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Enron Europe Says PricewaterhouseCoopers Chosen Administrator
Bloomberg, 11/29/01 Enron's Derivatives Debt Doesn't Reveal Market Risk, NYT Says Bloomberg, 11/29/01 Enron's Board Was Compromised by Financial Ties (Update1) Bloomberg, 11/29/01 Enron's Indian Lenders May Take Over Power Project (Update2) Bloomberg, 11/29/01 Enron Bankruptcy Would Be Largest Chapter 11 Filing (Update1) Bloomberg, 11/29/01 Enron's Derivatives Debt Doesn't Reveal Market Risk, NYT Says Bloomberg, 11/29/01 Powergen Says Exposure to Enron in U.S., U.K. `Not Material' Bloomberg, 11/29/01 Enron's Collapse Evokes Memories of Old-Time Bank Run, NYT Says Bloomberg, 11/29/001 RWE Says Open Positions With Enron `Much Less' Than EU10 Mln Bloomberg, 11/29/01 Enron Soared on Innovation, Fell as Debt Scared Away Investors Bloomberg, 11/29/01 Centrica May Have to Write off $43 Mln If Enron Fails (Update1) Bloomberg, 11/29/01 Enron Evaluating Whether to Pay Quarterly Dividend (Update1) Bloomberg, 11/29/01 Enron Europe Says PricewaterhouseCoopers Chosen Administrator 2001-11-29 09:08 (New York) London, Nov. 29 (Bloomberg) -- Enron Corp.'s European division said PricewaterhouseCoopers has been appointed administrator for much of its business. Teesside, a power plant jointly owned with Innogy Plc, Enron Direct and some other activities are not part of the U.S. accounting firm's area of oversight, said Enron Europe spokesman Alex Parson. Enron's Derivatives Debt Doesn't Reveal Market Risk, NYT Says 2001-11-29 07:32 (New York) Houston, Nov. 29 (Bloomberg) -- Enron Corp.'s derivatives trading liabilities at the end of September were $18.7 billion, although nobody is sure just how much money the energy-related derivatives markets will have at risk if Enron fails, the New York Times reported. While these liabilities, the amount of money it would owe to other market players if it filed for bankruptcy, were up ``slightly'' from June levels, they are about $1.3 billion less than at the end of last year, the paper said. The numbers don't take into account the unknown amount of collateral that Enron may have posted, the paper said, citing Swaps Monitor President Paul Spraos. The collateral should, in principle, diminish Enron's actual liabilities, he said. In an energy swap, a company enters into a contract to lock in a fixed price of a certain commodity, like natural gas or electricity. The other company assumes the risk of future price changes and quotes a fixed price that includes its own profit. (NYT 11-29 C7) For the Web site of The New York Times, see {NYTI <GO<}. Enron's Board Was Compromised by Financial Ties (Update1) 2001-11-29 08:10 (New York) Enron's Board Was Compromised by Financial Ties (Update1) (Updates sixth paragraph with details on cash crunch; adds details of how credit ratings were cut.) New York, Nov. 29 (Bloomberg) -- Enron Corp. plunged from the largest energy trader to the verge of bankruptcy under a board of directors whose independence was undercut by financial ties to management, according to corporate governance experts. Enron gave seven of its 14 directors consulting contracts, sales to their business or donations to their non-profit institutions, according to company and public records. The recipients include three members of Enron's audit committee, which is responsible for financial oversight. Lord John Wakeham, for example, a former leader of the British House of Commons, sits on the audit committee. Enron gave him a $72,000-a-year consulting contract. John Mendelsohn, president of the MD Anderson Cancer Center in Houston, is also on the audit committee. In the last five years Enron and its chairman Kenneth Lay have donated $567,900 to the cancer center. ``To get on a board you have to be `clubbable,' but this looks like collegiality turning to cronyism,'' said Allan Cleveland, counsel to the New Hampshire Retirement System, an Enron shareholder. Enron, based in Houston, Texas handled almost a quarter of all natural gas and electricity trades. During the past seven weeks, its board has presided over a $26 billion drop in market value that began after the company wrote down $1.2 billion in shareholder equity and reported it had overstated earnings by $586 million since 1997. As Enron's shares fell, the company suffered a cash crunch. It sought an infusion of capital and agreed to be acquired by Dynegy Inc., a Houston-based rival. That plan collapsed yesterday as investors balked at investing $1.5 billion, prompting