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Enron and Dynegy Discuss Plan to Cut Price of Acquisition
The Wall Street Journal, 11/27/01 Fair Shares? Why Company Stock Is a Burden for Many -- And Less So for a Few --- Workers Often Must Hold On To Stakes Held in 401(k)s; Top Brass Have Options --- Hedging for the `Upper Tier' The Wall Street Journal, 11/27/01 'Stimulus' for Enron The New York Times, 11/27/01 Enron Talking With Dynegy As They Work To Rescue Deal The New York Times, 11/27/01 Top Companies Issuing Debt At a Fast Pace The New York Times, 11/27/01 Battered Enron in Search of $1 Billion; Stock's Decline Raises Doubts About Buyout The Washington Post, 11/27/01 Enron, Dynegy deal back on table Houston Chronicle, 11/27/01 Sizable staff of 245 lawyers in merger limbo Houston Chronicle, 11/27/01 Bin Laden threat against pipelines taken seriously Houston Chronicle, 11/27/01 Current recession differs from others Houston Chronicle, 11/27/01 Enron Gains on Optimism Dynegy Purchase to Proceed (Update1) Bloomberg, 11/27/01 Deutsche Banc Alex. Brown's Tice Comments on Enron Corp. Debt Bloomberg, 11/27/01 Investors bet Enron deal will go bust ; Dynegy could kill deal or drop price Chicago Tribune, 11/27/01 Pressure Mounts on Enron Buyout Energy: Stock drops to its lowest since '87 on doubts Dynegy deal will go through. Workers sue over shrinking 401(k)s. Los Angeles Times, 11/27/01 GLOBAL INVESTING - A creative approach to property liabilities. Financial Times, 11/27/01 USA: Enron may cut price of Dynegy deal by 40 percent-WSJ. Reuters English News Service, 11/27/01 Enron, Dynegy Discuss Plan to Cut Price of Acquisition Dow Jones Business News, 11/27/01 Report: Enron, Dynegy deal back on table Associated Press Newswires, 11/27/01 MONEY MAKE-OVER Club Sticks Together Through Thick, Thin Los Angeles Times, 11/27/01 Enron workers file another suit to recover losses in retirement accounts AFX News, 11/27/01 Fate of Enron's Forest Products Group Up in the Air, in an Advisory by Industrialinfo.com Business Wire, 11/27/01 Enron, Dynegy to rework $24B deal The Daily Deal, 11/27/01 INDIA: Enron India unit, lenders to meet in UK this week. Reuters English News Service, 11/27/01 Man arrested for issuing e-mail threat to Enron The Times of India, 11/27/01 COMPANIES & FINANCE THE AMERICAS - Demand for electricity re-energises gas project. Financial Times, 11/27/01 THE AMERICAS - Bolivia urged to handle its new-found wealth with care. Financial Times, 11/27/01 USA: UPDATE 1-Enron lawsuit seen as wake-up call for pensions. Reuters English News Service, 11/26/01 USA: Calif. Attorney Gen'l to examine Dynegy-Enron deal. Reuters English News Service, 11/26/01 Dynegy May Modify Enron Purchase Terms, People Say (Update2) Bloomberg, 11/26/01 Enron Faces New Employee Suit Alleging Securities Violations Bloomberg, 11/26/01 California Agency Must Generate Revenue, Analyst Says (Update3) Bloomberg, 11/26/01 Enron Plunges, but Dynegy Will Suffer, Too TheStreet.com, 11/26/01 Enron and Dynegy Discuss Plan to Cut Price of Acquisition By Rebecca Smith and Robin Sidel Staff Reporters of The Wall Street Journal 11/27/2001 The Wall Street Journal A3 (Copyright © 2001, Dow Jones & Company, Inc.) Enron Corp., struggling to save its two-week-old deal to be acquired by Dynegy Inc., was in advanced discussions with Dynegy to cut the price of the all-stock transaction by more than 40% to about $5 billion, according to people familiar with the matter. Beleaguered Enron also was in continuing negotiations to extend the maturity dates of some of its borrowings in order to stem a growing liquidity crisis, these people said. Enron has total debt of about $13 billion. Increasingly, analysts are worried that the giant energy-trading concern's relatively few hard assets are so encumbered by debt that they can't be used to support further borrowing. Enron stock slid to its lowest level in over a decade at 4 p.m. yesterday on the New York Stock Exchange, falling 70 cents to $4.01 a share. Over the past few months, about $60 billion of Enron's stock value has evaporated, a process that has accelerated since mid-October when the company announced a quarterly loss and a subsequent reduction in its equity base. Since then, revelations that company executives profited from partnerships used to move assets on and off Enron's books have spooked investors and triggered a Securities and Exchange Commission investigation. Recently, the company has twice restated earnings for past periods amid indications that its vaunted energy trading business is showing some signs of stress. The move to renegotiate the acquisition agreement, and particularly to slash the number of Dynegy shares that Enron holders would receive, only two weeks after the pact's signing is virtually unheard of in corporate transactions. While terms are sometimes altered due to unanticipated developments, that typically doesn't happen until a transaction is nearly completed. Enron had hoped to finalize arrangements and make an announcement yesterday that would calm its anxious investors, but the situation remained fluid throughout the day. As of yesterday evening, the revised deal still hadn't been formalized. The deal is critical for Enron. In recent weeks, credit-rating agencies have indicated they will refrain from further cuts to Enron's credit rating so long as a Dynegy purchase appears probable. But if that deal collapses, downgrades could occur that would put Enron below investment grade and in violation of credit agreements with counterparties. This in turn could deal a savage blow to Enron's commodity-trading business that is its lifeblood. Negotiators for the two companies returned to their home bases of Houston yesterday after spending much of the holiday weekend meeting in suburban New York where they tried to agree on new provisions to the deal, which was announced Nov. 9. Both Dynegy and Enron declined to comment on the discussions. One apparent sticking point in the talks was arriving at a new stock-exchange ratio. Under the current acquisition agreement, Dynegy would exchange 0.2685 share for each Enron share tendered. Based on yesterday's New York Stock Exchange closing price of $39.25 for Dynegy shares, down $1.15, Enron holders stand to receive $10.53 a share for their stock, or a total of about $9 billion. People close to the discussions said the new ratio is expected to be less than 0.15 share of Dynegy stock for every share of Enron stock, which would value Enron at less than $6 a share, or about $5 billion. Another contentious issue concerns the amount of additional capital Enron needs to shore up its finances. A week ago, the company disclosed it may have to post hundreds of millions of dollars or more to honor collateral calls before the end of the year. The problem for potential lenders is finding good assets to back these continued infusions of capital sought by Enron. As part of the original merger agreement, Dynegy already has injected $1.5 billion into Enron, receiving in exchange preferred stock in its Northern Natural Gas Co. pipeline system that runs from the upper Midwest to Texas. Under the agreement, if the acquisition falls apart, Dynegy "will have the right to acquire 100% of the equity in the Northern Natural Gas subsidiary," thus giving it "the full value of its investment." But that arrangement is raising questions on Wall Street about whether creditors are throwing good money after bad. Northern Natural Gas already is heavily encumbered with debts. In addition to $500 million in unsecured public debt and $1.5 billion put in by Dynegy and co-investor ChevronTexaco Inc., a bank consortium led by J.P. Morgan Chase & Co. recently put in an additional $450 million in cash backed by Northern's assets. The bank consortium also provided $550 million to Enron, against which assets of Enron's Transwestern Pipeline Co. unit were pledged. This system, a network between Texas and California, is the only other domestic gas-transportation system fully owned by Enron. That brings total indebtedness to nearly $4 billion for two Enron pipeline systems that only generated transportation revenue of $77 million and $41 million, respectively, in the third quarter. Enron's entire natural-gas pipeline business, which includes two other partially owned systems, produced pretax earnings of $85 million for the third quarter, flat with the year-earlier period. Some observers said that if the Enron deal to be acquired by Dynegy falls apart, this could set the stage for a fight among the different classes of creditors for a priority claim on the pipeline assets. --- Jathon Sapsford contributed to this article. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Fair Shares? Why Company Stock Is a Burden for Many -- And Less So for a Few --- Workers Often Must Hold On To Stakes Held in 401(k)s; Top Brass Have Options --- Hedging for the `Upper Tier' By Ellen E. Schultz and Theo Francis Staff Reporters of The Wall Street Journal 11/27/2001 The Wall Street Journal A1 (Copyright © 2001, Dow Jones & Company, Inc.) In the 1990s, as the stock market climbed year after year, many corporations and their employees entered into a marriage of convenience: The company would dole out its own shares as compensation and benefits. Employees would have a steadily appreciating asset that encouraged loyalty and created an incentive to work hard for the company's success. They're still doing it. Gillette Co., for example, "believes it is important that employee interests be aligned with company interests," says spokesman Stephen K. Brayton, echoing the explanations of dozens of other companies that use their own stock for executive pay, incentive bonuses, or contributions to 401(k) retirement-savings accounts. But as share prices have fallen over the past year and a half, it has become clear that not all stock handouts are created equal. Millions of rank-and-file workers at hundreds of companies have found themselves shackled to big chunks of company stock, while executives are able to exercise wide latitude in what they do with theirs. Because of the law capping tax-deductible executive compensation at $1 million a year, many companies top off their executive pay packages with stock options, as well as bonuses and other incentives that are typically paid in stock, much of it unencumbered. Based on filings with the Securities and Exchange Commission, hundreds of companies use their own stock in lieu of cash as their matching contributions to employees' retirement-savings accounts. And the majority of those restrict the ability of employees to sell the shares and move the proceeds into mutual funds and other alternatives offered through their 401(k)s. Benefits consultants Hewitt Associates found in a recent study that nearly half of 215 firms offering company stock in their 401(k) plans only contribute their own shares to employee accounts, and that 85% of those companies restrict sales of the stock. Gillette doesn't let employees switch out of its stock contributions to their 401(k)s until age 50, according to government filings. At Coca-Cola Co., it's age 53. Procter & Gamble Co., Qwest Communications International Inc. and troubled Enron Corp. -- now facing lawsuits over employees' 401(k) losses -- are among the many others that impose similar restrictions. So far this year, Gillette employees have had to watch the company-contribution portion of their retirement savings shrink by millions of dollars as the share price has fallen 11%. Employees at Coca-Cola have endured a share-price decline this year of 18%. Procter & Gamble shares have been flat. The companies point out that executives participate in the same 401(k) plans as other employees, subject to the same restrictions. Still, the bulk of company stock that executives own is usually held outside such restricted accounts. At Qwest, with a share price down 69% so far this year, top executives and directors have sold a combined $172 million of Qwest shares so far this year, according to SEC data collected by Thomson Financial/Lancer Analytics. Qwest Chief Executive Joseph P. Nacchio alone has sold Qwest shares valued at $89 million. Likewise, many companies offer supplemental savings plans for executives that don't force them to hold company stock. Some top executives at Coca-Cola can participate in a supplemental retirement-savings plan with a guaranteed annual return of 14%. Executives at Qwest are able to contribute as much as 100% of their salaries and bonuses to a supplemental plan in which they can allocate their own and company contributions as they like. Executives also can protect themselves -- without selling their shares and triggering taxes -- by using hedging techniques offered for just that purpose by firms such as Goldman Sachs Group Inc., Eaton Vance Corp. and Bessemer Trust Co. Disclosure of these deals to the SEC is generally required but spotty. "It clearly has been a growing business, and very busy in the last 12 months," says Michael Dweck, head of the Single Stock Risk Management division at Goldman Sachs. (The firms marketing these hedging strategies typically hedge their own side of the transactions to protect themselves, as well.) "People recognize the inherent risk of holding all your wealth in a single stock." His operation generally won't arrange transactions for blocks of stock worth less than $5 million. "It's for the upper tier of management," Mr. Dweck says. For the rest, companies point out, employees have ample opportunity to diversify their retirement-savings portfolios by investing their own contributions in other options offered. Indeed, many workers have ill-advisedly put a lot of their own 401(k) money into their employers' stock. Wyn Triska, a 42-year-old power-plant technician for an Enron unit in Estacada, Ore., says he warned many of his co-workers of the dangers of wagering all their retirement savings on Enron. "Even when Enron was going up," he says, "I never put a cent into it -- it just doesn't make sense to load up on one stock." Nonetheless, even he has been unable to sell the stock that Enron has contributed to his 401(k) as the share price has plummeted from $86 a little more than a year ago to around $4 now. Under the company's 401(k) rules, he can't sell until age 50. For many rank-and-file workers, risk-averse or not, their 401(k)s are their largest assets, apart from their homes. So holding company stock they can't sell has become a source of resentment and frustration. Federal pension law leaves 401(k) plans largely outside the realm of regulation. But lately, some employees have taken their frustration to the courts. Just this month, in three separate lawsuits -- the latest filed yesterday -- participants in Enron's 401(k) plan allege that Enron misled them about the risks of investing in the company's shares. The suits, all filed in Federal District Court in Houston, note that the company "locked down" the retirement plan from Oct. 17 to Nov. 19 to make administrative changes. That prevented all employees, regardless of age, from selling any Enron shares in their 401(k)s as the stock price collapsed amid financial turmoil at the company and an SEC investigation into its accounting practices. Enron says it doesn't comment on pending litigation. Those lawsuits, along with a handful filed against other companies recently, don't take on directly the practice of forcing employees to accept and hold company stock in their 401(k)s. That's perfectly legal. So whatever the outcome, a company would still be able to restrict employee sales of company-stock contributions to 401(k) before the price declines. "Even when they've had gains, they can't really lock them in because they can't diversify," says Randall Shoker, an Oxford, Ohio, financial adviser. Michael Green knows that. The 35-year-old investment specialist joined Dell Computer Corp. in 1995 as a product manager. He and his wife, Lisa, an assistant controller at the company, were thrilled as the stock rose to about $51 a share in late 1999 from $1 in mid-1995, adjusted for splits. But by the late '90s, the couple felt overexposed to Dell. In addition to the Dell stock that the company had contributed to their 