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Enron Mail |
Congressional Panels to Probe Enron's Accounting, Trading
Bloomberg, 11/29/01 Nymex Tells Members Enron Trades Must Be Approved (Update2) Bloomberg, 11/29/01 Dynegy CEO Says He'd Rather Have Enron Pipeline Than $1.5 Bln Bloomberg, 11/29/01 Italian Banks Fall on Concern About Enron Exposure (Update2) Bloomberg, 11/29/01 Argentine Analysts, Perez Companc Comment on TGS After Enron Bloomberg, 11/29/01 Duke, Williams Among Companies Facing Enron Losses (Update2) Bloomberg, 11/29/01 Enron's Problems Aren't Industry Problems, Felsinger Tells CNBC Bloomberg, 11/29/01 California's Senator Dunn Comments on Possible Enron Bankruptcy Bloomberg, 11/29/01 CIBC Says It Is Owed $215 Million by Cash-Strapped Trader Enron Bloomberg, 11/29/01 Intelligent Asset' Author Bernstein Comments on 401(k) Plans Bloomberg, 11/29/01 Enron Corp. Has Fourth-Busiest Day for a U.S. Stock: Table Bloomberg, 11/29/01 Enron Corp. Is Poised to File Largest-Ever Bankruptcy (Update3) Bloomberg, 11/29/01 Congressional Panels to Probe Enron's Accounting, Trading 2001-11-29 15:59 (New York) Congressional Panels to Probe Enron's Accounting, Trading Washington, Nov. 29 (Bloomberg) -- Senate and House committees will investigate the collapse of Enron Corp and consider new regulations for electricity and natural-gas trading. Enron, the largest energy trader, is expected to file for Chapter 11 protection after the collapse of a planned merger with Dynegy Inc. The House Energy Committee will hold hearings as early as next month to scrutinize the accounting practices and earnings reports of Enron, said Ken Johnson, a panel spokesman. The Senate Energy Committee may begin looking in January at more federal oversight of trading. ``When you have such a spectacular event as the collapse of a company that controlled 50 percent of the natural-gas and electricity trading, we're going to have some thoughts on that,'' said Bill Wicker, a spokesman for the Senate Energy Committee. Enron's importance in energy trading and questions about its accounting practices require an investigation, said Senate Majority Leader Tom Daschle of South Dakota. ``I don't know that anybody knows yet just how this happened and how it happened so quickly,'' he told reporters on Capitol Hill. ``It raises some very serious questions.'' The unraveling of Enron, which is saddled with $15 billion in publicly held debt, began in October. 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. Nymex Tells Members Enron Trades Must Be Approved (Update2) 2001-11-29 15:16 (New York) Nymex Tells Members Enron Trades Must Be Approved (Update2) (Adds analyst quote in fourth paragraph, Enron share price in sixth paragraph.) New York, Nov. 29 (Bloomberg) -- New York Mercantile Exchange President J. Robert Collins told brokers on the largest energy exchange's trading floor that they could not accept orders from Enron Corp. unless they receive written authorization from an exchange clearing member. The order is effective immediately and will ``remain in effect until further notice from the exchange,'' according to a fax Collins sent today to member firms. A copy of the fax was obtained by Bloomberg News. Exchange officials did not immediately return phone calls. Enron's worsening financial condition has made many clearing members, which back trades on the exchange for a fee, wary of taking on additional business from Enron. The Nymex order aims to alert independent floor brokers that clearing members who once freely accepted Enron trades may no longer be so willing, analysts said. Nymex is ``reminding everyone that it's not business as usual when it comes to Enron,'' said Tim Evans, senior energy analyst at IFR Pegasus in New York, a unit of Thomson Corp. ``For Enron, it mean slower order execution -- as if they don't have enough handicaps already.'' Enron may be forced to file for bankruptcy to liquidate assets to pay off some of its $15 billion in publicly held debt, analyst said. Enron shares fell 24 cents to 37 cents in afternoon trading. That's down from about $80 at the beginning of this year. Covering Enron Debts Under exchange rules, clearing members would be forced to cover Enron's obligations if the firm defaulted on its positions. Many energy traders, including rivals Mirant Corp. and Aquila Inc., already have reduced the number of trades they're doing with Enron in the over-the-counter markets, which