Dynegy to withdraw its offer. Enron shares closed at 61 cents. Responsibility Corporate boards are responsible for protecting shareholder interests by reviewing the work of top executives. To accomplish that, two-thirds of a board should be ``independent'' from management, according to the Council of Institutional Investors, which represents pension funds. The council defines an independent director as ``a person whose directorship constitutes his or her only connection to the corporation.'' ``Consulting contracts, donations to non-profit organizations linked to directors, this eats away at independence,'' said Ann Yergen, the council's director of research. Corporate governance standards established by the New York and NASDAQ Stock Exchanges say all audit committee members should be independent. Enron board members, including Wakeham and Mendelsohn, declined repeated requests for interviews. Vance Meyer, a company spokesman, said Enron could not immediately respond to questions regarding the board. Compensation Enron's board met nine times in 2000 with each member receiving annual compensation of $79,000 in cash and stock. Every member attended at least 75 percent of the meetings, except Ronnie Chan, chief executive of the Hang Lung Group, a Hong Kong development business, according to company filings. Based on Enron proxy statements and other documents, the following relationships existed between Enron and board members: -- Herbert S. Winokur Jr., 57, is the managing partner of Capricorn Investors L.P., a holding company that owns the Natco Group Inc., a maker of oil and gas production equipment. An Enron board member since 1985, Winokur serves on the executive committee, chairs the finance committee and was appointed to a special committee created to look into how Enron was managed. In 2000, Natco had $370,294 in sales to Enron subsidiaries, or about 1.6 percent of Natco's total sales. `Compromising' ``We think that anything over 1 percent is compromising,'' said Yergen of the Council of Institutional Investors. Enron said in a proxy statement it believes the terms of the sales were ``no less favorable than the terms of similar arrangements with third parties.'' -- Robert A. Belfer, 65, has been on the board since 1983 and sits on the executive committee. He is Enron's largest individual shareholder with 8.5 million shares, and is chairman and chief executive of Belco Oil & Gas Corp., which operates from an office overlooking New York's Central Park. In 2000, Belco had $32 million in trade settlements and $1 million in option premiums with Enron Trade Resources Corp., an Enron subsidiary. -- John Urquhart, 72, a former General Electric Co. executive, sat on the board until last May. He received an annual consulting fee from Enron of almost $200,000 a year as a special adviser to the Enron chairman. -- Mendelsohn, 64, is a physician who was formerly head of medicine at Memorial Sloan-Kettering Cancer Center in New York. He pioneered research in controlling cancer through the chemistry of a tumor's growth and was on President George W. Bush's short list to head the National Institutes of Health. Since 1996, Mendelsohn has been president of the MD Anderson Cancer Center, part of the University of Texas health system. Donations Mendelsohn joined Enron's board in 1999. Enron has donated $221,650 to the cancer center. Lay and a foundation he established with his wife, the Linda and Ken Lay Family Foundation, have donated $346,250 in the last five years. The Enron Foundation pledged $1.5 million for a new clinic. -- Charles LeMaistre, 77, headed the Andersen Cancer Center for 18 years until retiring in 1996. He has been an Enron board member for 16 years, is a member of the executive committee and chairs the compensation committee. That panel awarded Lay a $20 million-a-year severance package that he renounced two weeks ago. -- Wendy Gramm, 56, has held positions at the Federal Trade Commission and the U.S. Office of Management and Budget and was chairman of the U.S. Commodity Futures Trading Commission. She is director of regulatory studies at the Mercatus Center of George Mason University in Fairfax, Virginia. She is married to Texas Republican Senator Phil Gramm. In the last three years, Enron and the Ken and Linda Lay Family Foundation have donated more than $50,000 to the university and the Mercatus Center, according to university records. Consulting Fee -- Wakeham, 68, a charted accountant and self-made millionaire, became a force