies like Tyco, Comcast, and dozens more are on the hook for billions of dollars in debt and interest they thought they'd never have to pay.
That could be very bad news for shareholders of these companies. After all, they're the ones who are going to be picking up the tab when all that debt comes due. Huge chunks of cash will disappear from balance sheets to repay bondholders. Companies without enough cash-- and the majority fall into this camp--are likely to face skyrocketing interest charges when they borrow money anew. That means sharply reduced earnings. Especially at risk are investors in companies with poor credit ratings--prime candidates for killer refinancing costs. Some companies may even be forced to issue stock to pay off the debt, creating significant shareholder dilution, especially at current depressed prices. To make matters worse, this is happening at a time when the economy is barreling downhill and corporate profits are already shrinking. "This is a ticking time bomb," warns Margaret Patel, manager of the Pioneer High Yield Bond fund, a top-performing junk fund.
The seeds of this mess were sown in mid-2000, when the stock market started to falter. Companies in search of capital balked at the thought of selling stock while their share prices were struggling. Zero-coupon convertible bonds presented an attractive alternative because companies didn't have to make cash interest payments on the bonds (hence the name "zero"). Instead issuers offered an up-front discount--for instance, investors would buy a bond for $700 and collect $1,000 when it matured.
Companies also gave investors the right to convert the bonds into a fixed number of common shares. But the bonds were structured so that conversion would make sense only if the stock price rose significantly--in many cases, by more than 50%. With that protective feature (called the conversion premium), zeros took off. Corporate issuers would pay no interest, and once their stock prices had climbed back to acceptable levels, the debt would be swept away into equity. "If the bonds are converted, it's a home run for everybody," says Jonathan Cohen, vice president of convertible-bond analysis at Deutsche Bank.
That four-bagger, of course, depends entirely on the stock price rising. If it doesn't, the bondholders, armed with that handy put feature, can simply sell the bonds back to the company. Great for bondholders, but not so hot for the company or its shareholders. But, hey, what are the odds of that happening? "CFOs and CEOs believe that their stock will just continue to go up," says Cohen. "They don't worry about the bond getting put."
If all this seems a little complicated, that's because it is. A real-life example should help. California-based electric utility Calpine issued $1 billion in zeros in April to refinance existing debt. At the time, the company's stock was trading at about $55 a share--severely undervalued in the opinion of company management. "We really didn't want to sell equity at that point," says Bob Kelly, Calpine's senior vice president of finance. So the company instead opted to sell zeros, setting the conversion premium at a hefty 37%.
Still, with no cash interest payments and a stock price that had to rise significantly to make conversion worthwhile, the bonds weren't exactly a screaming buy for investors. So Calpine added the put feature: Investors could sell the bonds back to the company after one year at the full purchase price, eliminating any downside risk.
Things haven't exactly worked out as management had hoped. The stock has since plummeted to $25, and it now has to triple before conversion makes sense. So it's looking as though Calpine will be liable for the $1 billion in borrowed money when investors get the chance to put the bonds this April. There's also the refinancing cost. According to Kelly, Calpine's borrowing rate could run in the neighborhood of 8.5%--an extra $85 million per year in cash. "Obviously, nobody plans for their stock to go down," Kelly says. "I don't think there was one person around who thought the bond would be put."
Calpine's potential costs are particularly high because its credit rating is straddling junk. "If you are a borderline investment-grade company, a financing of this nature is not necessarily the most appropriate thing in the world," notes Anand Iyer, head of global convertible research at Morgan Stanley. The problem is, there are a slew of companies with far worse credit ratings out there: Jeff Seidel, Credit Suisse First Boston's head of convertible-bond research, estimates that about half of all zeros outstanding fall into the junk category. And others are at risk of having their ratings downgraded before the put date. Today, with junk yielding as much as 5 1/2 percentage points above bonds rated investment grade, refinancing can be a pricey proposition.
Contract manufacturer Solectron is one that could well get hit by the high price of junk. It has $845 million in zeros that it will probably have to buy back this January, and another $4.2 billion coming down the pike over the next couple of years. Because of slower- than-expected sales, the company was recently put on negative credit watch by three rating agencies. And if Solectron's credit is downgraded, the zeros would slide into junk status, a situation that could cost the company--and its shareholders--tens of millions of dollars in refinancing charges.
Refinancing isn't the only worrisome cost associated with these zeros. Companies pay hefty investment banking fees to sell their bonds--up to 3% of the amount raised. If the debt is sold back, many will have spent millions for what essentially amounted to a one-year loan. "They're getting bad advice," claims one banker who didn't want to be named. "Look at the fee the banker earned and look at the kind of financing risk the company got into."
As if those potential consequences were not scary enough, shareholders can also get whacked when the bonds are first issued. That's because some 40% are bought by hedge funds, which short the company's stock (sell borrowed shares with the intention of buying them back at a lower price) at the same time that they buy the bonds. If the stock goes down, the shorts make money from their position. If it goes up, they profit by converting the bond to stock. This hedging strategy almost always causes the stock to plummet, at least for a while. Grocery chain Supervalu, for example, recently lost 10% of its market cap the day it announced it was issuing $185 million in zeros.
Despite all the pitfalls, the love affair with such Pollyanna bonds continues, thanks in large part to the slick tax and accounting loopholes they provide. In fact, the hit on earnings per share can be the lowest of any form of financing. Even better, thanks to a wrinkle in the tax code, companies can rake in huge tax savings by deducting far more interest than they're actually paying. All they have to do is agree to pay small amounts of interest if certain conditions prevail. Verizon Communications, for instance, would pay 0.25% annual interest on its $3 billion in zero bonds if its stock price falls below 60% of the issue's conversion price. In the eyes of the IRS, oddly, that clause enables the company to take a yearly interest deduction, for tax purposes, of 7.5%--the same rate it pays on its regular debt. (Why? Trust us, you don't want to know.) That adds up to an annual deduction of more than $200 million, even if Verizon never shells out a dime in interest. Not surprisingly, more than half of the zeros issued in 2001 contain similar clauses. "It's an incredible deal for them," says Vadim Iosilevich, who runs a hedge fund at Alexandra Investment Management. "Not only are they raising cheap money, they're also doing tax arbitrage."
So despite the enormous risks to shareholders, companies continue to issue zeros at a steady clip: According to ConvertBond.com, seven new issues, totaling $3.5 billion, have been sold since Oct. 1 alone. "I think the power of the tax advantage is going to keep them around," says CSFB's Seidel. Call it greed or just blind optimism that the markets will recover quickly--it doesn't really matter. Either way, it's the shareholders who'll be left paying the bill.
FEEDBACK: jrevell@fortunemail.com
The bill comes due
Companies issued convertible zeros, with put features, when the stock market soured. Now repayment looms.
1999 2000 2001 2002 2003 2004
Amount issued, $5.2 $19.6 $37.5 in billions
Amount puttable, $2.4 $2.6 $4.8 $22.0 $19.1 $24.0 in billions
SOURCE: CONVERTBOND.COM
When zero is a negative number
The danger posed by convertible zero bonds depends on a number of factors, according to Morgan Stanley's ConvertBond.com: the size of the bond, the put date, the company's credit rating and cash on hand, and how far the stock must rise for the bond to convert to equity.
[A]Date of put [B]Amount owed (millions) [C]Cash on hand[2](millions) [D]Stock price as of 11/09/01 [E]% below conversion price
Company Bond rating[1] Our risk assessment [A] [B] [C] [D] [E] Tyco 11/17/01 $3,500 $2,600 $54.00 49% Investment grade Not a problem--for now. The conglomerate has cash to pay for bonds put this November. Another $2.3 billion is puttable in 2003.
Solectron 1/27/02 $845 $2,800 $13.25 155% Investment grade In the danger zone. May be downgraded to junk if results don't improve. Has additional $4.2 billion at risk in 2003 and 2004.
Calpine 4/30/02 $1,000 $1,242 $25.50 180% Inv. grade/Junk Possibly a pricey tab. On the border between investment grade and junk, the energy company faces high refinancing charges.
Pride International 1/16/03 $276 $176 $12.50 148% Junk May need to drill for cash. The oil services company already has a heavy debt load in addition to its zeros.
Western Digital 2/18/03 $126 $201 $4.25 547% Junk Hard drive ahead. The tech outfit has already paid down some of its zeros by issuing stock. More dilution possible.
Brightpoint 3/11/03 $138 $67 $3.25 609% Junk Watch out. This mobile-phone distributor plans to repurchase the bonds and is likely to incur high refinancing charges.
Aspect Commun. 8/10/03 $202 $134 $2.00 1,016% Junk The credit rating of this unprofitable call center company is near the lowest grade of junk. High alert!
Enron[3] 2/7/04 $1,331 $1,000 $8.50 1,413% Investment grade Very risky. Among Enron's myriad woes, its debt is on the verge of being downgraded yet again. It's already behaving like junk.
Verizon 5/15/04 $3,270 $3,000 $50.00 70% Investment grade Verizon faces little risk because of its strong credit rating and the long lead time on its put dates.
Merrill Lynch 5/23/04 $2,541 $20,000 $49.00 124% Investment grade Also not yet a problem. This underwriting leader made sure its own zeros could not be put for three years.
[1]Based on ratings from Moody's and Standard & Poor's; Calpine had a split rating at press time. [2]As of most recently reported financial results. [3]Now expected to merge with Dynegy.
Quote: Contract manufacturer Solectron is one zero-bond issuer that could well get hit hard. Stocks have fallen so far that for at least half of all bonds out there, the prospect of conversion is absurd.