401(k) plans, they had received stock options as bonuses. And they had bought a home in Austin, Texas, where the real-estate market is tied in part to the fortunes of Dell, one of the area's biggest employers. The Greens sold some of the stock they received as bonuses. But Dell wouldn't let employees sell shares the company contributed to their retirement accounts until they had been at the company for five years. "I tried so hard to sell," Mr. Green says. "We went around and around." The company changed its policy last year to allow all Dell employees to sell the shares in their 401(k) plan and shift the proceeds into alternatives available through the plan. By then, though, Dell shares had plummeted, erasing $200,000 from the Greens' 401(k) accounts. "That's as much as we paid for our house," Mr. Green says. Both left Dell earlier this year for other jobs. SEC filings show that Dell executives, though subject to the same restrictions on their regular 401(k) accounts, can participate in a supplementary retirement-savings plan that allows them immediately to reinvest the company's contribution in a variety of options. Executives have seized that opportunity: Just 9% of the supplementary retirement plan was invested in Dell stock at the end of last year, according to the company's latest 11K filing, compared with about 50% of Dell's 401(k) plan. Dell spokesman T.R. Reid declines to comment on the Greens' circumstances. He says that any employees who lose so much money on company contributions could do so only because they had made a bundle until that point. And providing Dell shares to the employee retirement-savings plan, he says, "certainly provides incentive to not only think but act like a shareholder." The company ended the five-year lock-down rule, Mr. Reid says, because it was no longer necessary to keep employees focused on improving Dell's shareholder value. And he says Dell executives don't have to hold company stock in their supplementary plan because they "receive a significant portion of their compensation in Dell stock," and thus they already "have the broader interests of the company and shareholders squarely in their sights." SEC filings show that Dell executives nonetheless have means to protect themselves from exposure to the company's stock. Michael Dell, chairman and chief executive of the computer company he founded, transferred a total of 4.1 million shares, worth $190.7 million, into so-called exchange funds in several transactions between September 1999 and May 2000. (The shares accounted for about 1.3% of Mr. Dell's total company holdings at the time). Offered by financial firms to the wealthy, exchange funds are, in essence, mutual funds that allow holders of large chunks of a single stock to pool their assets, giving them a stake in a diversified, less-risky basket of securities and, in some cases, postponing tax liabilities. Altogether, the value of Mr. Dell's hedged shares would have fallen in market value by 38%, or $73 million, by earlier this month had he taken no precautions. (The return on the diversified exchange fund isn't disclosed). Until the five-year rule was lifted, employees like Mr. Green could get out of their Dell 401(k) holdings only by withdrawing money from their accounts, paying income tax and a 10% penalty on the withdrawal, and then reinvesting the difference. Or, says Dell spokesman Mike Maher, they could have elected "to take their compensation and not put it in their 401(k), and invest it in some other stock." By doing so, however, they would have forgone the company's matching contribution altogether. Mr. Maher declines to comment on Mr. Dell's transactions. He notes that like executives, regular employees who receive options are free to sell their shares. "We're all playing by the same rules," he says. The hedging maneuvers executives can employ to protect their company holdings fall largely off the radar screens of regulators and shareholders. While the SEC generally requires that key executives report these transactions, experts say the rules are largely ignored. "We really are only able to uncover several a month at most, which leads me to believe that the insiders are not filing these as often as they should," says Lon Gerber, director of research at Thomson Financial/Lancer Analytics, which combs SEC filings to track insider trading trends. Mr. Dweck, head of the Goldman Sachs division that manages single-stock investments for wealthy investors, says his group's clients disclose their transactions when required. And Qwest Chairman Philip Anschutz recently disclosed that last May, he entered into a "forward-sale agreement" with a brokerage firm, locking in as many as 10 million Qwest shares at close to their then-current price. Qwest's share price has since fallen 68%; the value of Mr. Anschutz's shares covered in the agreement would have plunged to $127 million from $394 million. (Those shares amounted to about 3.3% of Mr. Anschutz's total holding of 300 million shares, or 18% of Qwest's shares outstanding, both directly and through a company he controls.) A forward-sale agreement wasn't available to Joseph Daugherty. He has been stringing and repairing telephone cable for 23 years, first for Bell South Corp. and then in the Salt Lake City area for U S West, which was acquired by Qwest last year. A few months ago, he was looking forward to early retirement next summer. But now, he says, he'll have to keep working. The $200,000 in assets he had in his 401(k) in early May has shrunk to roughly $50,000. Part of that loss is attributable to the retirement plan's rules, which don't allow most workers to shift out of company-contributed Qwest shares until age 55. Mr. Daugherty, who concedes he's a risk-taker, blames himself for the rest: He voluntarily sank the remainder of his 401(k) savings into Qwest stock. Qwest won't comment on the finances of either Mr. Daugherty or Mr. Anschutz. But Steve Hammack, a Qwest spokesman, says U S West established the policy of contributing company stock. He notes that starting Jan. 1, 2001, the company began allowing managers to diversify company stock contributions they receive this year into other investments available through the plan. The restrictions on union members, he says, are covered by the company's collective bargaining agreement. "The fact is," Mr. Hammack responds in an email, "the majority of companies in the U.S. that match employee contributions do so in their own company stock. A good number also restrict employees from diversifying out of the company match." Erisa, the federal law governing pension plans, provides employees with little legal traction to complain about their forced 401(k) holdings. Employer contributions to retirement-savings plans aren't generally subject to fiduciary rules. (As for employee contributions, employers are supposed to choose "prudent" investment options.) Retirement-savings plans are exempt from Erisa diversification rules, too. These rules make it illegal for a company's pension plan to invest more than 10% of its assets in the company's own securities. But savings plans such as 401(k)s can generally invest as much as 100% of the assets in company stock with impunity. Currently, roughly one-third to one-half of retirement-plan assets at large companies are invested in company stock. That suits employers, which would just as soon contribute stock as draw down precious cash, and in the past, they have lobbied successfully to defeat efforts to impose diversification rules on 401(k)s. That confounds people such as Mr. Triska, the technician at Enron's Portland General Electric unit. "Anyone will tell you that you need to diversify to reduce risk," he says. Diversification has spared Mr. Triska some of the pain experienced by co-workers who bet big on Enron in their retirement savings. Since Sept. 10, while the Enron shares in his 401(k) have plunged 86%, his shares in Weitz Partners Value Fund have declined only 4.52%, and his shares in Fidelity Growth Company and Janus Global Life Sciences funds have risen 7.3% and 2.2%, respectively. Enron executives are subject to the same restrictions on Enron's stock contributions to their 401(k)s as other employees: no sales of company-contributed stock until age 50. But company filings with the SEC show that "key management and highly compensated employees" also participate in separate retirement-savings plans that don't require them to hold Enron stock at all. Executives can pile as much as 35% of their salaries and 100% of their bonuses annually into these accounts, allocating the money among a variety of investments. Further, SEC filings show that so far this year, many Enron executives were steady sellers of company stock they had accumulated beyond the ambit of their 401(k)s. Former Enron Broadband Services Chief Executive Kenneth Rice, for example, sold Enron shares valued at $23.7 million during the period, and former CEO Jeffrey Skilling sold $27.5 million of Enron stock. "We believe it's important for employees to have a stake in the company," says Karen Denne, a spokeswoman for Enron. "It's also important that we align employee and company performance." --- Cassell Bryan-Low contributed to this article. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Editorial Desk; Section A Letters to the Editor 'Stimulus' for Enron 11/27/2001 The New York Times Page 18, Column 4 c. 2001 New York Times Company To the Editor: Re ''In New Filing, Enron Reports Debt Squeeze'' (Business Day, Nov. 20): As Congress and federal investigators begin looking into a host of questions about management's role in the company's collapse, I note that the Bush-G.O.P. ''stimulus'' plan calls for United States taxpayers to give Enron $254 million. Since it was Enron management's greed that ran the company into multibillion-dollar debt, why should we citizens pay for its irresponsibility? ARLIE SCHARDT Washington, Nov. 20, 2001 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Business/Financial Desk; Section C Enron Talking With Dynegy As They Work To Rescue Deal By By RICHARD A. OPPEL Jr. and ANDREW ROSS SORKIN 11/27/2001 The New York Times Page 1, Column 5 c. 2001 New York Times Company The Enron Corporation and its would-be rescuer, Dynegy Inc., are renegotiating the terms of their deal, originally valued at $9 billion, executives close to the discussions said yesterday. There were several issues still on the table last night, and the situation was very fluid, the executives said. But they said that the companies hoped to announce, perhaps as early as today, a series of changes: a lower price for the takeover; a cash infusion of $500 million; an agreement by some banks to extend the repayment dates of Enron debt until after the deal closes; and possibly an agreement making clear that the merger would not be derailed by litigation over Enron's devastated employee-retirement plan. The sides were also negotiating ways to tighten clauses in the merger agreement so that Dynegy would not be able to use information from Enron's recent filing with the Securities and Exchange Commission as a reason for backing out of the deal. Both companies declined to comment on whether renegotiations were taking place. But according to executives close to the talks, the new terms would lower the ratio of Dynegy stock to be exchanged to roughly 0.15 share for each share of Enron. The original deal, announced Nov. 9, called for each Enron share to be exchanged for 0.2685 share of Dynegy. But Enron's shares have been plunging steadily, and yesterday the current offer was valued at 163 percent over Enron's closing price. The companies hope that by releasing some good news, they can stem the slide in the price of Enron's stock and traded debt. Enron shares, which have been plunging since mid-October when the company began to disclose a series of losses and accounting errors, closed yesterday at $4.01, down 14.9 percent, or 70 cents. Shares of Dynegy closed at $39.25 yesterday, down 2.9 percent, or $1.15. More important, the executives close to the talks said, the companies hope to restore confidence in Enron's energy-trading operation, which showed signs of deterioration yesterday. In recent years, Enron has traded more natural gas and electricity than its two biggest competitors combined, and its trading floor is viewed as its most valuable franchise, accounting for most of the company's profit. Dynegy's biggest worry, according to the executives, is that this core business is deteriorating. The company fears that if other energy traders further curtail their business with Enron -- either on their own or in response to another cut in Enron's credit rating -- then much of the value of the company could be wiped out, they said. The urgency of the situation has been made clear by the way in which Enron is being treated in the energy-trading markets, some analysts and executives at rival energy companies say. Though some large traders are still doing business with Enron, many other traders have curtailed their dealings with the company for fear they may not get paid if Enron collapses and files for bankruptcy protection. In addition, some of the energy trading Enron is doing is costing it more money because of credit concerns. For example, analysts and energy executives say, Enron is in some cases being forced to pay 3 cents to 6 cents more per million British thermal units of natural gas. That means instead of paying perhaps $1.80 per million B.T.U.'s in some trades, it may be paying $1.84. Jeff Dietert, an analyst with Simmons & Company in Houston, said the price discrepancies on some trades were also showing up on EnronOnline, the Internet platform that accounts for much of the company's trading with other parties. ''We're seeing Enron's prices,'' Mr. Dietert said, ''be about a nickel higher on EnronOnline versus some of the competing Internet-based exchanges.'' If these credit premiums should continue, it could erode Enron's trading profits and worsen its already tenuous liquidity situation. An Enron spokeswoman, Karen Denne, said trading volumes were ''below average,'' yesterday, but she declined to be more specific. She did say the company was in discussions about a new equity infusion of $500 million to $1 billion. According to executives close to the talks, details were still being worked out on the cash infusion, which would come from Citigroup and J. P. Morgan Chase. Dynegy may also add cash to the deal while reaffirming the company's commitment to the merger. Executives at rival trading companies said Dynegy needed to do something to bolster confidence in Enron's trading operations. ''In places, Enron is paying up to 4 or 5 or 6 cents more for next-day gas,'' said an executive at one large energy trader. ''Some producers out there don't want to sell additional discretionary gas to Enron, so they're having to pay up.'' The executive also said most energy traders expected that Dynegy would obtain a much lower merger price because Enron had little or no room to fight a renegotiation. ''If Enron hasn't lined something else up, their other choice is bankruptcy,'' he said. ''You can guess what shareholder value is going to look like if that's the case.'' Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Business/Financial Desk; Section C Top Companies Issuing Debt At a Fast Pace By STEPHANIE STROM 11/27/2001 The New York Times Page 1, Column 5 c. 2001 New York Times Company In the weeks since the attack on the World Trade Center, blue-chip corporations have issued a torrent of debt. Ford, General Electric, I.B.M., Kraft, AT&T, General Motors and other companies have doubled and even trebled their initial plans for bond offerings as investors, disenchanted with the stock market, have all but begged to buy their debt. In all, companies have issued 31.5 percent more debt in the last 11 weeks than they did in the period a year earlier. The companies are taking advantage of the chance to raise cash at bargain basement prices, thanks to low interest rates, and to retire more expensive debt. But they may also have little-discussed concerns that money will be scarce in the future, particularly if the economic downturn persists and the recovery is less vigorous than economists now hope. Bank lending is at a 30-year low, according to the Conference Board, and buyers are hard to find for commercial paper, the short-term, cheap debt that corporate purebreds rely on. Standard & Poor's says the amount of commercial paper issued by nonfinancial companies has shrunk roughly 30 percent this year. ''Companies now can lock in substantially lower overall borrowing costs,'' said William Cunningham, director of credit strategy at J. P. Morgan. ''They have an opportunity to build a war chest to help them get through the hard times, and they're taking advantage of it.'' Before the terrorist attacks, analysts were expecting the issuing of debt to slow late this year after a tremendous first half. So much for expectations. Ford originally planned to raise $3 billion; it was able to raise $9.4 billion and is said to be thinking about trying to raise $7 billion more. Kraft Foods, part of the Philip Morris Companies, had planned to issue $2 billion worth of bonds. Instead, it offered $4 billion. AT&T raised $10.1 billion, twice as much as it originally planned. AT&T's and Ford's issues rank as the second- and third-largest ever. All told, 573 corporations have issued $181 billion of debt since Sept. 11, compared with 692 companies that raised $138 billion in the period last year, according to Thomson Financial/First Call. ''When you look at other asset classes, the corporate bond market offers some of the better values,'' said Bob LoBue, head of the investment-grade fixed-income syndicate at J. P. Morgan, which has underwritten roughly half the issues that have come to market since Sept. 11. ''There's still a lack of confidence in stock valuations based on the weakness we're seeing in earnings.'' Issuers and their underwriters most often cite the low interest rates on Treasury bills as the reason for the surge in corporate debt. Corporate bonds are often priced in relation to United States government debt, and thanks to a cascade of interest rate cuts by the Federal Reserve this year, well-heeled companies can borrow at extremely attractive rates. International Business Machines, for instance, recently sold $1.5 billion worth of five-year notes with the lowest coupon it has ever issued, 4.875 percent. Others, though, read the stampede of premier companies to issue debt as a sign that credit is getting tight. Investment-grade companies typically juggle a smorgasbord of debt -- short, intermediate and long term -- but they are definitely skewing the mixture toward the long end these days. No doubt, that is because debt is cheap -- but it also suggests that they may foresee a time when money will be more scarce and are accumulating the war chests Mr. Cunningham referred to. It was not so long ago, after all, that companies experienced a credit shortage. ''A credit crunch was brewing last year,'' Mr. Cunningham said, ''until the Fed stepped in and started aggressively lowering interest rates, which averted it.'' But a cash problem persists in some ways despite the Federal Reserve's series of interest rate cuts. ''We are in a cash crisis like none we have experienced in recent memory,'' said James Padilla, a Ford executive, in a recent memorandum to his staff. Many companies with less-than-pristine credit ratings have trouble raising money and may be having more because of the stampede by blue-chip companies. ''When companies like Ford or General Electric come into the market, they squeeze a lot of other, somewhat riskier credits out,'' said Gail D. Fosler, the chief economist at the Conference Board. Jack Ablin, chief investment officer at the Harris Trust and Savings Bank, said that the economic recovery depended on companies' being able to get credit. ''My primary concern is the lack of available credit across the spectrum,'' he said. ''We are forecasting an economic recovery in the middle of next year, but the one thing that could go wrong with that forecast is if the availability of credit stays where it is or gets worse.'' Another concern is that debt is piling up with negative consequences. ''The Fed is trying to prevent the bubble from bursting by keeping the forces of credit exuberance alive,'' Barton M. Biggs, chief global strategist at Morgan Stanley, wrote to investors earlier this month. ''The trouble is, although it may work in the short run, in the long run the debt burden will be bigger and the adjustment process more painful.'' The automakers, for example, are using the money they have raised in part to support the customer incentive programs that offer zero-interest financing. They are paying as much as 7.25 percent, in other words, to lend money to car buyers for nothing. Some of the new debt is being used to retire commercial paper. But companies are taking on more than they need to accomplish that goal. The longer-term money they are borrowing is more expensive than the commercial paper, even if it is cheaper than it has been in a long time. The spread -- the difference in interest rates between Treasuries and corporate bonds -- has generally widened since Sept. 11, although not across the board. ''There is a cost factor involved, but we try to minimize that,'' said David Moore, manager of fixed-income investor relations at Ford Credit, which accounted for the bulk of the $9.4 billion that Ford borrowed last month. ''We're mindful of our liquidity, and want to make sure we ensure it.'' Like many of the companies issuing debt, Ford is curbing its dependence on the commercial paper market. For the year through Oct. 16, Ford had cut the amount of paper it had outstanding by almost 60 percent, to $17 billion. ''That puts us in a very good position, given our rating,'' said Mr. Moore, who was one of the few executives willing to discuss his company's strategy. Ford, like a host of other companies, has had its credit ratings cut. Many buyers of commercial paper, like money market funds, lend to only the highest-rated companies. So far this year, Standard & Poor's has knocked 57 companies out of the top ratings for commercial paper, compared with 49 last year. The total amount of outstanding commercial paper has fallen 30 percent this year, according to Diane Vazza, head of global financial investment research at Standard & Poor's, thanks to that downgrading and to great caution among investors. ''We've seen some issuers driven out of the market,'' Ms. Vazza said. According to several credit analysts, DaimlerChrysler was scheduled to roll over $7 billion of commercial paper in June but decided to take the offering to Europe, where investors are less particular about ratings quality. Similarly, Enron careered into its crisis when it was forced to redeem commercial paper as its credit ratings fell. The decline in AT&T's commercial paper ratings was one reason for its big issue last week. But underwriters of corporate debt insist that the decline in the commercial paper market has more to do with companies' ability to borrow for the long term cheaply than with their inability to issue short-term debt. ''Short-term financing does come with a maturity risk in that you constantly have to roll it over in order to maintain liquidity,'' said Mr. LoBue of J. P. Morgan. The underwriters concede, however, that lending by banks has all but dried up, falling to its lowest level in three decades. Bank lending has been curtailed at the behest of Federal regulators like the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency at the Treasury Department, putting them seemingly at cross-purposes with the Fed. The chief executive of EchoStar, Charles W. Ergen, had to put up $2.75 billion of his own money to complete the purchase of the Hughes Electronic Corporation. The bankers at UBS Warburg, EchoStar's adviser on the deal, had offered to provide the financing, but only with a proviso that would have let the bank back out of the deal under certain conditions. Although the company later got financing from Credit Suisse First Boston and Deutsche Bank, many other bankers have privately applauded UBS Warburg's caution. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Financial Battered Enron in Search of $1 Billion; Stock's Decline Raises Doubts About Buyout Peter Behr Washington Post Staff Writer 11/27/2001 The Washington Post FINAL E01 Copyright 2001, The Washington Post Co. All Rights Reserved Shunned by investors and deserted by many former customers, Enron Corp. is searching this week for up to $1 billion in cash from lenders to sustain its once dominant energy-trading business. Enron stock fell yesterday to new low of $4.01 a share, down 70 cents, continuing the latest plunge that began last week when the Houston company disclosed still more damaging detail about its financial condition. A year ago, Enron stock traded for more than $78 a share, based on its leading position then as a trader of power, natural gas, various industrial and telecommunications products and financial contracts linked to these commodities. Dynegy Inc., Enron's Houston rival, said yesterday it was not moving away from its $23 billion cash and debt offer to buy Enron. Enron declined to comment on its financial problems. But Enron's stock has dropped more than 50 percent since the Dynegy deal was announced Nov. 9. Investors believe that Dynegy will renegotiate the deal at a cheaper price or even try to abandon it, said Brian Youngberg, a financial analyst with Edward D. Jones & Co. in St. Louis. "The [Dynegy] deal values Enron at more than $10 a share. For a company that's trading at $4, that doesn't make much sense," said Youngberg, who last week recommended that customers sell Enron shares. As part of the Dynegy deal, Enron received $1.5 billion in cash, secured by stock in one of its pipelines. But without another large infusion of cash, the company faces what Youngberg called a "death spiral." Along with investors, many energy buyers and traders have lost confidence in Enron's ability to make good on the long-term energy contracts it specializes in, Youngberg said. Enron's most important operations involve contracts to deliver natural gas, electric power and other energy products to industries and utilities in the future. It also sells financial instruments designed to protect customers against sharp swings in energy prices. These deals are the one part of Enron that Dynegy wants. "Their core business has dropped off sharply," said Andrew Meade, an analyst with Commerzbank Securities in New York. Enron remains a sizable player in the huge daily trading of energy products, but is being frozen out of long-term markets and relegated to less profitable short-term trades, said Meade. The lengthy span of Enron's crisis, which began a month ago when it reported a $1.2 billion reduction in shareholder equity, has given companies time to close out contracts with Enron or limit their potential losses if Enron were to fail, said Louis B. Gagliardi, an analyst with John S. Herold Inc. in Connecticut. "If Enron went to a Chapter 11 bankruptcy, or failed, it would unsettle the market slightly. But it wouldn't catch people by surprise. So there's not much danger of a crisis on the natural gas or power side" of energy trading, Gagliardi said. Other market participants cautioned that the extent of Enron's obligations to trading partners is not known to outsiders, making the impact of an Enron failure hard to assess. Dynegy and its partner, ChevronTexaco Corp., could pump billions of dollars into Enron's operations if the purchase went through, but under the best of circumstances, regulatory review of the deal will drag on for another six months. Investors and traders are increasingly doubtful that Enron can hang around that long by itself, "That just adds to the uncertainty about the stock," Gagliardi said. Dynegy's offer for Enron caused a brief rally in Enron's stock price and outlook. But that flurry of optimism was halted by a new financial report last week to the Securities and Exchange Commission detailing even more serious debt obligations than the company had previously acknowledged. Enron was able to negotiate a three-week extension on a $690 million note that was coming due this week and finished arrangements on a $450 million line of credit, part of a $1 billion infusion it had previously announced. However, the $690 million obligation, disclosed in the SEC filing, was a very pointed alert to investors about Enron's growing cash needs, Meade said. And the new details of Enron's plight in last week's filing further damaged the credibility of the company's financial reporting, Meade said. "I don't think they have fully restated their earnings. There is probably more to come, Meade said." Enron's board has turned to an outside committee to assess the company's financial condition, after acknowledging last month that Enron had overstated earnings by $586 million over the past four years. The restatement was caused primarily by accounting decisions that concealed losses in a series of limited partnerships that Enron had helped create to buy various energy, water supply and Internet network properties it wanted to dispose of, the company said. On Nov. 14, Enron's new chief financial officer, Jeff McMahon, briefed analysts on a series of steps the company would take to raise cash, including the current quest for $500 million to $1 billion in loans. Enron, its executives said, will reorganize the company around its business that generated the strongest cash flow -- energy trades, gas pipeline and coal operations. Other assets, worth $8 billion in book value, would be put up for sale "in an orderly fashion." Then came the new disclosures last week, reinforcing analysts' concerns that the depths of Enron's liabilities have not yet been plumbed. "The issues that brought Enron to this point are unresolved. It's a balance sheet that doesn't stand still and continues to deteriorate," Gagliardi said. http://www.washingtonpost.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Nov. 27, 2001 Houston Chronicle Enron, Dynegy deal back on table Energy traders said to be renegotiating premium for shares By LAURA GOLDBERG Copyright 2001 Houston Chronicle Dynegy and Enron Corp. could announce new terms for Dynegy's deal to buy Enron as soon as today, according to sources familiar with talks between the two companies. The two Houston-based energy traders, the sources said, spent the weekend and Monday discussing, among other issues, a lower exchange rate for Dynegy's stock deal to buy Enron. As of Monday evening, no exchange rate had been agreed to and discussions were continuing, the sources said, cautioning that the situation was fluid. Also Monday: ? Enron and Dynegy, the sources said, were working to finalize terms for an equity infusion into Enron of around $500 million that's expected to come from J.P. Morgan Chase & Co. and Citigroup. Another equity infusion from other parties could come later, the sources said. ? Enron, Dynegy and a group of banks were negotiating terms for a so-called "override" agreement that would extend, until after the merger closed, maturity dates for certain debt Enron is due to repay or that could come due before, the sources said. It was unclear how much of approximately the $9 billion in obligations Enron could have coming due in the next 12 months that would be covered by that restructuring. ? It was expected that Enron would start layoffs sometime this week. Karen Denne, an Enron spokeswoman, said her only comment was that any action the company would take concerning job cuts would be communicated first to employees. ? California Attorney General Bill Lockyer, not known for harboring a favorable attitude toward Enron or other Texas energy companies, has started reviewing the planned merger, looking for potential antitrust problems, his office said. Dynegy has power plants there, while Enron sells power and natural gas into the state. ? Shares in both companies fell, with Enron closing down 70 cents at $4.01, while shares in Dynegy ended the day down $1.15 at $39.25. The talks between Enron and Dynegy come amid Wall Street expectations that Dynegy will renegotiate the merger terms or back out of the deal completely. The sources said that at the moment, the companies aren't