involve direct trades between companies that don't carry the financial guarantees of regulated commodity exchanges. The New York exchange yesterday said it will raise margins on its natural gas and crude oil futures contracts at the close of trading today. Margins are deposits traders must make with the exchange when buying or selling futures contracts to ensure obligations will be met. While the exchange gave no reason for the increase, the decision followed a day of wide changes in natural gas prices. The swings began after Dynegy Inc. abandoned plans to purchase Enron, once the biggest gas trader. Dynegy CEO Says He'd Rather Have Enron Pipeline Than $1.5 Bln 2001-11-29 14:56 (New York) Dynegy CEO Says He'd Rather Have Enron Pipeline Than $1.5 Bln Houston, Nov. 29, (Bloomberg) -- Dynegy Inc. Chairman Chuck Watson said he would rather take over an Enron pipeline than get back the $1.5 billion investment that entitles Dynegy to the line. Watson said Dynegy expects to take over operation of the 16,500-mile Northern Natural pipeline system by Dec. 19. ChevronTexaco Corp., which owns 26 percent of Dynegy, gave Enron $1.5 billion to help the cash-strapped company stay in business. The investment, part of Dynegy's plan to buy Enron, was backed by the Northern Natural system. Dynegy backed out of the merger yesterday, and said it would exercise its right to take over the line. Watson said he hopes that Northern Natural employees will continue to operate the pipeline after Dynegy takes ownership. Italian Banks Fall on Concern About Enron Exposure (Update2) 2001-11-29 14:20 (New York) Italian Banks Fall on Concern About Enron Exposure (Update2) (Closes shares in second paragraph; adds analyst comment from eighth, estimates of exposure in 10th.) Milan, Nov. 29 (Bloomberg) -- IntesaBci SpA and UniCredito Italiano SpA shares fell on investors' concern that Italian banks may not recoup money lent to units of Enron Corp. if the largest U.S. energy trader goes bankrupt. IntesaBci, Italy's biggest bank, fell 2.4 percent to 2.75 euros while UniCredito, the No. 2 lender, lost 1.9 percent to 4.24 euros. Banca Nazionale del Lavoro SpA, the nation's sixth-largest bank, dropped 1.4 percent to 2.55. ``The theme of the day is to sell banks because they are exposed to Enron,'' said Daniele Savare, who helps manage 120 million euros ($106 million) at Bipielle Asset Management. ``In some cases, the reaction may be a bit overdone.'' 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 be the biggest Chapter 11 reorganization in history. ``I've heard Intesa is the most exposed, to the tune of between 400 billion and 500 billion lire ($183 million-$229 million),'' said Gianluca Ferrari, who helps manage 260 million euros in stocks at Banca Valsabbina in Brescia. Gabrio Gelmi, an Intesa spokesman, confirmed Enron is a client of the bank, though he declined to comment on the size of its exposure. Luigi Ferrari, a spokesman at San Paolo-IMI SpA, said the exposure of Italy's No. 3 bank was ``limited and under control.'' He declined to give an amount. Diversified Officials at UniCredito, Banca Nazionale del Lavoro and Banca di Roma SpA were not immediately available for comment. ``It doesn't make sense to attribute the declines today purely to the Enron exposure,'' said Luca Comi, head of research at Eptasim. ``If it's just one company that's in trouble, banks are sufficiently diversified that the impact is very limited.'' Comi said San Paolo had told him Enron had borrowed 80 million euros as part of a 120 million-euro credit line. Of the loan, 50 million euros is guaranteed by Enron assets, the analyst said. San Paolo shares fell 1 percent to 12.41 euros. Other banks have higher exposure to Enron, such as 168 million euros for Intesa, Banca Nazionale del Lavoro's 142 million euros and 122 million euros at UniCredito, investors said, citing analysts' reports. Argentine Analysts, Perez Companc Comment on TGS After Enron 2001-11-29 15:55 (New York) Buenos Aires, Nov. 29 (Bloomberg) -- Eugenia Benitez, an energy analyst at Allaria Ledesma & Cia, Esteban Marx, an analyst at Banco Comafi, Gustavo Neffa, an analyst at BBVA Banco Frances SA and Mario Grandinetti, head of Perez Companc's institutional relations, comment on the future of gas distributor Transportadora de Gas del Sur SA. Enron Corp., which together with Perez Companc owns 70 percent of TGS, may file for bankruptcy protection in the biggest bankruptcy