in the government of former U.K. Prime Minister Margaret Thatcher where he was known as her ``Mr. Fix- it.'' He was the target of an Irish Republican Army bomb in 1984 that killed his wife and left him buried under rubble for seven hours. Enron pays Wakeham $6,000 a month to advise the company on European business. Enron's audit committee poses particular problems, according to corporate governance experts. The committee is composed of Wakeham, Mendelsohn, Gramm, Chan, Robert Jaedicke, a retired Stanford University Business School dean, and Paulo Ferraz Pereira, a Brazilian banker. Wakeham, Gramm and Mendelsohn are not independent, according to corporate governance experts and standards. ``For the audit committee, you don't even want the appearance of a conflict,'' said Charles Drott, a forensic accountant who has testified as an expert witness in bankruptcy and business fraud cases involving companies such as DeLorean Motor Co. and Lincoln Savings and Loan Association. The committee is spread across the globe, with Wakeham in London, Ferraz in Rio de Janeiro and Chan in Hong Kong. ``The question is why this committee?'' Drott asked. ``For a big sophisticated company like Enron, why did they choose these people?'' Swift Descent Enron's rapid decline -- Standard & Poor's Corp. slashed its credit rating eight levels this month to junk status -- centered on its dealings with partnerships the company used to move assets and debt off the company's books. Many investors had complained Enron's financial reports obscured the partnerships' businesses to the point they were impossible to understand. Enron's former Chief Financial Officer Andrew Fastow led some of the partnerships and earned more than $30 million through their dealings with Enron, the company disclosed. Enron documents filed with the U.S. Securities and Exchange Commission state that the board determined that Fastow's participation in the partnerships would ``not adversely affect the interests of Enron.'' The documents also say the board approved all transactions involving partnerships that were brought to it by Lay and other Enron executives. ``What went wrong at Enron?'' said Patrick McGurn, a vice president at Institutional Investor Services, which evaluates board candidates for institutional investors. ``A lot of it goes back to the board.'' Enron's Indian Lenders May Take Over Power Project (Update2) 2001-11-29 08:32 (New York) Enron's Indian Lenders May Take Over Power Project (Update2) (Adds comment from IDBI managing director in ninth paragraph, legal details starting in seventh paragraph.) Mumbai, Nov. 29 (Bloomberg) -- Enron Corp.'s Indian lenders may take over its $3 billion power venture to salvage loans of $2 billion if the energy trader files for bankruptcy in the U.S. Enron may be forced into the biggest Chapter 11 reorganization in history after Dynegy Inc. walked away from a rescue. Rating agencies cut most of Enron's $15 billion of debt to junk status, and its shares are almost worthless. India's Dabhol Power Co., one of Enron's biggest Asian gas and power units, has been mired in accusations of bribery and exorbitant power tariffs. ``Lenders will have to take control of the project,'' said Madhav Godbole, who headed a panel set up to resolve a payment dispute between Dabhol Power, Enron's India unit, and the Maharashtra State Electricity Board, its sole customer. ``Buyers (for Dabhol) will have to negotiate with the lenders.'' Enron, which is owed $64 million for bills that are more than 10 months overdue, wants $1 billion for its 65 percent stake in Dabhol as it exits India. Tata Power Ltd. and BSES Ltd., the two bidders for Enron's stake, have said the price is too high. Both supply power to Mumbai, India's commercial capital. The Industrial Development Bank of India, the country's biggest lender, and the State Bank of India are among local lenders that loaned $1.4 billion to Dabhol. They have the most at stake if the loans turn bad. The $600 million lent by ABN Amro, Bank of America Corp. and other overseas banks is covered by government guarantees, while Indian bank loans are not. Cancellation Notice Enron on May 19 issued a six-month notice canceling power sales to the electricity board. The deadline lapsed on Nov. 19 as the Mumbai High Court early this month stopped Dabhol from serving the final termination notice until Dec. 3. The court's move was in response to a suit filed by Indian lenders against Dabhol to prevent it from canceling the contract. They were