B/W ILLUSTRATION: ILLUSTRATION BY DAVID SUTER
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved.

Manager's Journal: What Enron Did Right
By Samuel Bodily and Robert Bruner

11/19/2001
The Wall Street Journal
A20
(Copyright (c) 2001, Dow Jones & Company, Inc.)

This is a rough era for American business icons. Subject to the vagaries of age (Jack Welch), product failure (Ford/Firestone tires), competition (Lucent, AT&T), technology (Hewlett-Packard and Compaq), and dot-bomb bubbles (CMGI), managers and their firms remind us that being an icon is risky business. The latest example is Enron, whose fall from grace has resulted in a proposed fire sale to Dynegy.
Once considered one of the country's most innovative companies, Enron became a pariah due to lack of transparency about its deals and the odor of conflicts of interest. The journalistic accounts of Enron's struggles drip with schadenfreude, hinting that its innovations and achievements were all a mirage.
We hold no brief regarding the legal or ethical issues under investigation. We agree that more transparency about potential conflicts of interest is needed. High profitability does not justify breaking the law or ethical norms. But no matter how the current issues resolve themselves or what fresh revelations emerge, Enron has created an enormous legacy of good ideas that have enduring value.
-- Deregulation and market competition. Enron envisioned gas and electric power industries in the U.S. where prices are set in an open market of bidding by customers, and where suppliers can freely choose to enter or exit. Enron was the leader in pioneering this business.
Market competition in energy is now the dominant model in the U.S., and is spreading to Europe, Latin America, and Asia. The winners have been consumers, who have paid lower prices, and investors, who have seen competition force the power suppliers to become much more efficient. The contrary experience of California, the poster child of those who would re-regulate the power industry, is an example of not enough deregulation.
-- Innovation and the "de-integration" of power contracts. Under the old regulated model of delivering gas and electricity, customers were offered a one-size-fits-all contract. For many customers, this system was inflexible and inefficient, like telling a small gardener that you can only buy manure by the truckload. Enron pioneered contracts that could be tailored to the exact needs of the customer.
To do this, Enron unbundled the classic power contract into its constituent parts, starting with price and volume, location, time, etc., and offered customers choices on each one. Again, consumers won. Enron's investors did too, because Enron earned the surplus typically reaped by inventors. Arguably, Enron is the embodiment of what economist Joseph Schumpeter called the "process of Creative Destruction." But creative destroyers are not necessarily likable, pleasant folks, which may be part of Enron's problem today.
-- Minimization of transaction costs and frictions. Enron extended the logic of de-integration to other industries. An integrated paper company, for instance, owns forests, mills, pulp factories, and paper plants in what amounts to a very big bet that the paper company can run all those disparate activities better than smaller, specialized firms. Enron argued that integrated firms and industries are riddled with inefficiencies stemming from bureaucracy and the captive nature of "customers" and "suppliers." Enron envisioned creating free markets for components within the integrated chain on the bet that the free-market terms would be better than those of the internal operations. The development of free-market benchmarks for the terms by which divisions of integrated firms do business with each other is very healthy for the economy.
-- Exploiting the optionality in networks. In the old regulated environment, natural gas would be supplied to a customer through a single dedicated pipeline. Enron envisioned a network by which gas could be supplied from a number of possible sources, opening the customer to the benefits of competition, and the supplier to the flexibility of alternative sourcing strategies. Enron benefited from controlling switches on the network, so that they could nimbly route the molecules or electrons from the best source at any moment in time to the best use, and choose when and where to convert molecules to electrons. This policy, picked up by others in the industry, created tremendous value for both customers and suppliers.
-- Rigorous risk assessment. The strategy of tailored contracts could easily have broken the firm in the absence of a clear understanding of the trading risks that the firm assumed, and of very strong internal controls. Enron pioneered risk assessment and control systems that we judge to be among the best anywhere. Particularly with the advent of Enron Online, where Enron made new positions valued at over $4 billion each day, it became essential to have up-to-the-second information on company-wide positions, prices and ability to deliver.
The unexpected bad news from Enron has little to do with trading losses by the firm, but with fears among trading partners about Enron's ability to finance its trading activity. In a world where contracts and trading portfolios are too complex to explain in a sound bite, counterparties look to a thick equity base for assurance. It was the erosion in equity, rather than trading risk, that destroyed the firm.
-- A culture of urgency, innovation and high expectations. Enron's corporate culture was the biggest surprise of all. The Hollywood stereotype of a utility company is bureaucratic, hierarchical, formal, slow, and full of excuses. And the stodgy images of a gas pipeline company -- Enron only 15 years ago -- is even duller and slower. Enron became bumptious, impatient, lean, fast, innovative, and demanding. It bred speed and innovation by giving its professionals unusual freedom to start new businesses, create markets, and transfer within the firm.
Success was rewarded with ample compensation and fast promotion, and an open-office design fostered brainstorming. The firm's organization and culture was by all accounts not a safe haven for those who believe the role of a large corporation is to fulfill entitlements for jobs. This was a lightning rod for the firm's detractors. And yet, it could serve as a model for more hide-bound enterprises to emulate.
Enron was a prolific source of compelling new ideas about the transformation of American business. It created a ruckus in once-quiet corners of the business economy. It rewrote the rules of competition in almost every area in which it did business. It thrived on volatility.
The proposed sale of Enron to Dynegy risks the loss of a major R&D establishment, especially given Dynegy's track record as a second mover following Enron's lead. Beyond what is likely to be a difficult and time-consuming antitrust review, Dynegy's greater challenge will be to find a way to make Enron's spirit of innovation its own. Or so we all should hope, because prosperity depends on the ability of firms to reinvent themselves and remake their industries.
---
Messrs. Bodily and Bruner are professors at the University of Virginia's Graduate School of Business Administration.

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

J.P. Morgan Wins (by Not Losing as Much)
By Susanne Craig
Staff Reporter of The Wall Street Journal

11/19/2001
The Wall Street Journal
C1
(Copyright (c) 2001, Dow Jones & Company, Inc.)