reorganization in history. The move may force the largest U.S. energy trader to liquidate assets to pay some of its $15 billion in publicly held debt. Eugenia Benitez: ``The natural buyer is Perez Companc. There's definitely the possibility of reaching a deal that would make Perez the only controlling shareholder of TGS. ``We would need to see how much TGS debt Perez has. Its debt profile is relevant. ``The acquisition would be another step in Perez' strategy of integrating all its operations in one holding.'' Esteban Marx: ``Perez is the natural candidate, but I'm not sure now is the right time for Perez to pour money into TGS, unless it can get it really cheap.'' Gustavo Neffa: ``The only company that could make the sort of investment to by the TGS stake is Perez Companc, but its a huge investment given that TGS' assets are worth about $1 billion. ``But it would definitely be the likely buyer.'' Grandinetti: ``We're not permitted to buy Enron's stake in TGS because of rules that prevent us having a majority stake. ``If the law is modified, then yes we would consider it. But there are also economic issues to consider.'' Duke, Williams Among Companies Facing Enron Losses (Update2) 2001-11-29 16:23 (New York) Duke, Williams Among Companies Facing Enron Losses (Update2) (Updates total in second paragraph, adds closing stock price in ninth paragraph and analyst comment in paragraph 12th and 20th paragraphs.) Houston, Nov. 29 (Bloomberg) -- Duke Energy Corp., J.P. Morgan Chase & Co., Williams Cos. and a dozen other companies together may lose more than $1.1 billion from the collapse of Enron Corp. Electricity and natural gas companies said Enron owed them about $660 million as of yesterday, when Dynegy Inc. abandoned a merger that deprived Enron of cash it needs to avoid insolvency. J.P. Morgan, the bank that was Enron's adviser on the failed buyout, said it is owed $500 million for unsecured loans. Losses may grow as companies tally their exposure from transactions with Houston-based Enron, the largest energy trader, with revenue last year of $100 billion. Enron also manages power supply for companies such as J.C. Penney Co. and Eli Lilly & Co., and owns pipelines and a fiber-optic telecommunications network. Some companies ``have positions that they're not owning up to,'' said Peter Fusaro, president of Global Change Associates Inc., an energy research firm. ``Enron had long-term deals on the books, and these may take years to sort out. How could they not have big exposure?'' Enron is poised to file the largest bankruptcy reorganization in history. The company is saddled with more than $15 billion in debt and had less than $2 billion in cash as of last week. It must pay $690 million to lenders by mid-December and is responsible for another $3.9 billion in debt owed by affiliated partnerships. The company's credit-rating was downgraded to junk status yesterday. ``Considering Enron's size and clout, there are very few companies in the energy business or electric utility companies that have not done business with them,'' said Jon Cartwright, a fixed-income analyst at Raymond & James Associates. ``I don't believe that everyone could have gotten out of their exposure.'' Limited Payments Enron said yesterday it will continue payments necessary to maintain its trading and other core energy businesses, while suspending all others. It also resumed limited trading on its EnronOnline Internet market, after shutting down most of yesterday. The New York Mercantile Exchange, the largest energy market, tightened trading restrictions on Enron in a move that members said was made to limit the risk from any new business with the company. Shares of Enron fell 25 cents to 36 cents, compared with $70 a year ago. If Enron is unable to pay all it owes, Duke and Williams said they would lose no more than $100 million each. Duke, the largest U.S. utility owner, didn't stop trading with Enron until yesterday, and warned that its earnings may be affected. ``We are closely monitoring this unfortunate situation to determine if a provision against earnings is appropriate,'' Richard J. Osborne, Duke's executive vice president and chief risk officer, said in a statement today `Reassure Investors' Energy companies that did business with Enron are trying ``to reassure investors that they're not going to go belly up as a result of Enron's demise,'' said Gordon Howald, an analyst at Credit Lyonnais Securities