concerned the loss-making electricity board will be forced to buy the power plant, making loan recovery difficult. ``The matter has become extremely interesting (for India) in the context of Dynegy pulling out,'' IDBI chairman P.P. Vora told reporters at the lenders' earnings meet. ``I can't say more as the matter is in the court.'' IDBI alone has lent Dabhol $400 million. Indian lenders won't attend a Dabhol board meeting or a summit of creditors, both of which are to be held in London tomorrow, Vora said, without giving any reason. Dabhol's board is meeting to authorize K. Wade Cline, managing director, to serve the termination notice. Discount? Enron's stake in Dabhol may now be worth much less than the $1 billion it is seeking. Still, potential buyers may find it hard to raise the money they will need to finish work on the plant. Construction contractors in June stopped work on expansion of the power plant because they hadn't been paid since April. The expansion, which was to add 1,444 megawatts of capacity to the existing 740 megawatt capacity, and a 5 million-tons-a-year liquefied natural gas receiving terminal, is 95 percent complete. ``Buyers may get a good price but they need $500 million to complete the project,'' said Pradyumna Kaul, an activist who's campaigned against Dabhol for eight years. ``That is a lot of money for a project that's in distress and whose credibility is at its lowest'' with Enron on the verge of collapse. Awaiting `Response' BSES managing director R.V. Shahi said he's waiting for a ``response'' from the lenders on the future course of action. ``They came to us with (the project) and our action will depend on what their approach is.'' BSES hasn't set a price it would pay for the project, Shahi said. ``We've not reached that stage yet.'' Tata Power officials weren't available for comment. ``The equity value (of Enron) will go down, helping potential buyers, but that does not solve the basic problem, that of high- cost power,'' Godbole said. ``All parties linked with the project will have to make sacrifices'' to reduce the cost of power. Dabhol's power charges in 2000 rose as high as 7.1 rupees, or 15 U.S. cents, a kilowatt-hour, compared with other suppliers' rates of about 2.81 rupees. That led the electricity board to default on bills, and in May it stopped buying power from Dabhol, saying it was too expensive. Enron was one of the first major companies to enter India after the country's economy opened up to foreign investment in 1991. It was awarded the contract to build the power plant 100 miles south of Mumbai without competitive bidding. Plant construction was delayed for about two years after public interest groups filed lawsuits against the project, on the grounds its power was too expensive. A state government reworked the contract just five months after scrapping it, a move that sparked accusations of the company bribing politicians in return for the contract -- a charge denied by all parties. Enron Bankruptcy Would Be Largest Chapter 11 Filing (Update1) 2001-11-29 08:46 (New York) Enron Bankruptcy Would Be Largest Chapter 11 Filing (Update1) (Updating with Instinet share price, dividend payment.) Washington, Nov. 29 (Bloomberg) -- Enron Corp. may file for bankruptcy protection in the biggest Chapter 11 reorganization in history, forcing the largest U.S. energy trader to liquidate billions of dollars in assets to pay creditors. Dynegy Inc. yesterday abandoned its proposed merger with Enron, leaving the Houston-based company burdened with debt and the likelihood of insolvency. Some analysts said bankruptcy is inevitable and may come as early as today. A bankruptcy filing by Enron, which reported more than $61 billion in assets, would top Texaco Inc.'s record $35.9 billion case filed in 1987. Under Chapter 11 protection, Enron officials could continue to control the company while negotiating a recovery plan with creditors. An ``automatic stay'' under U.S. bankruptcy law would block debt-collection efforts, lawsuits and other actions against the company. ``A Chapter 11 filing can be a great thing for a cash-starved company being attacked from all sides,'' said Nancy Rapoport, dean of the University of Houston Law Center. An Enron bankruptcy would affect thousands of people including the company's 21,000 employees, its customers, suppliers, investors and other creditors. The court-supervised recovery process would give Enron a chance to change strategies and fix mistakes. It might take years to complete and