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Enron Mail |
Some Analysts Fear SEC Enron Probe,Now Formal,May Widen
Dow Jones Energy Service- 11/01/01 USA: S&P cuts Enron ratings, may cut ratings again. Reuters English News Service- 11/01/01 Key North American Power, Gas Firms Stand By Their Enron Dow Jones News Service- 11/01/01 InterContinentalExchange: Pwr Volume Lower In Oct; Gas Up Dow Jones Energy Service- 11/01/01 Competing Exchanges Gain Slim Advantage From Enron Woes Dow Jones Energy Service- 11/01/01 USA: UPDATE 2-Enron's $1 billion credit line a mixed blessing. Reuters English News Service- 11/01/01 USA: Light profit-taking pushes NYMEX natgas down midday. Reuters English News Service- 11/01/01 Enron Corp.'s Credit Rating Lowered to 'BBB' by S&P (Update1) Bloomberg- 11/01/01 Enron Gets $1 Bln Loan to Bolster Cash, Credit Rating (Update8) Bloomberg- 11/01/01 Enron falls after SEC steps up probe CBSMarketWatch.com, 11/01/01 Some Analysts Fear SEC Enron Probe,Now Formal,May Widen By Jason Leopold and Jessica Berthold Of DOW JONES NEWSWIRES 11/01/2001 Dow Jones Energy Service (Copyright © 2001, Dow Jones & Company, Inc.) LOS ANGELES -(Dow Jones)- Enron Corp.'s (ENE) disclosure of a formal inquiry into partnerships with its former chief financial officer left some Wall Street analysts concerned Thursday that the probe could spill over into the company's core business, placing further pressure on the company's stock. Other analysts said they doubted the investigation by the U.S. Securities and Exchange Commission would spread, but added that the uncertainty was weighing on Enron's share price. "It's a huge cloud of uncertainty," said Merrill Lynch analyst Steve Fleishman, who wouldn't speculate about the breadth of the investigation. Enron said late Wednesday that the SEC has elevated to a formal investigation its inquiry into "certain of the matters that were the subject of recent press reports." The SEC, as a matter of policy, declined to comment on the status or scope of any inquiry. Enron spokeswoman Karen Denne said it was her understanding that the formal investigation, like the informal inquiry, would be limited to the partnerships. Enron is fully cooperating with the SEC, she said. Robert Christensen, an analyst with FAC Equities in New York, said he is concerned the SEC could use its subpoena power to start probing Enron's natural gas and trading practices. "I'm hoping that it's localized to the partnership with Andy Fastow and deals truly with the partnership as opposed to wandering into the basic interest of Enron, which is wholesale trading," Christensen said. Enron and its former chief financial officer, Andrew Fastow, set up complicated vehicles to invest in and hedge Enron assets. Last month, Enron disclosed a $1.2 billion writedown of shareholder equity in the third quarter related to transactions it had carried out with those entities, setting off a 65% drop in the value of the company's stock in the past two weeks. Investors are already pricing in the possibility the SEC investigation will reveal more bad news, Christensen said. "If it is limited to the partnership activities, which caused $1.2 billion to evaporate on the equity line, that would be well received," he said. "I think the stock price now is reflecting the concerns that there is something greater behind the wood pile of all these partnerships." Thursday afternoon, Enron's shares were down $1.90, or 14%, at $12. The shares have lost two-thirds of their value over the past two weeks. Gary Hoves, an analyst with Argus Research in New York, said Enron's shares will continue to trade lower on news of the SEC inquiry. "This is a serious situation, especially since the investigation moved from Forth Worth to Washington D.C.," Hoves said. "It's hard to say, but my guess is this will be an open-book investigation and they will go into a whole lot of stuff beyond the partnership." Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: S&P cuts Enron ratings, may cut ratings again. 11/01/2001 Reuters English News Service (C) Reuters Limited 2001. NEW YORK, Nov 1 (Reuters) - Standard & Poor's on Thursday cut its long-and short-term ratings for embattled energy trader Enron Corp. , and warned it may cut the ratings again because of "uncertainties" surrounding the company and the possibility of further problems in the capital markets. Enron has said it faces a probe by the Securities and Exchange Commission. S&P cut the Houston-based company's senior unsecured debt to "BBB," two notches above junk status, from "BBB-plus," and its commercial paper to "A-3" from "A-2." On Monday, Moody's cut Enron's long-term debt to "Baa2," also two notches above junk, and warned it may cut that rating and Enron's "Prime-2" commercial paper rating. Downgrades could make it tougher for Enron to issue debt and run its day-to-day business as fellow marketers and traders demand more collateral. If the ratings fall to junk, Enron could be forced to issue more shares. Enron shares closed Thursday on the New York Stock Exchange at $11.99, down $1.91, or 13.7 percent. They have fallen 65 percent since October 16, and hit a nine-year low on Tuesday. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Key North American Power, Gas Firms Stand By Their Enron By Mark Golden Of DOW JONES NEWSWIRES 11/01/2001 Dow Jones News Service (Copyright © 2001, Dow Jones & Company, Inc.) NEW YORK -(Dow Jones)- Enron Corp.'s (ENE) most critical trading partners in its core business are officially conducting business as usual with the struggling market maker despite some squeamishness, even as Enron encounters stricter credit requirements in its sideline markets. Enron's ability to transact in its core markets - North American wholesale gas and power - is essential if the company is to emerge from its current credit crisis, Wall Street analysts have said. And given Enron's reach, the company's competitors also have a strong incentive to see it survive. "Certainly, if Enron gets through this in an orderly fashion, the industry will be better off," said Eric van der Walde, head of wholesale trading American Electric Power Co. "We're doing everything we can to make sure that's the outcome." Some oil companies and some European utilities have required higher lines of credit and otherwise reduced their exposure to Enron, a spokesman for the company confirmed. But "business as usual" has been the catchphrase among gas and power companies. At the same time, large U.S. energy traders like Mirant Corp. (MIR) and Aquila Inc. (ILA) said they are monitoring the Enron situation closely while hoping for the company's recovery. "It's business as usual," said Dennis Vermette, the director of corporate credit for Ameren Energy Inc., the trading subsidiary of Ameren Corp. (AEE). "We're cautious that our traders don't add on more exposure, but from a dollar standpoint we haven't turned them off or restricted trading." Concerns have arisen because Enron, which accounts for about a quarter of the trade in the country's power and gas markets and which makes a market for those commodities on its Internet-based system EnronOnline, has seen its share price fall by about two-thirds in the past two weeks due to uncertainties about its extremely complex financial structure. Moody's Investors Service Inc. downgraded Enron's credit rating one notch on Monday. The rating is still two steps above noninvestment grade, but remains on watch for further downgrade. Enron's bonds in the secondary market are trading at distressed-debt levels. So far, that's not enough to get companies to stop doing business with the Houston-based giant. "We continue to do business with Enron," said John Sousa, spokesman for Dynegy Inc. (DYN). "We consider them a strong counterparty. There's no reason not to do business with them." With another negative event, the gas and power industries' circling of the wagons around Enron could become a game of chicken. The consensus among credit risk managers is that the industry shouldn't have a knee-jerk reaction, but they also don't want to be the last out, one credit risk manager said. "Once a few majors cut them off, you don't want to be the last one to cut," the credit manager said. Some traders and trading managers might be getting cautious even without an official change from their credit risk managers. On Wednesday, some energy traders noted that gas and power sometimes traded at prices slightly below the best bid or above the best offer available EnronOnline, Enron's electronic trading system. Their conclusion: traders looking to sell power, for example, might have been taking the initiative to do business with a company besides Enron, even if that meant selling at a lower price than those publicly posted by Enron. AEP traders, however, are under instruction to go for the best price, van der Walde said. Enron is "doing everything they need to do to assure us," van der Walde said. "They are honoring all of their obligations, making payments as due, and doing everything you would expect them to do." AEP is one of the most active traders of wholesale power in the U.S. On Thursday, energy traders said EnronOnline, on which Enron is the counterparty for all deals, was less active. At one key western electricity hub, Palo Verde, Ariz., EnronOnline's bid to buy power for delivery in December was $34.35 a megawatt-hour, compared with the best bid of $34.50 a megawatt-hour on the IntercontinentalExchange, a competing Internet-based trading system. EOL's offer to sell the same contract was 35 cents higher. EOL's bid-offer spreads