You know things are bad on Wall Street when the winner of a stock-selection contest can't come close to breaking even.
J.P. Morgan Chase & Co.'s portfolio was the only one in The Wall Street Journal's quarterly stock-picking survey to slide less than 10% during the three months ended Sept. 30. The value of its stock basket fell 8.6% during the third quarter.
Just six of the 15 financial firms managed to beat the benchmark Standard & Poor's 500-stock index, which dropped 14.7% during the period. Among the star performers that came to J.P. Morgan's rescue: Northrop Grumman Corp., SBC Communications Inc. and Procter & Gamble Co.
"It has turned into a real stock-picker's market," says J.P. Morgan equity strategist Douglas Cliggott. "In the first half, the market bought cyclical stocks, such as credit cards and brokers, in hopes of a recovery. We don't think those stocks will get interesting until sometime in 2003." Instead, the firm's portfolio is weighted toward health care and consumer staples, as well as cyclical stocks such as energy and farm equipment.
The quarter was among the roughest in years for Wall Street investors. The terrorist attacks of Sept. 11 helped contribute to the stock-market losses, which drove down the value of all portfolios in the survey, though the markets have since recovered to their pre-Sept. 11 levels. The last time the group posted results this bad was during the third quarter of 1998, during the Asian financial crisis.
Goldman Sachs Group Inc. and Credit Suisse Group's Credit Suisse First Boston finished at the bottom of the pack, falling 23.2% and 30.1% respectively. The performance of last-place finisher CSFB was dragged down by losses at companies such as Veritas Software Corp. (down 72.3% in the quarter), Praecis Pharmaceuticals Inc. (down 64.8%) and software provider Amdocs Ltd. (down 51%).
For CSFB, "it was not a good stock-picking quarter, that's for sure," says Al Jackson, the firm's global head of equity research. "It was our tech and telecom . . . and the events of Sept. 11 that hurt us."
Credit Suisse First Boston recently changed the approach to its model portfolio, opting against sector weightings, Mr. Jackson says. This strategy has hurt CSFB in recent quarters, because of the steep slump in areas such as technology and telecom. The firm recently added a number of Old Economy stocks to its portfolio, such as Citigroup Inc., Dow Chemical Co. and Gannett Co. Says Mr. Jackson: "We are going back to our roots and asking what our best ideas are."
Like CSFB, Goldman was hit by a drop in the share price of technology companies, such as Check Point Software Technologies Ltd. (down 56.5% in the quarter). Its portfolio was also dragged down by shares of embattled Enron Corp. (down 44.3%). Morgan Stanley and Royal Bank of Canada's RBC Dain Rauscher, which placed 6th and 12th respectively, also have the energy company on their lists.
In addition to Enron, stocks hard it by the terrorist attacks, such as lodging giant Starwood Hotels & Resorts Worldwide Inc., Walt Disney Co. and airlines such as Skywest Inc., also hurt the portfolio performance of many securities firms.
It is unlikely people will buy any company's entire recommended list at one time. The Journal survey is intended to give investors an idea of how their portfolio would look if they let the professionals do all the picking. Calculations in the quarterly survey, done for the Journal by Zacks Investment Research in Chicago, take into account capital gains or losses, dividends and theoretical commissions of 1% on each trade.
Overall, Edward D. Jones & Co., of St. Louis, emerged with the most consistent results across the board, placing second in the quarter and for the year. Its 85% return over five years is the best of the group and ahead of the total return for the S&P 500 of 62.7%. Perhaps more than any other firm, Edwards Jones takes a buy-and-hold approach to investing, making very few changes to its portfolio from quarter to quarter, or even year to year.
"It's the old story of the tortoise and the hare, and we believe slow and steady wins the race," says David Otto, Edward Jones director of research. "We are really, really proud of the five-year number. We believe in getting rich, slowly."
On a quarterly basis, the portfolio of Prudential Securities Inc., a unit of Prudential Financial, came in second only to J.P. Morgan, falling 11.8%. However, investors sitting with the stocks Prudential recommends haven't done as well in the long run. The value of its basket of stocks has fallen 45.9% in the past year, finishing ahead of only Lehman Brothers Holdings Inc., which posted a one-year loss of 54.9%.
Seven firms managed to beat the S&P 500 index during the past 12 months, which fell 26.6% in the period.
Lehman, which finished last in the survey in the second quarter thanks to its heavy weighting in technology, managed to move up in the rankings this quarter. This primarily stemmed from its annual shuffle of the 10 stocks in its portfolio, known as its "Ten Uncommon Values." This time around, the firm's portfolio slipped 18.4% in the quarter, for an 11th place finish. Just one of its 10 stocks, Washington Mutual Inc., managed to eke out a positive return, of 3.1%. Its biggest quarterly loser: Energy company Mirant Corp., which fell 36.3% in the period.
"It's a portfolio that has done decently since the market troughed," says Jeff Applegate, Lehman's chief market strategist. He says he believes the market hit bottom Sept. 21.
--- Brokerage Houses' Stock-Picking Prowess

Estimated performance of stocks on the recommended lists of 15 major
brokerage houses through Sept. 30. Figures include price changes,
dividends, and hypothetical trading commissions of 1%.

---- Best & Worst Picks ---- ----- Returns ------
Biggest Biggest Latest One- Five-
Gain Loss qtr. Year Year

Raymond James
CACI Intl. +49.7% Skywest -51.1% -14.2% -14.7% +56.8%

Edward Jones
Amr Water Wk +20.5 Celestica -47.1 -11.2 -18.7 +85.1

Merrill Lynch
Triad +20.1 Amer. -34.5 -15.4 -19.8 +64.9
Hospitals Express

UBS Warburg
PepsiCo +9.7 BEA Systems -69.2 -12.9 -19.9 N.A.

J. P. Morgan Sec.
Northrop +26.6 Macrovision -58.5 -8.6 -20.0 N.A.

Bear Stearns
MBNA +19.2 Embraer -60.3 -15.9 -22.2 +50.9

Salomon S.B.
Abbott Labs +8.5 Hewlett- -43.6 -16.0 -25.0 +17.9
Packard

Morgan Stanley DW
Johnson & John +11.2 EMC -59.8 -14.2 -29.0 +33.7

Dain Rauscher
El Paso Energy +17.4 i2 -82.6 -19.6 -32.2 N.A.
Technologies

A.G. Edwards
Verizon +4.4 EMC -59.8 -17.4 -33.4 +34.8

U.S. Bancorp Piper Jaf.
Eli Lilly +9.4 EMC -59.8 -22.0 -39.9 +36.7

Goldman Sachs
Wal-Mart +8.3 Check Pt -56.5 -23.2 -40.6 +60.0
Sftwr

Credit Suisse FB
Johnson & John +11.2 Veritas -72.3 -30.1 -44.9 +38.1

Prudential Sec.
Kraft Foods +12.9 BMC -41.6 -11.8 -45.9 +41.3
Software

Lehman Bros.
Wash. Mutual +3.1 Mirant -36.3 -18.4 -54.9 +29.6

S&P 500 Index
-14.7% -26.6% +62.7%

*In latest quarter; holding period may be less than full quarter

N.A. = not available

Source: Zacks Investment Research

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

Business/Financial Desk; Section C
German Bank Is in Talks With Enron To Buy a Unit
By SUZANNE KAPNER

11/19/2001
The New York Times
Page 2, Column 6
c. 2001 New York Times Company

LONDON, Nov. 18 -- A large German bank is in talks to buy Wessex Water from the Enron Corporation, people close to the discussions said today.
Enron is looking to sell Wessex Water, of Britain, as well as other noncore assets in India and Brazil, after a financial crisis nearly brought its main energy trading business to a halt. That crisis led to Enron's decision earlier this month to be acquired by Dynegy Inc., a much smaller rival.
The German Bank, Westdeutsche Landesbank Girozentrale of Dusseldorf, or WestLB, is among several suitors for Wessex Water, people close to the discussions said. The sale has also attracted the attention of industry rivals like Thames Water, owned by RWE of Germany. But such a combination would most likely incur a long review by regulators, who might either block the merger on antitrust grounds, or exact stiff concessions, industry experts said.
Wessex Water is likely to be sold for more than $:1 billion ($1.4 billion) but less than the $:1.4 billion that Enron paid for it in 1998, analysts said.
''In hindsight, we made some very bad investments in noncore businesses,'' Kenneth L. Lay, Enron's chairman and chief executive, told analysts in a conference call last week. Those investments ''have performed far worse than we ever could have imagined,'' he said, citing the Azurix water business, of which Wessex Water is a part, and energy assets in Brazil and India.
Executives from Enron were not immediately available for comment today. WestLB executives declined to comment.
WestLB has been aggressively pursuing acquisitions in Britain, bidding for British Telecommunications' phone network and the nation's railway tracks controlled by the troubled Railtrack, which is restructuring under government supervision. Neither of those bids has progressed beyond the initial stages.
Last summer, WestLB helped finance the management buyout of the Mid Kent Water Company through Swan Capital, its private equity vehicle.