may end in the company's liquidation. In addition to its energy trading operation, Enron operates a nationwide gas pipeline system spanning 25,000 miles. It also owns Portland General Electric, which generates and distributes power to about 725,000 customers in the Pacific Northwest. The company's Enron Broadband Services is building a global fiber-optic communications network. `Witches Brew' Chapter 11 reorganization lets companies abandon onerous contracts and unprofitable leases. ``Every bad business deal Enron got into they'll walk away from,'' said Peter Chapman, a distressed-debt investor who also publishes newsletters on high-profile bankruptcy reorganizations. The goal in Chapter 11 is a recovery plan that allows a company to pay creditors and come out of bankruptcy. A plan typically must be approved by a majority of creditors representing two-thirds of a company's debts. Then a company would ask a bankruptcy judge for final approval. The recovery plan divides a company's value among various classes of creditors. Under a hierarchy set by the U.S. Bankruptcy Code, secured creditors -- those with collateral backing their claims -- are paid ahead of unsecured creditors, such as bondholders and suppliers. Financial advisers to creditors and companies in large bankruptcies say a Chapter 11 recovery plan for Enron would be particularly difficult to produce. ``You have a host of intangible assets combined with a morass of contingent liabilities creating a potential witches' brew of a bankruptcy,'' said Jeff Werbalowsky of Houlihan Lokey Howard & Zukin, an investment banking firm that has been contacted for advice by Enron bondholders. Enron's shareholders are likely to lose all of their investment in a Chapter 11 case because they would be last in line to get paid. Shares, the most active in pre-market trading on Instinet, gained 2 cents to 63 cents after plunging 85 percent yesterday. The company's 6.4 percent notes that mature in 2006 were unchanged at about 22 cents on the dollar, traders said. At that price the notes yield 53 percent. Enron said this morning it was evaluating whether it will pay a declared dividend. The company is scheduled to pay a 12.5-cent quarter dividend on Dec. 20 `Black Hole' For investors now considering buying Enron's bonds and other debts, a major issue is the uncertainty surrounding the company's value. ``Until the forensic accountants can get in there and sort things out you just don't know what Enron's worth,'' said Gary Hindes, managing director of Deltec Asset Management LLC. ``It's a black hole.'' Deltec has no investment in Enron, Hindes said. Enron's bond prices reflect the uncertainty. The company's 6.4 percent bonds, which mature in 2006, were quoted at 20 cents on the dollar, down from 53 cents Tuesday. Some recovery for Enron creditors in a bankruptcy case may come from lawsuits, said Russell A. Belinsky, an investment banker with Chanin Capital Partners, which also has been approached for advice by Enron bondholders. ``There's a lot of juicy legal issues,'' said Belinsky. Potential targets include Enron's accounting firm and its officers and directors, he said. Liability Dynegy might face some liability for canceling its purchase of Enron. Dynegy invoked terms of the buyout agreement that gave it the right to purchase an Enron natural gas pipeline if the takeover fell apart. Dynegy received the right to the pipeline in exchange for a $1.5 billion investment in Enron by ChevronTexaco Corp., which owns one-fourth of Dynegy. Enron might use bankruptcy to prevent Dynegy from walking away from the buyout and claiming ownership to the pipeline. The Dynegy acquisition, valued at $23 billion when it was proposed on Nov. 9, collapsed as bankers failed to raise the $1.5 billion Enron needed to operate until the deal was completed. The lack of funds and a credit downgrade contributed to Dynegy's decision. Bankers led by J.P. Morgan Chase & Co. Vice Chairman James B. Lee tried for two weeks to raise the cash Enron needed. Investors turned them down because of heightened concern Enron wouldn't be able to pay its debts. Three credit-rating agencies yesterday cut Enron's credit rating to junk status, triggering an acceleration of the company's debt obligations. Unraveling Enron's unraveling began in October after it said shareholders' equity was reduced by $1.2 billion because of the way the company accounted for outside partnerships it created. The announcement prompted lawsuits and an investigation by the