were also wider for Northeast power and western gas at midday Thursday, though they were competitive for Northeast gas. Generally, EOL presents tighter spreads in its key markets than the spreads found either on competing electronic systems or in the phone-broker market. Those aggressive bids have helped propel volumes on EOL since its inception in November 1999. EnronOnline volumes hadn't slowed as of Wednesday, Enron said. The platform saw 7,100 transactions Wednesday by early evening, company spokesman Eric Thode said. As in the past two weeks, the volume of transactions exceeded the 30-day average volume of about 5,600 daily transactions. Some in the industry have speculated that EnronOnline volumes may be higher than normal because counterparties are busy flattening their positions with Enron due to credit concerns. "We know that is not the case," said Thode, who attributed the higher than normal volumes to people balancing portfolios heading into winter and to recent volatility in gas and power markets. "It is business as usual." Flattening positions could comfort companies that have netting agreements with Enron, which has historically pushed for such agreements with its trading partners. Under such agreements, in the event of any bankruptcy proceeding, a creditor would get to deduct his payables from receivables and only be at risk for the difference. Netting agreements are relatively new, however, and have yet to be tested in a U.S. bankruptcy proceeding. They were honored in a bankruptcy proceeding in Canada. In general, companies were most cautious about longer-term deals. "There's a little more review before any long-term deals are executed," said Dennis Goldman, credit-risk manager for Niagara Mohawk (NMK) unit Niagara Mohawk Energy Marketing. "Traders have to run it by me, and maybe sometimes I'll run it past higher-ups." Some industry observers don't expect a sudden change among Enron's trading partners. A disorderly removal of Enron from the market "is not in anybody's interests," said Susan Abbott, a managing director in corporate finance at Moody's. "If people are going to back away from Enron, they're going to do it carefully and over a long time." -By Mark Golden, Dow Jones Newswires; 201-938-4604; mark.golden@dowjones.com (Kristen McNamara in New York and John Edmiston in Houston contributed to this article.) Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. InterContinentalExchange: Pwr Volume Lower In Oct; Gas Up By Mark Golden Of DOW JONES NEWSWIRES 11/01/2001 Dow Jones Energy Service (Copyright © 2001, Dow Jones & Company, Inc.) NEW YORK -(Dow Jones)- Trading volumes for wholesale electricity fell in October on the InterContinentalExchange, compared with September, the exchange said Thursday, while natural gas trading volumes rose. The Web-based energy and metals marketplace, tallied 190 million megawatt hours of power trades in October, compared with 209 million MWhs in September, down 9%. Natural gas trades rose 10% to 3,957 billion cubic feet, from 3,586 bcf in September. Energy industry observers have been looking to see if trading would move from EnronOnline, the electronic trading platform of financially troubled Enron Corp. (ENE) to IntercontinentalExchange. Declining to comment on Enron directly, an IntercontinentalExchange spokesperson said, "There haven't been any significant changes in the past couple of weeks." IntercontinentalExchange crude oil and refined products trading volume fell slightly to 174 million barrels in October from 182 million bbls in September. ICE in July acquired the London-based International Petroleum Exchange, Europe's largest energy futures exchange. ICE partners include American Electric Power Co. (AEP); Aquila Energy (ILA); BP Amoco PLC (BP); Deutshe Bank AG (G.DBK); El Paso Corp. (EPG); Goldman Sachs Group (GS); Morgan Stanley Dean Witter & Co. (MWD); Reliant Energy (REI); Royal Dutch/Shell Group (RD); Societe Generale SA (F.SGF) unit SG Investment Banking; Mirant Corp. (MIR) and TotalFina Elf SA (TOT). -By Mark Golden, Dow Jones Newswires; 201-938-4604; mark.golden@dowjones.