discussing canceling the deal. On Nov. 9, the day Dynegy announced it would acquire its troubled rival, shares in Enron closed at $8.63, while shares in Dynegy closed at $38.76. The merger agreement calls for Enron shareholders to get 0.2685 share of Dynegy per Enron share. Based on the Nov. 9 closing prices, Dynegy would be paying $10.41 a share for Enron. But since, Enron's share prices have dropped significantly amid increasing concerns about its ability to maintain its core trading business and troubling new disclosures about its financial shape. Based on Monday's closing prices, Dynegy would be paying more -- $10.54 a share -- for Enron, which is worth considerably less based on market capitalization than when the deal was announced. Last week, one stock analyst said he thought a ratio of no more than 0.15 share of Dynegy per Enron share might be more realistic. Dynegy spokesman John Sousa said Monday that Dynegy was continuing its "due diligence" review of Enron's books and "looking at everything very closely." Unless the merger with Dynegy goes through, Enron could be forced into bankruptcy protection. Enron's core trading business has eroded, the Securities and Exchange Commission is investigating its finances and it faces a pile of debt as well as an increasing number of shareholder and employee lawsuits. Enron and Dynegy hoped the merger deal, which included an immediate infusion of $1.5 billion of equity into Enron, would stabilize Enron. But new financial disclosures have had the opposite effect. For example, on Nov. 19, Enron revealed $690 million in debt would come due sooner than expected because of a credit-rating downgrade. The news came as a surprise even to Dynegy. Dynegy has escape hatches in its merger agreement, including a "material adverse change" clause that applies generally to Enron's financial state. Also, if the amount of legal and shareholder claims Enron must pay out is greater than $3.5 billion, the deal can be called off. Sousa described the escape clauses as "broad provisions" to ensure Dynegy is adequately protected. Nov. 27, 2001 Houston Chronicle Sizable staff of 245 lawyers in merger limbo By MARY FLOOD Copyright 2001 Houston Chronicle Whether troubled Enron Corp. merges, falls or stays the course, it is likely to deeply affect one of Houston's largest law offices: the one within the embattled company. "We've always regarded them as one of the big law firms in Houston," said Howard Ayers, managing partner of Andrews & Kurth, one of the city's largest firms with about 240 lawyers in Houston alone. Enron has about 245 lawyers worldwide, company spokesman Vance Meyer said. That's a large legal stable even for a company with more than 25,000 employees. With about 145 lawyers in Houston, if it were a private firm it would have been the city's sixth-largest, according to the Chronicle 100 survey released in May. Energy trader Enron's internal law office has burgeoned along with the huge trading firm, now set to merge with a smaller but stronger local competitor, Dynegy. As Enron's stock plummeted further, Dynegy last week denied rumors it might drop out and leave Enron to face a possible bankruptcy. Whatever the company's fate, there are rough waters ahead for Enron lawyers. Although most lawyers interviewed said they hope everybody remains employed and that it is premature to discuss the fate of Enron's legal staff, speculation in the legal community runs the gamut from rumors that dozens of lawyers could be laid off as early as this week to the idea that Enron will hold on tightly to its talent. "My guess is they'll need their lawyers while they get things in a more steady state. There's a lot of legal work to go through," said Joel Swanson, a senior partner at Baker & Botts, a Houston law firm with about 265 lawyers here. Not only does Enron have a large cadre of lawyers inside its company, but it also has hired just about every large firm in Houston over the last few years. Several of the biggest Houston firms are working on the merger for either Enron or Dynegy, and others are standing by wondering which outside firms will get the biggest pieces of legal work when the new company is created. Enron's legal department has siphoned talent from Houston's top law firms over the years. Heads of law firms said they have seen plenty of promising lawyers lured away by Enron's competitive pay combined with stock options, which were a lucrative draw until recently, as shares have lost 95 percent of their value. "Enron has one of the premier legal departments in the country," said Jeff Love, managing partner of Locke Liddell & Sapp, a Houston-based firm with about 175 of its lawyers here. Enron has hired a lot of what are called "laterals," or lawyers who have had a couple years training, often at a big firm. Although jobs in corporate counsel offices are generally considered easier than big-firm life, that's not the reputation of Enron's legal eagles. As with the company itself, the general counsel's office has been known as innovative and hard driving. "I don't think anybody lateraled into Enron with the expectation of an ordinary life," Ayers said. In the Houston market, where big-firm first-year lawyers start at around $110,000 a year, the advantages of going to an expanding company like Enron were the stock options and the opportunity to grow with the company. If heavily anticipated layoffs occur at Enron, top Houston lawyers expect casualties to land on their feet. Looming recessions are not always bad for job-hunting lawyers. Bankruptcy, litigation and mergers all can boom in rough times. Several Houston-based law firms said they have recruited a slightly larger starting class of lawyers for 2002, meaning they don't expect to scale back their business in the immediate future. Should the merger succeed, Enron's 245 lawyers will join Dynegy's 43. "The question of how you integrate the two staffs, as with a lot of things associated with the merger, won't be worked out for some time," Dynegy spokesman Steve Stengel said. Nov. 27, 2001 Houston Chronicle Bin Laden threat against pipelines taken seriously Ashcroft: Unconfirmed warning linked to leader's death, capture By MICHAEL DAVIS Copyright 2001 Houston Chronicle The FBI confirmed Monday that it has warned the energy industry that Osama bin Laden may have ordered strikes against U.S. natural gas facilities if he is caught or killed. The agency issued the warning last week, Attorney General John Ashcroft said at a news conference Monday. It had uncorroborated information that bin Laden may have approved plans for such attacks, Ashcroft added. The FBI warning said "such an attack would allegedly take place in the event that either bin Laden or Taliban leader Mullah Omar are either captured or killed." The warning hit home in Houston because while the warning did not single out a target, it referred specifically to natural gas infrastructure, such as pipelines. Houston is the hub of this industry and is at the center of a dense web of gas pipelines. The warning was considered similar to the one issued earlier about potential attacks against West Coast bridges. Ashcroft said the government is in regular communication with companies that own the nation's energy infrastructure, such as refineries, natural gas pipelines and nuclear plants. Federal law enforcement officials received the uncorroborated report of undetermined reliability about a potential attack against natural gas supplies about 10 days ago, Ashcroft said. Since the terrorist attacks on Sept. 11, all energy companies have established more stringent security measures. Pipelines, however, are considered especially vulnerable since they are accessible above ground in remote areas with typically little more than a padlock and a metal fence to keep out someone wanting to damage the line. Reliant Energy Entex, the natural gas distribution company that serves the Houston area, was notified about the warning but has not added any new security measures as a result, company spokeswoman Alicia Dixon said. "We've been on a heightened state of alert since Sept. 11 so nothing