Inc. ``Investors still need to be cautious about this industry, because there are a lot of unanswered questions.'' Reliant Resources Inc. said it faces $80 million in losses from transactions with Enron involving electricity and natural gas sales. Dynegy said it faces $75 million in losses, though it plans to exercise its option under the buyout agreement to take the Northern Natural Gas system in exchange for a $1.5 billion investment in Enron. Mirant Corp., an Atlanta-based energy trader, said it would lose no more than $60 million. Aquila Inc., American Electric Power Co. and El Paso Corp. said each estimated their exposure to Enron at $50 million. More Losses Centrica, the dominant U.K. natural-gas supplier, may write off contracts worth $43 million if Enron fails, the company said in a statement. Exelon Corp., owner of utilities in Chicago and Philadelphia, said its exposure is less than $20 million. Dominion Resources Inc., a power and gas utility said its exposure for past sales is $11 million. RWE, Europe's fourth-biggest utility owner, said its open trading positions with Enron are ``much less'' than $8.9 million. St. Mary Land and Exploration Co., a Denver-based natural-gas producer, said it has hedged $4.17 million of production with Enron through 2003. Western Gas Resources Inc. said it faces $2.6 million in possible losses. NRG Energy Inc. announced a potential liability of $10 million through its energy trading with Enron, and Plains Resources Inc. said its exposure through to the end of next year was about $630,000. Companies that did business with Enron ``relied for the most part on the rating agencies'' to determine if Enron was financially sound, Credit Lyonnais' Howald said. Enron ``was investment grade, and they were solidly investment grade for some time. I don't think you can fault these companies for doing business with a company that represented 20 percent'' of the market. Some companies, such as Calpine Corp., said they had no exposure to Enron. J.P. Morgan has a $400 million loan secured by Enron's Transwestern and Northern Natural Gas Pipelines, the bank said. Enron's Problems Aren't Industry Problems, Felsinger Tells CNBC 2001-11-29 16:33 (New York) San Diego, Nov. 29 (Bloomberg) -- Enron Corp.'s problems are particular to the company and should not reflect on the energy industry, Sempra Energy Group President Donald Felsinger said in an interview with financial news network CNBC. ``I've really been surprised and impressed in how well the energy industry has responded with Enron's problems,'' he said. ``The past month the energy players have stepped up and taken over positions that Enron had, and the energy market today is working very well.'' Felsinger said $15 million in business with Enron isn't ``material'' and will not affect Sempra Energy's earnings this year or next year. California's Senator Dunn Comments on Possible Enron Bankruptcy 2001-11-29 17:03 (New York) Sacramento, California, Nov. 29 (Bloomberg) -- California State Senator Joseph Dunn, chairman of a committee investigating possible price manipulation in the state's wholesale power market, comments on how an Enron Corp. bankruptcy would affect the probe: ``If we assume Enron files for bankruptcy, either through liquidation or reorganization, our ability to deal with the corporate entity to get documents and access to witnesses will be overseen by a bankruptcy court, which means we have to jump through additional hoops and ladders to get the information we may require. ``Substantively, it doesn't affect our investigation at all because the Senate's investigation is not out to get anybody. We are tying to get a very thorough understanding of why we got into the mess we are in and whether any concrete legislative fixes in the wholesale market need to be taken. ``Enron was a critical player in setting up the market that ultimately gave rise to the market power, which in my view is the ultimate cause of the energy crisis. ``There are some pluses and there are some minuses if we assume that Enron disappeared from the energy trading market. It would create a void that would have to be filled by other players in the wholesale market. ``If those other players that fill that void do not currently posses market power, that's a good thing because the diffusion of market share, most economists will tell you, is one of the best ways to eliminate already existing market power. ``If Enron goes into