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

Credit Markets
Bond Boom Isn't Likely to Lift Economy As Corporations Swap Old Debt for New
By Jathon Sapsford
Staff Reporter of The Wall Street Journal

11/19/2001
The Wall Street Journal
C1
(Copyright (c) 2001, Dow Jones & Company, Inc.)

When AT&T last week completed the second-biggest bond sale in history -- capping one of the busiest bond periods in years -- it came as welcome news amid fears of a credit crunch. Here was new money, meaning new spending on plants, equipment and jobs that could help pull the economy out of its slump.
That $10.9 billion AT&T deal, and a slew of similar bond deals from big companies ranging from Boeing and Anheuser-Busch to Kraft Foods and General Motors, may not provide as big of a boost as economists are banking on. That is because corporations, like homeowners, are in the midst of a refinancing boom.
Corporations are hitting the market not just because rates are cheap, but because they often can't get money in other crucial markets. In particular, they are sidestepping the commercial paper market -- short-term corporate IOUs used to finance day-to-day operations, where rates traditionally are lowest -- because investors are unwilling to finance many well-known corporations.
The result has been a huge jump in bond sales, the majority of which are used to reduce existing debt. Since the Sept. 11 terrorist attacks, about $135 billion in investment-grade bonds have been sold, up from about $78 billion in the year-earlier period. Overall issuance this year is likely to set a record, clearing $600 billion, compared with $411 billion in 2000.
"The driving force behind this surge in bond issuance is refinancing short-term commercial paper to long-term debt," says John Lonski, chief economist at Moody's Investors Service, a credit-rating agency.
Usually, rising bond issuance presages economic growth. In 1991, corporations sold a record number of bonds to exploit falling interest rates. But then, companies poured much of the money they raised back into their operations, a flurry of investment that foreshadowed the economic boom of the late 1990s.
This time around, the surge in bond deals won't pump in enough new money to the economy to make a dramatic difference. Though, as in the case of the millions of homeowners who are refinancing their mortgages to lower monthly payments, it could help ease some pressure on stretched corporate-balance sheets and help to fund some of the companies' day-to-day operations.
Not all of the money being raised is to refinance short-term debt, of course, and the string of bond deals shows that many of the nation's biggest borrowers have ready access to funding if they need it.
But most companies are similar to AT&T, which last week provided the biggest refinancing example yet.
Over the next three months, the telecom company was facing $6.5 billion in expiring commercial paper. Under normal conditions, corporations pay off maturing commercial paper by "rolling over" that debt, or issuing new commercial paper to replace the old. But rolling over commercial paper became much harder for AT&T after Moody's cut the company's short-term and long-term credit ratings. Through the bond deal, AT&T raised money at relatively attractive rates while avoiding the difficulties of the commercial-paper market.
Other companies facing downgrades also are scrambling to find alternatives to the commercial-paper market through bonds, loans or revolving credit lines. "The ripple effects of this are being felt throughout the capital markets," says Meredith Coffey, senior vice president at Loan Pricing Corp., a debt-market-analysis company.
For the most extreme cases, the bond markets don't offer refuge. Enron, hammered by a third-quarter loss of $618 million that led to a string of downgrades, drew down $3.3 billion from its emergency bank credit line to repay investors in its commercial paper. It then turned to its banks for an additional $1 billion loan to pay off more commercial-paper investors, thus tiding it over until it could merge with rival Dynegy.
Most investment-grade companies aren't nearly so bad off, and thus have ready access to bond investors. General Motors, for instance, had little trouble selling $6 billion in debt last month, while Ford Motor easily sold bonds totalling $9.4 billion.
But the surge in bond sales masks signs that even investment-grade companies are having trouble convincing investors that they are good for their money.
Take Ford. Standard & Poor's and Moody's downgraded Ford's debt ratings last month to triple-B-plus and single-A-3, respectively. With that rating, Ford is far enough down the spectrum of investment-grade debt that many of the ultraconservative investors in commercial paper won't touch it, meaning that it had to turn to corporate bonds to refinance its debt. Ford concedes that a big reason it is selling bonds was to avoid the trouble in the commercial-paper market.
Boyce Greer, the money-market group leader at Fidelity Investments, says he often stops buying the commercial paper of a corporation at the first sign of eroding profitability -- even before they get downgraded. "You can't wait around for a rating agency [to downgrade a company]," he says.
Moody's has downgraded five times as many corporations as it has raised so far this year. Thus, the market for corporate commercial paper has shrunk to $1.4 trillion at the end of October, down from $1.6 trillion at the end of last year.
---
Friday's Credit Markets
Last week was a brutal time to own Treasurys. The market sold off so sharply as to push yields, which move inversely to prices, almost back up to where they stood before the terrorist attacks. It was the worst bond selloff since 1987, according to economists at Banc One Capital Markets.
Losses were heaviest in issues like the two-year note, the most sensitive to expectations about Federal Reserve policy. Since hitting a record low of 2.30% on Nov. 7, the two-year yield has risen 0.80 percentage point to 3.05%. In the same period, the 30-year bond yield has risen 0.50 percentage point to 5.27%.
At 4 p.m. Friday, the benchmark 10-year Treasury note was down 1 3/32 points from late Thursday, or $10.94 per $1,000 face value, at 100 25/32. Its yield jumped to 4.897% from 4.756% Thursday.
The 30-year Treasury bond's price fell 1 19/32 to 100 25/32 to yield 5.317, up from 5.211% Thursday.
Why the selloff? People in the market cite a shift toward the view that the U.S. economy may finally be on the brink of recovery. That means the Fed may not need to employ many more rate cuts to get growth back on track.
-- Michael S. Derby and Steven Vames

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

Business; Financial Desk
Preview / WEEK OF NOV. 19-25 Investors Looking for Answers in Enron Filing
Bloomberg News

11/19/2001
Los Angeles Times
Home Edition
C-2
Copyright 2001 / The Times Mirror Company

Enron Corp. investors hope the energy trader's third-quarter report to the Securities and Exchange Commission will answer some of the questions that sent its shares tumbling and led to a proposed sale to rival Dynegy Inc.
Enron, which has been criticized for failing to clearly explain how it makes money, may disclose in a filing expected today more on how much is owed by the company and affiliated partnerships, as well as any planned job cuts and other cost-saving moves related to Dynegy's $24-billion buyout.
Enron agreed to sell after its stock plunged 67% in three weeks amid an SEC investigation into partnerships run by Enron executives. Investors worry that new disclosures, such as previously unreported debt, might threaten Enron's credit rating and scuttle the merger, possibly pushing Enron into bankruptcy.
Enron Chairman Kenneth Lay acknowledged last week that failed investments and a loss of investor confidence forced the sale to Dynegy, and he and other executives pledged to be more open with investors.
Enron shares fell 48 cents Friday to close at $9 on the New York Stock Exchange. Dynegy fell $1.53 to $42.47.
Enron's third-quarter earnings report, which had been expected last week, was delayed by the Dynegy talks and a restatement of earnings, Chief Financial Officer Jeffrey McMahon said.
Enron reduced net income for four years by a combined $586 million to include losses from affiliated partnerships.
Today's filing, called a 10-Q, will include a balance sheet summarizing assets and debts. Enron for years has omitted balance sheets, which the SEC requires as part of the 10-Q, from its press releases announcing earnings.

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

COMPANIES & FINANCE INTERNATIONAL - Dynegy bid faces long wait.
By NANCY DUNNE and ANDREW HILL.