U.S. Securities and Exchange Commission, and Enron ended up restating earnings for almost five years. As shares plunged, Enron's trading partners lost confidence the company would have the cash to pay bills. Trading partners such as Mirant Corp. either demanded more collateral to trade or restricted trading with the company. ``The situation is dire,'' said Deltec's Hindes. ``No one's going to trade with Enron right now because you could wind up being an unsecured creditor tomorrow.'' Enron's Derivatives Debt Doesn't Reveal Market Risk, NYT Says 2001-11-29 07:32 (New York) Houston, Nov. 29 (Bloomberg) -- Enron Corp.'s derivatives trading liabilities at the end of September were $18.7 billion, although nobody is sure just how much money the energy-related derivatives markets will have at risk if Enron fails, the New York Times reported. While these liabilities, the amount of money it would owe to other market players if it filed for bankruptcy, were up ``slightly'' from June levels, they are about $1.3 billion less than at the end of last year, the paper said. The numbers don't take into account the unknown amount of collateral that Enron may have posted, the paper said, citing Swaps Monitor President Paul Spraos. The collateral should, in principle, diminish Enron's actual liabilities, he said. In an energy swap, a company enters into a contract to lock in a fixed price of a certain commodity, like natural gas or electricity. The other company assumes the risk of future price changes and quotes a fixed price that includes its own profit. (NYT 11-29 C7) For the Web site of The New York Times, see {NYTI <GO<}. Powergen Says Exposure to Enron in U.S., U.K. `Not Material' 2001-11-29 04:37 (New York) Powergen Says Exposure to Enron in U.S., U.K. `Not Material' London, Nov. 29 (Bloomberg) -- Powergen Plc, the U.K. electricity generator being bought by Germany's E.ON AG, said its exposure to Enron Corp. is ``not material.'' It declined to provide detail on its open trading positions with the company. Powergen trades daily with in the U.S. and U.K. with Enron, the largest U.S. energy trader, which said yesterday that it may file for bankruptcy protection after Dynegy Inc. abandoned its proposed merger with the company. ``Enron is a regular trading partner of Powergen in both the U.K. and the U.S. -- we do have some exposure,'' said spokesman Jonathan Smith. ``This exposure is managed within clearly defined risks. It's not material in the context of the overall size of Powergen's operations.'' RWE AG, Europe's fourth-biggest electricity company, said today that its open trading positions with Enron Corp. amount to ``much less'' than 10 million euros ($8.9 million). Enron's Collapse Evokes Memories of Old-Time Bank Run, NYT Says 2001-11-29 06:31 (New York) Houston, Nov. 29 (Bloomberg) -- Enron Corp. was successful because the energy trading operation it created was largely an unregulated financial business and became something like a bank, which took depositors' money and promised to pay it back, Floyd Norris wrote in his column in the New York Times. When negotiations on Dynegy Inc.'s revised takeover came down to efforts to find $250 million or $500 million of Enron assets that could serve as collateral for a new Dynegy cash advance, it became clear that even Enron's rescuer was demanding collateral and having trouble finding it, the Times reported. Unlike banks, Enron had no federal deposit insurance to reassure customers when rumors spread that it was in trouble, the paper reported. Enron's collapse is a reminder for participants in unregulated markets that their financial health must be beyond doubt. Unregulated markets can be very profitable for those with market knowledge, as Enron seemed to have. Yet, when prices are visible to all, the value of that knowledge falls. New regulation can bring more openness, though it also can bring structures, like clearing systems that reassure traders they need to worry about the credit of those with whom they trade, the paper said. (NYT 11-29 A1) For the Web site of The New York Times, see {NYTI <GO<}. RWE Says Open Positions With Enron `Much Less' Than EU10 Mln 2001-11-29 03:13 (New York) RWE Says Open Positions With Enron `Much Less' Than EU10 Mln Essen, Germany, Nov. 29 (Bloomberg) -- RWE AG, Europe's fourth-biggest electricity company, said its open trading positions with Enron Corp. amount to ``much less'' than 10 million euros ($8.9 million). Enron, the largest U.S. energy trader, said yesterday it may file