is different today than it was yesterday," Dixon said. "We have very strong security in place already because of the nature of our business. We have to be prepared to deal with a variety of emergencies." Dixon said the company recieved word of the warning from the American Gas Association. The American Petroleum Institute also passed the warning on to energy companies, API spokesman Juan Palomo said. Enron notified its employees of the warning and also has been on heightened state of alert since Sept. 11, company spokeswoman Gina Taylor said. "We take all threats seriously," Taylor said. Enron monitors its pipelines and related facilities such as compression stations using planes, cars and on foot, she said. The company has not added staff to beef up its security as a result of the warning, she said. "We routinely patrol the right of way," she said. There are thousands of miles of natural gas pipelines running throughout the nation. Thirty interstate gas pipelines carry 90 percent of the natural gas transported, according to the Interstate Natural Gas Association of America. Detailed information about locations of pipelines and other energy infrastructure has been taken off some corporate and government Internet sites. Access to facilities has been tightened as well, officials said. Federal regulators have offered help to pay for the added protection by speeding rate hike requests for beefed-up security. If a pipeline were attacked with an explosive, for example, the operator could shut off the flow of natural gas, oil or refined products from either side of the break. Nov. 27, 2001 Houston Chronicle Current recession differs from others By JIM BARLOW Copyright 2001 Houston Chronicle So it's official. The United States is in a recession. That was the word Monday from the National Bureau of Economic Research. A recession, by the by, comes about after six months of declining economic activity. In this case, the bureau said, the recession started last March, so we're already through almost nine months of slowdown. But there's something very different about this recession, different from all the others we've experienced in the past four or five decades. We were not led into it by a huge oversupply of all kinds of real estate and a collapse in those prices. The current recession was sparked by a high-tech collapse, led by a glut of technology products. That doesn't mean real estate will sail through untouched this recession. There are places that will be hurting. San Francisco comes to mind. It is a high-tech center, and there was a lot of building to accommodate that industry. There is also one real estate sector in trouble -- the hotel industry. It had already been hurt by a downturn in business travel. The Sept. 11 terrorist attacks sent it, and air travel, reeling. Recall see-through buildings? But there's nothing like we saw back in the mid-1980s. Remember when Houston enriched the nation's vocabulary by coming up with the term see-through buildings? Those were the many skyscrapers in Houston that had been built but never finished inside. So you could look right through them because there were no interior walls. Indeed, if real estate is a bright spot in this recession, real estate in Houston is a great shining light. Houston's office building market is tight. The downtown office market has an 8.9 percent vacancy rate, and prime Class A space prized by major corporations is effectively full. There should be some easing of that rate. Enron Corp., with its well-publicized freefall, has almost completed a new headquarters. Even more space will be coming onto the market when the 32-story Calpine Center office tower is completed at 717 Texas Ave. in 2003. Century Development has announced it is working on a 40-story office tower downtown. Crescent Real Estate Equities is building a tower on the other side of Main Street. All this, plus cutbacks at Continental Airlines and the pending sale of Compaq Computer Corp. to Hewlett-Packard Co., will doubtless hurt the office market. But no one is predicting disaster. The Houston apartment market may be the nation's healthiest, with 93.5 percent of Houston's apartments occupied in the third quarter of this year. That figure is almost a full percentage point higher than the year before. Prices for apartments are up, as are rents. Sales of used homes in October were the highest ever, with the median price up 3.9 percent. New-home sales are setting records. Developers are optimists So how did we escape the usual? Credit lenders. Real estate developing is full of optimists. Ask any developer -- even in the midst of a bust -- and he'll tell you. It won't affect his building, which somehow is nicer, sexier or even more depression-proof than the next guy's. Give a developer money, and he will build. Lenders have been as tight as the bark on trees. That has forced developers to pre-lease buildings and seek partners with equity -- primarily pension funds -- before the banks would loan them money for new projects. Several things happen to the real estate business during a recession. Prices fall or stabilize -- and in this particular recession the bet is probably on stabilization. The banks and others that loan that money generally tighten credit standards, cutting off weaker real estate players. And the Federal Reserve Board helps out the economy by lowering rates, which aids bargain hunters with deep pockets. In any recession, even one that is as benign to real estate as this one, some properties won't survive the economic downturn and owners will have to sell or file for bankruptcy. With the current low interest rates, companies with good credit will move in and buy those properties. Remember the so-called vulture funds of the 1980s? How soon this process starts will determine the length of this recession. Because real estate is in good shape this time, the process is not as important as it was in the 1980s. Still, if investors promptly snap up distressed properties, that will increase the odds that this recession will be a short one. Enron Gains on Optimism Dynegy Purchase to Proceed (Update1) 2001-11-27 07:59 (New York) (Updates to add Instinet trading, comment by Tice.) Houston, Nov. 27 (Bloomberg) -- Enron Corp. shares rose as much as 3.5 percent on Instinet amid optimism Dynegy Inc. will proceed with its proposed acquisition of the rival U.S. energy trader after renegotiating the terms of its offer. Shares of the energy trader plunged 55 percent last week on concern the merger would unravel after Enron said it had more debt and less cash than previously announced, threatening its ability to operate until Dynegy completes the purchase. Executives of the two companies discussed possible changes in the terms over the weekend, people familiar with the matter said yesterday. Dynegy is now talking about paying less than 0.15 shares for each of Enron's, valuing the company's equity at about $5 billion, or less than $6 per share, the Wall Street Journal reported, citing people close to the discussions. ``The choices are fairly stark: Renegotiate the deal or file for Chapter 11,'' said John Olson, an analyst with Sanders Morris Harris, a Houston-based financial services company. Enron shares rose as much as 14 cents to $4.15 on Instinet. The original Dynegy bid valued Enron at $10.54 a share in Dynegy stock. The discount reflects skepticism among investors the acquisition will be completed under the original terms. Bond investors were less optimistic. The company's 6.4 percent bonds that mature in 2006 declined to 45 cents on the dollar from 48 cents on the dollar yesterday, traders said. At that price, the bonds yield 28.5 percent. ``The concern is that the Dynegy deal breaks down,'' said Paul Tice, co-head of U.S. high-grade credit research who covers the energy market for Deutsche Bank. Last week's Securities and Exchange Commission filing ``had a lot of negative surprises.'' Investors have become concerned because Enron hasn't been able to complete a proposal to raise $2 billion through a private equity sale and
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