11/19/2001
Financial Times
(c) 2001 Financial Times Limited . All Rights Reserved

Dynegy's $9.8bn rescue bid for Enron, the larger rival energy group, poses complex and unprecedented regulatory challenges for the Federal Energy Regulatory Commission (Ferc), which is likely to lead the review of the bid.
Officials from the two Houston-based companies, which announced the deal 10 days ago, estimated the regulatory process would take six to nine months to complete.
But the Ferc review could take longer, according to experts, and approval of the deal is further complicated by such issues as the parallel Securities and Exchange Commission investigation into Enron's finances.
"It's very complicated. It will be very time-consuming," said one person close to the Ferc commissioners. As of Friday, the groups had not yet filed for Ferc approval.
"(The deal) raises issues that have never been considered before by Ferc," said Edward Comer, general counsel to the Edison Electric Institute, the association of US electric utilities.
"It has never considered the merger of two huge marketers, and in the past, marketing wasn't considered as significant a portion of the energy sector as it has become."
A typical deal now takes about 200 days to win Ferc approval. But Mr Comer said approval of the Dynegy bid could take anywhere from six months to two years.
The agency's guidelines prohibit mergers if they give the new company the market power to push prices above competitive levels for "a significant period of time".
It analyses market power by identifying the products sold, the customers and suppliers affected and market concentration.
"Mergers in the past have been considered on the basis of assets," said Patti Harper-Slaboszewicz of Frost & Sullivan, a market research and consulting firm. "The rules were written when the industry was vertically integrated."
Now the question is how ownership of energy trading services will be calculated. It could be difficult to assess if the companies are exerting market power because information on the trading books of companies such as Enron and Dynegy is closely guarded, she said.
The two companies must also win consent from either the Justice Department or the Federal Trade Commission, and from states where the companies have pipelines and provide retail services.
(c) Copyright Financial Times Ltd. All rights reserved.
http://www.ft.com.

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

Fund Track
Russia Fund Surges Amid Global Woes
By Victoria Marcinkowski
Dow Jones Newswires

11/19/2001
The Wall Street Journal
C17
(Copyright (c) 2001, Dow Jones & Company, Inc.)

Everything is relative in the investing world, so with U.S. investors nervous about homeland stocks, European and Asian markets sagging and terrorism worries abounding, Russia's risky markets seem less so these days.
So far this year, Pilgrim Russia Fund, which was bought by ING Groep NV late last year, has been the top-performing regional mutual fund, gaining 53%, according to fund tracker Morningstar Inc. By comparison, the Standard & Poor's 500-stock index has slumped nearly 14%.
Of course, the risks in Russia remain. Despite recent economic gains, the country still is struggling with a weak banking system, inadequate state institutions to enforce contract laws and few businesses run by the "modern" rules of corporate governance, according to Samuel Oubadia the 37-year-old manager of the Russia fund.
"But they are getting more open," Mr. Oubadia said, though Russia's lax financial reporting standards are still one of the main roadblocks for foreign investors. With $49 million in assets, the Pilgrim Russia fund invests between 90% and 95% in Russian stock, with the balance held in cash.
"While the global economy is slowing, Russia is still in an expansion mode," Mr. Oubadia said. After years of economic reforms, consumer spending is up 10% and the former Soviet Union's gross domestic product is expected to grow 3% to 5% next year, more than twice as much as that of the U.S. and Europe.
Two-thirds of the fund's stocks are oil and gas companies, which are still the most liquid stocks in Russia. Utilities, mining, telecommunications companies and breweries make up the rest. "There's no escaping oil and gas if you want to manage a Russia fund," Mr. Oubadia said.
The spike in oil prices earlier this year made the investment in oil worthwhile, propelling earnings growth for Russia's oil and gas companies. Higher oil prices also worked wonders for the Russian economy, which is largely dependent on oil and gas. More recently, however, falling oil prices have threatened the companies' profit growth.
But the fund manager, who is based in The Hague, said he doesn't think people should invest in Russian oil stocks because of their earnings prospects. "You don't invest because of earnings growth -- there will be none for Russian oil companies this year. You invest because of the stocks' low valuation," Mr. Oubadia said, adding that most of the Russian oil companies still trade well below the world-wide average for the sector.
Yukos Oil is one of the fund's largest investments, making up about 12% of the fund's holdings. Surgutneftegaz and Lukoil Holdings also make up more than 5% each of Pilgrim Russia's assets. While Mr. Oubadia said the companies should be able to handle falling oil prices, partly by cutting production, he worries that further price erosion could hamper a fragile Russian stock market that relies so heavily on oil and gas stocks.
"Can Russian markets do well with lower prices for oil?" he asked. "The short answer is yes. But how low will prices drop?" Mr. Oubadia acknowledged that weak oil prices might cause him to shift some investments from oil and gas into other Russian sectors, including telecom stocks and consumer products.
The Russia fund isn't for the timid. In 1998, when the Russian economy collapsed, the fund -- then called Lexington Troika Dialog Russia, lost 83% of its value. A year later, the fund soared 160%. In 2000 the fund finished down almost 18%.
---
JANUS STOCK SHUFFLE: Janus Capital Corp. bulked up on lower-priced value stocks and shed some shares of its long-held technology companies during the third quarter, a new Securities and Exchange Commission filing showed.
The Denver fund firm reported that during the third quarter, it lowered its investments in 14 of the 20 largest holdings it had owned as of June 30. The largest reduction was a 43.6 million-share sale of Nokia Corp. stock. After the sale, Janus still owned a large 183.2 million-share position in the wireless-phone company at the end of the third quarter.
During the quarter, Janus also sold more than half of its stakes in tech companies EMC Corp. and Sun Microsystems Inc. In addition, the fund company, a unit of Stilwell Financial Inc., trimmed its exposure to energy company Enron Corp., selling 1.5 million shares to reduce its overall position to 41.4 million shares at the end of September.
On the buying side, Janus, one of the hottest fund firms of the late 1990s thanks to bets on leading technology stocks, about doubled its position in software company Microsoft Corp. It also boosted its holding in the investment company run by Warren Buffett, Berkshire Hathaway Inc., while starting a small position in Philip Morris Cos., whose dividend-rich stock is usually more popular with price-sensitive "value" managers. Janus has introduced new value portfolios recently, but most of its investors' assets still follow faster-growing companies.
-- Aaron Lucchetti and Todd Goren

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

Wessex Water

11/19/2001
The Financial News
Copyright (C) 2001 The Financial News; Source: World Reporter (TM)

The Sunday Telegraph
The German state-owned bank, WestLB, is in talks to buy Wessex Water from its troubled US parent Enron.
WestLB is thought to be one of a number of financial buyers to have approached Enron with a view to acquiring Wessex, which is valued at more than AGBP1bn (e1.63bn).
Enron, the energy trading group which bought Wessex in 1998 for AGBP1.4bn, is being bought by its much smaller US rival Dynegy after collapsing into financial crisis.
The Independent on Sunday
The water and sewage company Wessex Water is understood to be up for sale following an offer to take over its owner, Enron.
Three years ago, Enron spent AGBP1.4bn on Wessex Water.
But Dynegy is understood to want to concentrate on US and European energy assets and is not interested in non-core assets.
Any hope to regain the same amount of money could be derailed as the industry is put off by regulatory problems, and the company's results have worsened due to imposed price cuts over the past year.

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

India BSES:Dabhol Pwr Proj Due Diligence Done Jan -Report

11/19/2001
Emerging Markets Report
(Copyright (c) 2001, Dow Jones & Company, Inc.)

NEW DELHI -(Dow Jones)- India's BSES Ltd. (P.BSX) said Monday due diligence on the 2,184 megawatt Dabhol power project is expected to be completed by January 2002, the Press Trust of India news agency reported.
"The due diligence process will take six-eight weeks after signing of the confidentiality agreement with Enron-promoted Dabhol Power Co.," the report said, quoting BSES' Chairman and Managing Director R.V. Shahi.
The U.S.-based energy company Enron Corp. (ENE) has a controlling 65% stake in the Dabhol power project located in the western Indian state of Maharashtra.
The Maharashtra State Electricity Board, or MSEB, has 15%, while U.S.-based companies General Electric Co. (GE) and Bechtel (X.BTL) each own 10% in DPC.
Enron wants to sell its stake in DPC because of payment defaults by its sole customer, the MSEB, and the Indian federal government's failure to honor payment guarantees.
In August, the U.S. company said it was willing to sell its stake at cost.
BSES would appoint three separate consultants for technical, financial and legal due diligence on the Dabhol project, Shahi said.
After signing the confidentiality agreement, BSES will formally look into the books of DPC, its loans, sponsors and other assets and legal wrangles before deciding on the acquisition price of the company, the report said.
The Dabhol project, at a cost of $2.9 billion, is India's largest single foreign investment to date.
-By Himendra Kumar; Dow Jones Newswires; 91-11-461-9426; himendra.kumar@dowjones.com

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

India Dabhol Pwr: No Termination Notice Until Crt Verdict

11/19/2001
Dow Jones International News
(Copyright (c) 2001, Dow Jones & Company, Inc.)