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Competing Exchanges Gain Slim Advantage From Enron Woes By Stephen Parker Of DOW JONES NEWSWIRES 11/01/2001 Dow Jones Energy Service (Copyright © 2001, Dow Jones & Company, Inc.) NEW YORK -(Dow Jones)- Competing online energy marketplaces may see some gains as Enron Corp. (ENE) struggles with concerns about its credit. But energy analysts and traders say the Houston-based giant's problems aren't yet serious enough to outweigh the liquidity it provides and expect its Internet-based trading system EnronOnline to retain its leading position in the electricity and natural gas markets. "There are so many products on EOL that don't have an exchange behind them," said Charlie Sanchez, energy markets manager at Gelber & Associates in Houston. "Traditionally, Enron has been a very creditworthy counterparty. You just have this sense of confidence that they can somehow rise again, a sense of being like the phoenix that rises out of the ashes." EnronOnline, a platform on which Enron is the counterparty in every deal, confronts traders with a dilemma: Having Enron behind every transaction guarantees liquidity that other exchanges can't match, but the restriction poses risks now that Enron's credit is in question. Enron's stock price has plunged more than 50% in the last two weeks, and its credit ratings have been downgraded by Moody's Investors Service, amid reports of losses related to partnerships once headed by the company's former chief financial officer, Andrew Fastow. Some traders have reacted by sizing up the alternatives to trading on EnronOnline. Neutral exchanges like the New York Mercantile Exchange or the IntercontinentalExchange, known as ICE, are expected to benefit. "EOL transactions are free, and they always offer good liquidity," Sanchez said. "But the fact that Enron is in such a sketchy situation is creating a vulnerability that wouldn't happen on ICE." Competitors Expanding Products Competing exchanges have moved to expand their product lines. On Tuesday, the New York Mercantile Exchange - the world's largest traditional energy exchange - said it would bring clearing services to the over-the-counter market for natural gas derivatives. IntercontinentalExchange said Wednesday it had added hourly and day-of electricity products to its offerings. IntercontinentalExchange, based in Atlanta, matches up buyers and sellers over the Internet without participating as a principal. As such, traders aren't entirely exposed to a single counterparty. ICE, which closed a deal this summer to acquire the International Petroleum Exchange, Europe's largest energy futures market, will soon offer credit guarantees for its oil and natural gas swaps through the London Clearing House. "Our traders are free to use EOL," said Al Butkus, spokesman for Aquila (ILA), a power and gas trading company based in Kansas City, Mo., and an investor in ICE. "They're always looking for the best price in the market. But our position on ICE is that we prefer a marketplace of many to many. It's a better way of doing business." Nevertheless, any shift of business away from EnronOnline is likely to be small and short lived, analysts said. Traders might not like being exposed to Enron, but the reality is Enron provides key liquidity. Enron also presents aggressive bid-offer spreads to attract volume, and some traders say EnronOnline has strong technological advantages over its competitors. EnronOnline Volumes High Enron commands roughly 25% of the electricity and natural gas markets. Its EnronOnline unit executes about 60% of Enron's energy trades, creating market liquidity and contributing billions of dollars in revenues. EOL averaged 5,700 daily trades, worth an estimated $2.5 billion, during the 30-day period ended Friday. The daily trade volume and notional value fluctuate with commodity prices and market volatility, but Enron spokesman Eric Thode said EnronOnline enjoyed stronger-than-normal volumes Wednesday, with 7,100 transactions by early evening. The company anticipates no decline in EnronOnline volume, Thode said. "We continue to be the market maker of choice," Thode said. "We're working on additional bank lines of credit to instill greater confidence in both analysts and customers. But we've seen no counterparties reduce their positions, and no one is liquidating." ICE has yet to see an increase in trading activity as a result of Enron's difficulties, a spokesman for the online exchange said. Traders said they haven't reduced their transactions on EOL, but some have stopped expanding or opening positions on the system while they wait to see whether Enron's troubles subside. An electricity trader who uses EnronOnline extensively said he'd need to see a major downgrading of Enron's credit ratings before shifting much business to other platforms. Meanwhile, Enron continues to hold a profitable edge through its exclusive access to EOL's substantial order-flow information - and that gives it an incentive to keep bid-offer spreads tight, which traders like. "Maybe the exchanges will gain a couple points of market share at Enron's expense," said R. Martin Chavez, chief executive officer of Kiodex, which produces software for online trading. "But Enron knows it makes its money on the order flow, not on the bid-ask, so it can stay stable by having the tightest bid-offer...At the end of the day, traders are going to trade where they can get the best price." -By Stephen Parker, Dow Jones Newswires; 201-938-4426; stephen.parker@dowjones.com (Kristen McNamara, Mark Golden and Jon Kamp contributed to this article.) Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: UPDATE 2-Enron's $1 billion credit line a mixed blessing. By Janet McGurty 11/01/2001 Reuters English News Service (C) Reuters Limited 2001. NEW YORK, Nov 1 (Reuters) - Enron Corp. on Thursday said it gained $1 billion in secured credit lines to help support day-to-day trading operations and bolster investor confidence in the beleaguered energy trading giant. But analysts said the credit is a mixed blessing for the former Wall Street high flyer now facing a full-scale probe by U.S. regulators into questionable financial dealings. Almost daily revelations have rocked Enron in the past two weeks and sent its stock price plummeting more than 60 percent. "Ultimate outcome and underlying fundamentals aside, we believe significant pressure and uncertainty will remain on Enron until the investigation concludes," said Donato Eassey of Merrill Lynch, who lowered his rating on Enron's stock to "neutral" from "accumulate" earlier on Thursday. Secured credit - in Enron's case credit lines backed by gas and pipeline assets - often is reserved for companies with "junk" credit ratings, though many analysts saw the credit as a positive for Enron. Shares of Enron continued their freefall, despite the company's announcement of new credit lines, after the Securities and Exchange Commission said late Wednesday it would make an informal inquiry into the company a full-scale investigation. Enron lost $1.35, or 9.7 percent, to $12.55, resuming a tailspin that began Oct. 16 when the company announced it was taking $1.01 billion in charges for ill-fated investments. Enron said the investment banking arm of J.P. Morgan Chase & Co. and Salomon Smith Barney Inc., the brokerage and investment banking unit of Citigroup Inc., agreed to provide $1 billion in credit lines backed by Enron's Northern Natural Gas Co. and Transwestern Pipeline Co. assets. 'A POSITIVE STEP' Analysts said it is difficult to gauge the downside of the SEC's probe of Enron, which began as a request for information and became a full-fledged investigation, which provides regulators the ability to subpoena company documents. Some analysts said the general economic environment after Sept. 11 has tightened lending restrictions and the secured issue is not ominous. "It is a positive step. They will be surrounded by uncertainty until the SEC probe is finalized and then they can go about their business. Assuming everything is above board, and they just come out with a conflict of interest, the SEC probe will probably result in a fine that will be a significant slap on the wrist." said Raymond Moore of Weatherly Securities. Other see it as a possible buying opportunity. "If the stock price gets to low-double digits, we might change our rating," said Mike Heim, analyst with A.G. Edwards who rates Enron as "hold/speculative." "Our decision not to raise our rating when shares dipped below $12 reflects concerns that Enron's problems may be affecting their trading operations," Enron said the credit lines will be used to supplement short-term liquidity, refinance maturing obligations and augment the $1 billion the company has of cash on hand. The commitments are subject to customary terms and conditions, including final due diligence, the company said. "This is yet another step in our efforts to enhance market and investor confidence," said Jeffrey McMahon, Enron's new chief financial officer. "We are moving aggressively to strengthen our balance sheet and maintain our investment grade credit rating." Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. USA: Light profit-taking pushes NYMEX natgas down midday. 11/01/2001 Reuters English News Service (C) Reuters Limited 2001. SAN FRANCISCO, Nov 1 (Reuters) - NYMEX Hub gas was a touch lower in thin trade midday Thursday, pressured by gentle profit-taking, market sources said. At 12:30 p.m. EST, December was down 2.1 cents at $3.27 per million British thermal units (mmBtu) after changing hands between $3.19-3.31. January was 2.8 cents lower at $3.40. Most other months were off between 3.3 cents and 5.8 cents. "This is just taking profits. The weather is spotty, and the only thing that is going to sustain this uptrend, which I think is already overdone, is an early and sustained winter," one Northeast trader said, adding that ample gas supplies would also limit the upside. Other traders said they believed part of the recent run-up in gas prices was due to a steady spate of short-covering in recent days by Enron, whose share price has been hammered after a series of disclosures about off-balance-sheet deals with partnerships run by its former chief financial officer. Moody's