for bankruptcy protection after Dynegy Inc. abandoned its proposed merger with the company. ``It's sad that we may lose such an important trader in the market,'' said Ralf Schaefer, a spokesman for RWE's trading business. ``But there will be no financial losses for RWE.'' Essen, Germany-based RWE has been building up its trading activities in the last three years and trades electricity, natural gas and coal. European utilities are seeking to profit from excess electricity output by selling it on the open market. Enron Soared on Innovation, Fell as Debt Scared Away Investors 2001-11-29 01:01 (New York) Enron Soared on Innovation, Fell as Debt Scared Away Investors Houston, Nov. 29 (Bloomberg) -- Former Enron Corp. Chief Executive Officer Jeffrey Skilling bragged last year that traditional energy companies such as Exxon Mobil Corp. were doomed. In just two years, he built a business that dominated a $2 trillion market through trading energy, not producing it. Today, Enron is sliding toward bankruptcy, after Dynegy Inc. walked away from a takeover of its Houston rival. Credit rating companies reduced most of Enron's $15 billion of debt to junk status. Enron's shares are almost worthless and the Securities and Exchange Commission is investigating the company's finances. Chairman and CEO Kenneth Lay, a friend of President George W. Bush who made the short list for Secretary of Energy, said he would ``work to retain'' the employees needed for trading and certain other businesses. Enron employs 21,000 people. ``It's a disaster,'' said shareholder Scott Schermerhorn, fund manager with Colonial Management Associates. ``Bankruptcy is highly likely now.'' The same hubris reflected in Skilling's boast paved the way for the company's disintegration, analysts said. Enron asked shareholders to accept reports of 14 percent annual earnings growth, even as it used a bewildering series of outside partnerships to hedge risks and move assets and liabilities off its books. When accounting for those partnerships turned out to be wrong, investor confidence evaporated. Standard & Poor's, whose downgrade of Enron's debt yesterday was part of the proposed sale's unraveling, removed the company from its index of 500 stocks. Enron shares have lost more than 99 percent, or $45 billion in market value, making them the worst performer in the index this year. `World's Greatest Company' A sign at Enron's headquarters calls it ``The World's Greatest Company,'' and for several years many investors agreed. Enron's shares rose 50 percent in 1999, 87 percent last year, and for most of 2001 were the most highly recommended analyst pick among S&P 500 companies. Enron's high profile extended beyond Wall Street. The company accounted for a quarter of U.S. electricity and natural gas trades this year. Lay attended a Bush administration economic forum in January, and Vice President Richard Cheney sought his advice on energy policy. Enron, its political action committee and employees gave almost $2.5 million to federal candidates and political parties last year, with about 75 percent of the money going to Republicans, according to campaign finance records. ``Enron is aligned with all the Texas energy exploration and production money,'' said Glenn Reynolds, an analyst at CreditSights Inc. ``They know how to do business.'' Risky Strategy In 1990, Lay hired Skilling, who became a force behind the company's growth. He ripped away walls in Enron's headquarters, built trading desks and transformed the company's regulated pipeline and utility units into a business that some analysts say resembles a hedge fund. Enron reported 1999 profit of $893 million and $40.1 billion in revenue. That same year, Enron expanded into water utilities, sewage treatment and trading space on fiber-optic telecommunication networks. Shareholder lawsuits filed in the past month say those business were money losers from the start and that executives mislead investors about them. A junior executive in Europe dreamed up an idea in 1999 for an Internet trading site dealing paper, plastics and other commodities, in addition to the usual natural gas and electricity offerings. The site handled $50 billion in transactions in its first six months and more than $880 billion in trades in two years, 60 percent of the company's total. ``Enron had a tremendous appetite for risk,'' said Peter Fusaro, president of Global Change Associates, which did consulting for Enron. ``They were the first in many markets, would take long-term