NEW DELHI -(Dow Jones)- Dabhol Power Co. will wait for the Bombay High Court's verdict before sending a final termination notice to its sole customer - the Maharashtra State Electricity Board, a source close to the company told Dow Jones Newswires Monday.
"Nothing is going to happen until Dec. 3. The Bombay High Court has adjourned all proceedings...(and)...DPC will wait for the court's verdict before deciding its future course of action," said the source.
Enron Corp. (ENE) has a controlling 65% stake in the 2,184-megawatt Dabhol power project in the western Indian state of Maharashtra. Enron wants to sell its stake in DPC because of payment defaults by the MSEB and the Indian federal government's failure to honor payment guarantees. In August, the U.S. company said it was willing to sell its equity at cost.
At $2.9 billion, Dabhol is India's largest single foreign investment to date. MSEB has 15%, while U.S.-based companies General Electric Co. (GE) and Bechtel (X.BTL) own 10% each in DPC.
-By Himendra Kumar; Dow Jones Newswires; 91-11-461-9426; himendra.kumar@dowjones.com

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

Financial Post: News
Fears raised on Enron deal: $15.6-billion rescue bid
Andrew Hill and Sheila McNulty
Financial Times

11/19/2001
National Post
National
FP3
(c) National Post 2001. All Rights Reserved.

NEW YORK - Companies that trade with Enron Corp., the Houston, Texas-based energy group, are taking precautions in case Dynegy Inc., also of Houston, withdraws its $15.6-billion rescue bid for its rival, a decision that could trigger a crisis in the energy trading market.
Counter-parties to Enron, which is one of the principal market-makers providing liquidity in the energy market, are seeking to limit their exposure to the group, in spite of reassurances from both Enron and Dynegy that the takeover will go through.
Experts also say the implications of the deal are so complex that the regulatory review could take much longer than the six to nine months company officials have estimated.
Analysts say the 27% spread between the value of Dynegy's offer price and Enron's share price suggests a 65% to 75% chance the bid will succeed. But bankers and energy executives are still worried about systemic risk, both in the energy market and in financial markets, where companies such as Enron use derivatives to offset the risk of energy price fluctuations.
Enron was close to meltdown until Dynegy stepped in with a rescue bid 10 days ago, having persuaded credit rating agencies not to downgrade Enron's debt to below investment grade.
Clauses built into the merger agreement signed with Enron give Dynegy the right to walk away under certain circumstances, although the two companies' officials and advisors differ on how easy it would be for Dynegy to pull out.
While the situation remains uncertain, companies that deal with Enron are reluctant to lock themselves into long-term contracts to buy or sell power, said John Olson, an analyst at Sanders Morris Harris, the investment banking arm of Houston, Texas-based Sanders Morris Harris Group.
Keith Stamm, chief executive of Aquila Inc., the energy marketing and risk-management company, said his company had begun preparing contingency plans in case the deal fell through.

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

Blackout in the power sector
A V Rajwade

11/19/2001
Business Standard
10
Copyright (c) Business Standard

Every foreign company in the Indian power sector wants to exit. Of these, the most controversial has been Enron and its Dabhol Power Company Ltd (DPCL). This apart, the experience of investors in the "reformed" power sector in Orissa is also unhappy. Five years ago, Orissa was the first state to adopt the World Bank-recommended model of separating generation, transmission and distribution of power, and an independent regulator. The Godbole Committee has recently recommended the same for Maharashtra as well.
Clearly, separating the three functions is a complex restructuring. Maybe it helps privatisation, the current fashion on the subject having been set in Thatcherite Britain. While some privatisations in UK have succeeded, the experience has not been consistent all over.
Take UK's rail sector. While privatising, the government in its wisdom decided to separate the ownership of the rail network (Railtrack) and the ownership and operation of trains. The contractual relationship between the various operating companies and Railtrack were governed by a byzantine, bewilderingly complex system of penalties and incentives, to be monitored by an independent regulator.
Such separation had no parallel. Besides, Railtrack suffered from poor management, cost escalation in modernisation of tracks, etc. Several serious accidents occurred and fixing responsibility became difficult. The "reform" did not work, and Railtrack was put back under public control last month.
What are the chances of trifurcation of the power sector in India succeeding? Pretty poor, if the experience of Orissa is any guide. It faithfully separated the three functions, and privatised distribution and part of generation. AES, a foreign company, was 49 per cent investor in a generating company, and 51 per cent in CESCO, a distribution company. As Gajendra Haldea analysed in this paper on August 27, "The policy and regulatory framework was inadequate and myopic."
Distribution losses, a euphemism for power theft, were much larger than the companies had been led to believe at the time of privatisation. CESCO defaulted in paying the dues of GRIDCO, the transmission company, which in turn defaulted to the generating company. Indeed, all CESCO's cash inflows are now escrowed, leaving it no money even to pay salaries. For all practical purposes, the distribution companies seem to be in a difficult situation, perhaps beyond redemption, and the "reform" is a total mess.
The crux of the problem in the power sector is not whether a unified SEB is less efficient than trifurcated companies it is the political unwillingness to charge a price which covers the cost to all consumers. For a while, cross subsidisation worked with commercial consumers subsidising the household and the agricultural segments.
However, as the burden became too large, the commercial sector started moving to captive generation, further worsening SEB finances. An "independent" regulator for power tariffs may not solve the problem. He may fix economic prices but will the state come forward to protect the bill collectors, punish power thiefs, face social unrest if power to recalcitrant consumers is cut off? So long as the answers to these questions are in the negative, as, sadly, they are, the institutional restructuring is no substitute for substantive action. No wonder all foreign investors in the power sector want to get out!
Enron too wants out but it has many more problems in its home country, over and above its dispute with MSEB. It had attracted a lot of adverse publicity for gouging power consumers in California, a state in a power crisis (see World Money, February 2, 2001). The Internet craze also had a hand in Enron's misfortunes. It became an energy trader, established an electronic trading platform, had broadband ambitions, went into a disastrous diversification in water supplies which, if I remember correctly, led to Rebecca Mark's exit. Perhaps it went into too many areas too quickly under Jeffery Skilling, ex-McKinsey, and was notorious for opaque, complex accounts.
To top it all, last month it announced that it will take an extraordinary $1.2 billion charge in its third quarter results for losses in financial activities. Enron's chief financial officer, who was supposed to be in charge of these, has resigned amidst reports that a private equity fund associated with him was involved in them. The SEC is investigating the affair and Enron's share price is down 67 per cent since mid-October. There are some reports that Shell may make a bid for Enron.
After its ratings were downgraded, Enron is desperate for liquidity and anxious to dispose its assets. DPCL was already on the platter; now a sale has become even more urgent. Reportedly, Tatas and BSES are interested; so are the lending institutions. Clearly, if a settlement is to be reached, this is the optimum time.
But one is not very optimistic. For one, Delhi and Mumbai will be involved, and bureaucracies never understand opportunity costs. Our byzantine decision-making processes make timely decisions impossible. Further, if a deal does take place, there will be the inevitable allegations of corruption. It is much safer for the reputation of the concerned ministers in Mumbai and Delhi to allow the drift to continue, to "let the law take its own course", whatever the costs! Sadly, as Jairam Ramesh said in this paper, Indian politicians respond to developments only out of compulsion, not conviction.

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


Dear OU Team:

Attached you will find a status report of all our OU candidates.  Cultivation
is CRITICAL, so please contact your candidates.  Their deadline is January 23.

Let me know if you have any questions.

Thank you!

lexi
3-4585


OUTLOOK EMAIL NOTIFICATION

Your Date of Migration is: TUESDAY, JUNE 12TH

YOU WILL BE UNABLE TO SEND E-MAIL unless you take the following action:
Please go through your Notes email and clean out as many old/un-needed email
items as possible BEFORE your date of migration.? After you are migrated to
Outlook you will only be allocated 100MB of total Mailbox space.?? If more
than this amount of data is migrated to Outlook YOU WILL NOT BE ABLE TO SEND
E-MAIL until it is below the 100MB limit.? Cleaning up your Notes email now
will prevent this from happening to YOU.