reorganization bankruptcy rather than liquidation, and they are purchased by one of the big players that currently possesses market power, then we are only going to complicate the crisis that we currently find ourselves in.'' CIBC Says It Is Owed $215 Million by Cash-Strapped Trader Enron 2001-11-29 17:15 (New York) CIBC Says It Is Owed $215 Million by Cash-Strapped Trader Enron Toronto, Nov. 29 (Bloomberg) -- Canadian Imperial Bank of Commerce, the country's third-biggest bank, said Enron Corp. owes it $215 million, more than half in unsecured loans, letters of credit and derivatives. CIBC won't revise its fiscal 2002 forecast on loan-loss provisions because of Enron's problems, the bank said in a statement distributed by PR Newswire. CIBC said Monday it expected loan losses to be about 10 percent higher in the year ending Oct. 31 from C$1.1 billion ($695.8 million) last year Toronto-based CIBC said it's owed about $115 million in unsecured items and $100 million in secured loans by Enron. Houston-based Enron, once the biggest energy trader, may face bankruptcy after Dynegy Inc. withdrew a bid for the cash-strapped company. Enron is poised to file the largest bankruptcy reorganization in history. The company has more than $15 billion in debt and had less than $2 billion in cash as of last week. Shares of CIBC rose C$1 to C$54.15 in Toronto. It released the statement after North American markets closed. Enron fell 25 cents to 36 cents. `Intelligent Asset' Author Bernstein Comments on 401(k) Plans 2001-11-29 17:23 (New York) North Bend, Oregon, Nov. 29 (Bloomberg) -- William J. Bernstein, author of the investment book ``The Intelligent Asset Allocator,'' comments on the disadvantages of corporate pension plans that hold company stock and place the responsibility and risk of managing retirement savings with employees. His comments follow the collapse of Enron Corp., whose 401(k) plan held 62 percent of assets in the energy trader's common and convertible preferred stock at the end of 2000 and restricted employees' ability to sell. As of the end of 2000, about $1.8 trillion was invested in 401(k) plans serving 42 million U.S. workers, according to Cerulli Associates. Investors in 401(k) plans lost money last year for the first time since they were introduced in 1981 as stocks fell. ``Maybe some good will come of'' Enron's collapse in the way of national pension reform, said Bernstein. ``It's never, ever prudent to put your company stock in your retirement plan. The overwhelming majority of plans allow it and a large plurality of them encourage it. A fairly significant minority of plans have very large amounts of company stock. You want to diversify your risks. If your company fails, at least you have a backstop.'' Bernstein said individual investors ought to consider putting their retirement savings into a combination of low-cost mutual funds that track indexes for U.S. stocks and bonds and international stocks. ``The average person has as much business managing their own retirement as they do taking out their own appendix,'' said Bernstein, a neurologist by profession. In addition, average 401(k) plan expenses of 3.5 percent of assets exceed the projected annual returns of 3 percent from stocks in coming years after adjusting for inflation, meaning investors are facing zero long-term real gains, Bernstein said. Expenses are lower with traditional corporate pension plans, known as defined benefit plans because they guarantee a certain level of retirement benefits based on pay and years of service. ``The way defined contribution plans are currently set up there is not adequate controls on expenses. What you're really getting is an enormous transfer of wealth from plan participants to the financial services industry. This is an enormous social experiment that's been foisted upon us and it's going to be a failure,'' said Bernstein. Enron Corp. Has Fourth-Busiest Day for a U.S. Stock: Table 2001-11-29 17:17 (New York) Enron Corp. Has Fourth-Busiest Day for a U.S. Stock: Table New York, Nov. 29 (Bloomberg) -- Enron Corp. had the fourth most-active day for a U.S. stock, with 264.9 million shares trading, according to preliminary figures from the New York Stock Exchange. Enron fell 25 cents, or 41 percent, to 36 cents a share. Yesterday, the stock set an all-time volume record after Dynegy Inc. abandoned a takeover bid, leaving the company that was once the largest energy trader without