contracts, they were just super-aggressive. They hired Type-A MBA's from the best schools who learned the energy business from scratch.'' Investors in Dark Unknown by most investors, some of Enron's increased revenue was coming from sales of power plants to Enron-affiliated partnerships. Those partnerships paid for the purchases by selling bonds that were guaranteed by Enron. As a result, Enron's books showed an increase in cash from the sales, and a decrease in debt associated with the plants. An Enron restatement of finances earlier this month showed that as much as $3.9 billion, or about a quarter of Enron's total long term debt, had been shifted from Enron's books to affiliates. Skilling quit the company in August. Former Enron Chief Financial Officer Andrew Fastow was fired last month, after the company revealed that Fastow had personally profited from transactions he conducted with Enron partnerships. Enron has said it's cooperating with an SEC probe. When Enron's market value was near its high in late 2000 and early this year, eight top Enron executives, including Lay and Skilling, sold company stock for a total of $73 million. More than 20 securities lawsuits alleging illegal insider trading have been filed against the company. Lay pledged to provide more information on Enron's transactions, starting with the third-quarter earnings report. On Oct. 16, Enron stunned analysts and investors with the disclosure of $1.01 billion in losses from investments in businesses outside the main trading operation, such as in fiber- optics ventures and the Azurix water and sewage companies. ``Now you have a bankrupt company,'' said Rob Plaza, an analyst at financial advisers Morningstar who owns no Enron shares. ``That is the smoke and mirrors of Enron.'' Centrica May Have to Write off $43 Mln If Enron Fails (Update1) 2001-11-29 09:10 (New York) Centrica May Have to Write off $43 Mln If Enron Fails (Update1) (Adds detail on contracts in first paragraph, shares in fifth, background from sixth.) London, Nov. 29 (Bloomberg) -- Centrica Plc, the U.K.'s dominant natural-gas supplier, may have to write off gas and electricity contracts worth 30 million pounds ($43 million) if Enron Corp. goes out of business. The company agreed to a 10-year gas contract in 1998 with the U.S. energy trader, which may be forced into the biggest Chapter 11 filing in history after Dynegy Inc. walked away from a rescue. Enron supplies the U.K. company with more than 5 billion cubic meters of gas and an undisclosed amount of power. Centrica ``is working to reduce its trading exposure to Enron,'' it said in a Regulatory News Service statement. ``In the event Enron defaults on its contractual obligations, we remain confident in our ability to supply all our customers.'' Centrica, created in 1997 when it was spun off from British Gas, still makes most sales from supplying the fuel to customers in the U.K. It meets about 20 percent of that demand with gas from its own fields and buys the rest from other companies. Shares of the Slough, England-based company fell as much as 4.25 pence, or 2.1 percent, to 202.75. They've lost a fifth of their value this year. Enron shares are now almost worthless. Enron provides gas to Centrica at prices linked to the International Petroleum Exchange natural gas futures contract. Last week, Slough, England-based Centrica agreed to pay 62.3 million pounds for stakes in five natural gas fields in the North Sea to replace dwindling reserves. Enron Evaluating Whether to Pay Quarterly Dividend (Update1) 2001-11-29 08:44 (New York) Enron Evaluating Whether to Pay Quarterly Dividend (Update1) (Adds background on Dynegy withdrawal in third paragraph.) Houston, Nov. 29 (Bloomberg) -- Enron Corp., facing bankruptcy after Dynegy Inc. abandoned a buyout of the largest energy trader, said it is evaluating whether to pay dividends on its common and preferred stock next month. Enron is scheduled to pay a quarterly dividend of 12.5 cents a share Dec. 20. Dynegy yesterday withdrew its purchase offer, valued at about $23 billion in stock and assumed debt when announced Nov. 9, after bankers failed to raise $1.5 billion Enron needed to operate until the acquisition was completed. Credit-rating companies lowered Enron's rating to junk. Shares of Enron fell $3.50, or 85 percent, to 61 cents yesterday. They have fallen 99 percent this year. Dynegy fell $4.92, or 12 percent, to $35.97. Both companies are based in Houston.
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