Enron,s messaging platform is migrating from Lotus Notes to Microsoft Outlook
2000 worldwide.  You will be accessing Outlook for all of your email
functions.

WHY IS ENRON MIGRATING TO OUTLOOK 2000?

Many factors contributed to the decision to migrate from Lotus Notes to
Microsoft Exchange/Outlook.  The most prominent factors were:

? Significant advantages to moving to a product that is more integrated with
current Enron apps (Windows 2000, Office and Internet Explorer)
? More efficient Shared PC and Roaming User features
? Improved support and integration for Palm/CE devices
? Instant Messaging capabilities

WHAT IS BEING MIGRATED TO OUTLOOK 2000?

? Email Messages.  From the date of your scheduled migration, the last (30)
thirty days of your Email will be converted for use in Outlook.
? All your folders in Notes you use to store email messages in.
? To Do Items
? Journal Items
? Calendar Entries dating from (1) one year in the past to (10) ten years in
the future will be converted.
? Address Books, but NOT your Distribution Lists that you created.  You will
need to re-create these in Outlook.

Thank you,

Outlook 2000 Migration Team


Thanks for your swift assistance.

 -----Original Message-----
From: 	Sabera Khanom <sabera.khanom@iod.com>@ENRON   On Behalf Of |IoD Membership <membership@iod.com>
Sent:	Monday, February 04, 2002 8:13 AM
To:	Kitchen, Louise
Subject:	RE: Quick question

Dear Ms Kitchen

Thank you for your email.  I can confirm that you are a current member and
have been a member since 8 May 1998.

Kind regards

Sabera
Sabera Khanom
Membership Administration Assistant

Tel:  020 7766 8894
Fax: 020 7766 8833

Sabera.khanom@iod.com

		-----Original Message-----
		From:	Kitchen, Louise [mailto:Louise.Kitchen@ENRON.com]
		Sent:	04 February 2002 01:54
		To:	membership@iod.com
		Subject:	Quick question

		I am trying to fiind out that date I became a member of the
IOD and secondly if I still am.  Please could you let me know as soon as
possible.

		Thanks

		Louise Kitchen
		Chief Operating Officer
		Enron Americas
		Tel:  713 853 3488
		Fax: 713 646 2308

**********************************************************************
		This e-mail is the property of Enron Corp. and/or its
relevant affiliate and may contain confidential and privileged material for
the sole use of the intended recipient (s). Any review, use, distribution or
disclosure by others is strictly prohibited. If you are not the intended
recipient (or authorized to receive for the recipient), please contact the
sender or reply to Enron Corp. at enron.messaging.administration@enron.com
and delete all copies of the message. This e-mail (and any attachments
hereto) are not intended to be an offer (or an acceptance) and do not create
or evidence a binding and enforceable contract between Enron Corp. (or any
of its affiliates) and the intended recipient or any other party, and may
not be relied on by anyone as the basis of a contract by estoppel or
otherwise. Thank you.

**********************************************************************

.


----- Forwarded by Sara Shackleton/HOU/ECT on 06/09/2000 03:55 PM -----

	Susan Bailey
	06/09/2000 02:29 PM

		 To: grosenbl@exchange.ml.com
		 cc: pbarna@exchange.ml.com, Sara Shackleton/HOU/ECT@ECT
		 Subject: ISDA Master Agreement

Gary,

At the request of Sara Shackleton, attached is a blacklined version of the
Schedule to ISDA Master Agreement, which compares the newest version (dated
6/8/2000) against the version (dated 6/2/2000), which I sent to you under my
E:mail transmission of June 2nd.

Please be advised, Sara has not been able to review your "confidentiality"
provision at this time.  She would like to schedule a conference call with
you on Monday, June 12th, in order to so.  Please let her know your
availablity.

Also, direct a copy to either Sara or me of the draft Guaranty to be provided
by Merrill Lynch & Co., Inc.

Thanks,

Susan

phone: (713) 853-4737
fax:        (713) 646-3490
e:mail: susan.bailey@enron.com


Bernice - please set up the attached book request and notify when complete.

Francis/Cecilia - I will be out of the office Thursday and Friday (Dec 20 and 21).  Please handle the Erms side once Bernice sends out the notification.

I have already set up these books in RisktRAC.

Due to the Outlook problems, I was unable to handle this request in a timely fashion.  Sorry for any delays this may have caused.

Thanks everyone and have a happy and safe holiday!
Susan
x3-1462


To:	    Employees

From:	    ENRON Benefits Department

Subject:    All Employees Participating in the ENRON Domestic Benefit Plans

Enron Benefit Plans
Summary Annual Report

The basic financial and insurance information on the back of this page, as well as the material below, provide a Summary Annual Report for the Enron Benefit Plans.  The annual report for each plan has been filed with the Internal Revenue Service, as required by the Employee Retirement Income Security Act of 1974 (ERISA).

NOTE:  You may receive a report for a benefit plan in which you are not a participant or under which you are not entitled.  Entitlement to benefits under any of the plans is based on the provisions of each plan.

Your Rights to Additional Information

You have the right to receive, upon request, a copy of the full annual report, or any part thereof, for any plan.  For insured plans, insurance information (including any sales commissions paid by insurance carriers) is shown in the annual reports.

To obtain a copy of the full annual report, or any part thereof, for any plan, write or call:

Enron Corp Shareholder Relations
1400 Smith Street
Houston, TX  77002-7311

(713) 853-6161

You also have the right to receive from the plan administrator, on request and at no charge, a statement of the assets and liabilities of the plan and accompanying notes, or a statement of income and expenses of the plan and accompanying notes, or both.  If you request a copy of the full annual report from the plan administrator, these two statements and accompanying notes will be included as part of that report.

You also have the legally protected right to examine the annual report at the main office of the plan (Enron Corp., 1400 Smith Street, Houston, TX  77002-7311) and at the U.S. Department of Labor in Washington, D.C., or to obtain a copy from the U.S. Department of Labor upon payment of copying costs.  Requests to the Department should be addressed to:  Public Disclosure Room, N-5638, Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 20210.


---------------------- Forwarded by Thomas A Martin/HOU/ECT on 03/20/2001 03:52 PM ---------------------------

Thomas A Martin
05/09/2000 12:36 PM
To:	Nick Cocavessis/Corp/Enron@ENRON
cc:
Subject:	Re: East Side Prospects: Bammel Compression Options

Nick, I am short traders this week and generally do not like to meet during the hours in which the NYMEX is open.  Can we move this meeting to the afternoon(after 3:00), preferalbly when Schwieger is back in town?  If this meeting must occur as scheduled I plan on sending Ed in my place.

Thanks,
Tom

<Embedded StdOleLink>


---------------------- Forwarded by Ami Chokshi/Corp/Enron on 06/05/2000
09:54 AM ---------------------------

"Steve Holmes" <Steve.Holmes@dvn.com> on 06/05/2000 09:37:41 AM
To: <Ami.Chokshi@enron.com>, <Sabra.l.dinari@enron.com>
cc:

Subject: WC 551 Revision Effective 6/6/00 (Stingray P/L)

Please see the attached revision to WC 551.  I will send out a formal notice
cancelling the force majeure later this afternoon.

Steve

 - WC551reveff060600.xls


I haven't received September Statements, was afraid that they went to the
wrong e-mail address.  Let me know if you have any problems.  Thank you.

Julie Hartness
Rocky Mountain Division
1180 Plaza Office Bldg.
Bartlesville, OK
(918) 661-5810
jahartn@ppco. com


Re: Federal Trade Commission Substitues NAICS Codes for SIC Codes on HSR
Forms

                     Attached is a memorandum, from Sullivan & Cromwell
concerning the above subject. A summary is also included at the end of the
text of this e-mail message.

                     The attached file is in Adobe Acrobat format.  We
believe most PCs will already have an Acrobat viewer
loaded; we can provide free copies if Acrobat is not already loaded,
and free copies can also be downloaded from the Adobe Acrobat web
site at www.adobe.com.  To view or print the memo use your e-mail
system's function for opening attachments in their native format.
Hard copies can be obtained from Ivy Moreno at S&C in New York,
telephone 212-558-3448, e-mail: Morenoi@sullcrom.com.