enough cash to pay its $15 billion in debt. The following is a list of stocks with the 10 highest one-day trading volumes in U.S. market history, according to data from the NYSE and the Nasdaq Stock Market. *T Stock Date Volume (in Millions) Enron Corp. Nov. 28, 2001 345.7 Intel Corp. Sept. 22, 2000 308.7 Cisco Systems Inc. Feb. 7, 2001 281.6 Enron Nov. 29, 2001 264.9 Oracle Corp. March 2, 2001 224.0 Cisco Systems Jan. 10, 2001 213.0 JDS Uniphase Corp. July 26, 2000 200.4 Cisco Systems Oct. 3, 2001 196.5 WorldCom Inc. Nov. 1, 2000 195.5 Exodus Communications Sept. 25, 2001 193.1 *T Enron Corp. Is Poised to File Largest-Ever Bankruptcy (Update3) 2001-11-29 17:30 (New York) Enron Corp. Is Poised to File Largest-Ever Bankruptcy (Update3) (Adds investor comment in eighth paragraph.) Washington, Nov. 29 (Bloomberg) -- Enron Corp. is poised to file the largest bankruptcy reorganization in history after Dynegy Inc. scuttled plans to acquire the energy trader that is saddled with more than $15 billion in debt. Enron, with less than $2 billion in cash as of last week, must pay $690 million to lenders by mid-December and is responsible for another $3.9 billion in debt owed by affiliated partnerships. The company's credit-rating was downgraded to junk status yesterday. Houston-based Enron's collapse was underscored by new restrictions on its operations. The New York Mercantile Exchange barred floor members from accepting orders from Enron without special written authorization, and the company's Internet trading was reduced from about 30 commodities to just natural gas, electricity and metals. A bankruptcy filing by Enron, which investors said may come within a matter of days, would top Texaco Inc.'s record $35.9 billion case in 1987. Creditors would be lining up to claim what's left of the company's more than $61 billion in assets. ``It's a black hole,'' said Gary Hindes, managing director of Deltec Asset Management LLC, which has no investment in Enron. ``Until the forensic accountants can get in there and sort things out, you just don't know what Enron's worth.'' Duke Energy Corp., J.P. Morgan Chase & Co., Williams Cos. and a dozen other companies say they may lose more than $1 billion combined from Enron's collapse. Electricity and natural gas companies said Enron owed them almost $600 million as of yesterday. European Administrator In London, PricewaterhouseCoopers was appointed administrator of Enron's European holding company and some of its operating companies, a step other companies have taken before filing Chapter 11 papers in the U.S. ``If I were a betting man, Enron going into Chapter 11 in the next week is a bet I'd make,'' said Glen Hilton, who helps manage $125 million, including Dynegy shares, for Montgomery Asset Management. Enron shares have lost more than $26 billion in market value in the last seven weeks. They fell 25 cents, or 41 percent, to 36 cents. The shares traded at $54.54 on June 4. Enron bonds were bid at 23 cents on the dollar in late trading, little changed from yesterday, traders said. The debt had been near full value as recently as last month. Quarterly Dividend The company said this morning it was evaluating whether it will pay a scheduled 12.5-cent quarterly dividend on Dec. 20. Enron hired the law firm Weil Gotshal & Manges LLP, which has the nation's largest bankruptcy practice, and the Blackstone Group LP investment banking firm. Arthur Newman, head of restructuring at Blackstone, said his firm was retained and declined to comment further. Chapter 11 would let Enron officials continue to control the company while negotiating a recovery plan with creditors. A provision of U.S. bankruptcy law automatically blocks 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. Thousands Affected 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. 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. Recovery 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. Shareholders Enron's shareholders are likely to lose all of their investment in Chapter 11 because they would be last in line to get paid. 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. ``Disentangling all the pieces in a reorganization is going to be a painstaking job.'' Liability Dynegy might face some liability for cancelling 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. 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.''
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