SUMMARY

                     The Federal Trade Commission's Premerger
Notification Office (''PNO'') has announced it will begin requiring
as of July 1, 2001 that information in Item 5, 7 and 8 of the
Hart-Scott-Rodino Premerger Notification Form be submitted using
the North American Industrial Classification System (''NAICS'')codes
rather than the Standard Industrial Classification (''SIC'') codes
that are currently used.  At the same time, 1997 (rather than 1992)
will become the base year for Items 5(a) and 5(b)(i), which require
the reporting of certain revenue data.  Revenues from the most recent
year will be required to be reported using NAICS codes as well.

----------------------------------

This e-mail is sent by a law firm and contains information
that may be privileged and confidential. If you are not the
intended recipient, please delete the e-mail and notify us
immediately.

 - climail.pdf


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-----Original Message-----
From: 	Nicolay, Christi L.
Sent:	Monday, October 22, 2001 11:57 AM
To:	Kitchen, Louise; Dietrich, Janet; Delainey, David; SMITH, Douglas; Lavorato, John; Black, Don; Forster, David; Duran, W. David; Belden, Tim; Calger, Christopher F.; Foster, Chris H.; Black, Tamara Jae; Aucoin, Berney C. ; Furrow, Dale; Meyn, Jim; Harvey, Claudette; Presto, Kevin M.; Jacoby, Ben
Subject:	FW: Summary RTO Week Day 2 -- Planning & Expansion

FYI.

TJ and Claudette -- please forward to your groups.  Thanks.

 -----Original Message-----
From: 	Walton, Steve
Sent:	Wednesday, October 17, 2001 10:17 PM

  RTO Week
Day 2 -- October 16, 2001
Transmission Planning & Expansion
The afternoon panel discussed transmission planning and expansion. The panelists were: Jose Degado--CEO American Transmission Company, Michael Dworkin--Chair Vermont PSC, Mark Maher--VP Transmission Business Line, Bonneville Power Administration, Lara Manz--PSE&G, Masheed Rosenqvist--National Grid, Steve Walton--Enron.
General Observations
The Commissioners were all present although the did leave and return from time to time.  Commissioner's Breathitt and Massey were the most active in questioning.  The FERC Staff were active in asking questions after the initial presentations, moving along the discussion by asking questions.  There was some reference to the morning discussion of congestion management, however, there was no discussion of the merits of the various types of transmission rights.  There was a good deal of consensus around the concept of the RTO Planning Process being first a provider of information to the market (where are problems, how might they be solved, etc.) and that the where possible that expansion be funded by market participants who would benefit.  There was a good deal of discussion of "least cost planning" and the identification of options which are not transmission related.  All agreed there had to be backstop authority to build transmission, however then the challenge is who pays for it, which raises the need for dispute resolution.
Opening Statements
Jose Delgado: ATC is a transmission only company with MISO as the system operator.  They view everyone as a customer whose needs are to be met.  They were formed by divestiture by IOUS, coops and munis and with a $500 million asset base initially. Their current ten year plan will add $1billion of investment.   Their top priorities are connecting generation and load.
Michael Dworkin: Because transmission is a common good, construction affects all parties not just one party.  The environmental and permitting of lines requires a balance of benefits with costs and a long range view.  The idea of joint boards should be considered for dealing with multi-state projects, although FERC has show little interest in joint boards they have been used by FCC.  State input needed because of the local needs and impacts which must be considered.
Mark Maher: FERC must consider the unique characteristics of the West when considering congestion management.  LMP is not a good fit to hydro systems with their multiple use obligations.  RTO West is developing a planning process which will give the RTO the freedom to develop options as we learn in the future.  The RTO needs a strong centralized planning process.
Laura Manz: The various aspects of planning are connected.  Pricing (LMP) is the key to getting the right signals for expansion of transmission and resources.   No competitor should have an advantage over another.  The RTO needs a central planning process but it shouldn't push solutions.  The market should decide on solutions.
Masheed Rosenqvist: The morning discussion of congestion management talked about hedging against risk.  The planning discussion is not about what we have now, but about how to avoid future congestion.  The Commission has taken conflicting positions in different cases.  The issues that need to be answered are:  How can merchant transmission be compensated?  Should transmission projects be open to RFPs?  Is FERC open to market based pricing for expansions?
Steve Walton:  The most important thing for FERC to do for expansion is to settle the matter of industry structure do away with the uncertainty that has frozen transmission investment.  The RTO debate has been going on for 5 years or more and needs to be settled.  For expansion to go forward, there needs to be a clear property right which accrues to the expanding party.  You are always going to have muddy issues in planning.  For instance if a 138 kV line is all that is needed to day, but future considerations of scare right-of-way say a 345 kV line should be built, who pays for the extra cost.  In order to resolve such matters the planning process must include a dispute resolution process, appeal able to FERC, to decide such matters.
Discussion
Kevin Kelly asked about he fact that some parties benefit form current congestion so how does a stakeholder process get things built when some oppose.  Most agreed that if a party wants to fund construction it should be built with the beneficiaries funding.  Michael Dworkin expressed concerns about use of eminent domain to build which means a benefit test must exist to say this is the best solution, i.e. least cost planning.  This lead to discussion of the need for the RTO to be provider of information to all parties so they can make intelligent decisions.
Commissioner Massey asked about whether the system was (a) under built and needed lots of expansion so don't worry about overbuilding or (b) transmission planning should consider all options before construction of new facilities.  The panel agreed that pricing needs to be a prime determinant in the process.  Michaela Dworkin worried that overbuilding distorts decisions.  Laura Manz felt that the term "under built" is a secondary effect of not having proper pricing of locational prices to guide parties.
Dick O'Neil asked if LMP will work in the West.  Mark Maher said it wouldn't.  Laura Manz said it applies everywhere because of physics, they manage hydro facilities in PJM.  Michael Dworkin said LMP means an explicit measure of cost of congestion and the value of generation at locations and ought not to be rejected just intelligently designed.  BPA is looking pricing model but LMP won't work.  Steve Walton said LMP needed for real time dispatch, but given the nature of the Northwest hydro system it must have some "tweaks" like bilaterals and allow operator self-schedule output levels to permit  river coordination.  Hydro system optimizes over weeks and months to maximize firm energy production not on an hour to hour basis.  PJM has hydro, but not 70% as in the Northwest.  Implementation will be different because such thing as unit commitment are different when you have primarily hydro and base load coal.
In the summation at the end of the panel, four principles were listed:  (1) RTO must provide information, (2) RTO should identify solutions, (3) RTO should be unbiased and (4) the RTO should be accountable.  The disagreement was over the last two points, Michael Dworkin felt that #3 (unbiased) was critical and that #4 (accountability) was accomplished by having regulators involved in governance.  Jose Delgado said and Transco can't be unbiased since it provides services, although the ISO above it can be, but accountability is based on loosing your investment if you make an mistake.  This last point really comes down to a preference for ISO over Transco forms and the tension which exist because unbiased and accountability issues.
Steve


fyi
---------------------- Forwarded by Kay Mann/Corp/Enron on 04/23/2001 02:22
PM ---------------------------

"Argento, Connie" <ConnieArgento@paulhastings.com> on 04/23/2001 02:20:38 PM
To: "'Kay.Mann@enron.com'" <Kay.Mann@enron.com>
cc: "Kahn, Margaret R." <MargaretKahn@paulhastings.com>

Subject: RE: Change order #2

THIS REPLY SENT ON BEHALF OF MARGUERITE KAHN

Kay -

The revised Change Order Number 2 looks fine to me.  Thanks.

      Marguerite

-----Original Message-----
From: Kay.Mann@enron.com [mailto:Kay.Mann@enron.com]
Sent: Monday, April 23, 2001 2:21 PM
To: MargueriteKahn@paulhastings.com; JeremiahDeBerry@paulhastings.com;
michael.young@northwestern.com
Cc: Ben.Jacoby@enron.com; Chris.Booth@enron.com; jkeffer@kslaw.com;
mreuter@kslaw.com
Subject: Change order #2

Please confirm that the changes to change order #2 reflect NW's request.

Thanks,

Kay

(See attached file: change order 2 revised per NW.doc)

"paulhastings.com" made the following annotations on 04/23/01 15:21:05
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