Investors Service cut Enron's credit rating on Monday to two notches above junk status and warned it could lower the rating on the company's senior unsecured debt even further, as well as cut Enron's short-term debt status. Enron is one of largest traders of wholesale natural gas and electricity in the United States. Many dealers said they were a bit surprised by the larger-than-expected build in weekly AGA inventory data released Wednesday. AGA data showed U.S. gas stocks rose last week by 23 bcf, below Reuters survey estimates for a 35-40 bcf build, and well-below the year-ago gain of 70 bcf and the five-year average injection for this week of 35 bcf. Total inventories of 3.090 tcf are still 378 bcf, or 14 percent, above last year and 237 bcf above the five year average. Traders said some in the producing region may have been selling cheaper baseload gas into the spot market to cash in on the steep premium to index. Storage now stands at 94 percent full and could still climb to a record 3.13 tcf this week, the last week of the stock-building season, traders said. Despite Wednesday's late spike, many traders remained skeptical of the upside, citing concerns about record levels of gas in inventory for winter and sagging demand due to a slowing U.S. economy. But some said recent talk about further terror attacks in the U.S. created uncertainty in the market that could limit the selling. In terms of heating degree days (HDDs), the National Oceanic and Atmospheric Administration (NOAA) said it expected 87 HDDs this week, or 2 below normal. NOAA also forecasted 5 CDDs this week, which is 1 below normal. The National Weather Service 6-10 day forecast released Wednesday called for above normal temperatures for most of the nation, except in the East and parts of the West, where seasonal or below seasonal readings are expected. NOAA recently issued a winter weather outlook calling for colder-than-normal temperatures for Northeast, upper Midwest and Plains states, with the possibility of heavy snow in the Midwest and along the East Coast. While chart watchers said the technical picture turned bullish last week when the December gap to $3.252 was filled and the down trendline from April was broken, most agreed the upside may be limited near-term by milder late-week weather forecasts. They now pegged December resistance at Wednesday's high of $3.44, with further selling expected at $3.76 and then at the August high of $4.10. Psychological support was seen in the $3.00 area, with support also at last week's low of $2.77 and at the trendline in the low-$2.70s. Further buying was expected at $2.66-2.67 and then in the $2.60 area. The October low was $2.535. The contract low was $2.415. In the cash today, Henry Hub swing quotes on average slipped about 7 cents to the $3.00 area. Midwest pipes were down 5 to 10 cents to the mid-$2.80s. In the West, gas at Waha Hub in west Texas was about 10 cents lower in the mid-$2.80s. Swing gas on Transco at the New York City gate skidded about 20 cents to the mid-$3.30s, while Chicago was around 10 to 15 cents lower near $3.10. NYMEX said an estimated 16,414 Henry Hub contracts traded at 11:40 a.m. EST. Henry Hub open interest on Oct. 31 eased 129 lots to 457,861. NYMEX has been holding abbreviated floor trading sessions following the Sept. 11 attacks on the World Trade Center. NYMEX gas open outcry trade will run from 10:00 a.m. to 2:30 p.m., with the Internet-based ACCESS session held from 3:15 p.m. to 9:00 a.m., through Dec. 31. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. Enron Corp.'s Credit Rating Lowered to `BBB' by S&P (Update1) 2001-11-01 17:04 (New York) (Adds additional information about rating cut beginning in first paragraph.) New York, Nov. 1 (Bloomberg) -- Enron Corp. had its long-term credit rating cut to ``BBB,'' the second-lowest investment grade, from ``BBB+'' by Standard & Poor's. The energy trader's short-term debt rating was cut to ``A-3,'' the lowest investment grade, from ``A-2.'' S&P said further cuts are possible. The rating company said in a report that it doesn't think Enron's plan to repair its balance sheet through asset sales and other means will be able to restore Enron's credit quality to the ``BBB+'' level it had since 1995. It said Enron's diminishing financial flexibility stems from its ``inability to calm investors who are unsure'' about the strength of Enron's core business and plan to restore its credit profile. S&P said Enron has ``adequate'' liquidity to see it through ``the current period of uncertainty.'' The ratings of Enron's subsidiaries, Transwestern Pipeline Co. and Northern Natural Gas., were lowered to ``BBB'' from ``A-'' to bring them in line with the parent company ratings. Enron has $15.8 billion of debt outstanding, according to Bloomberg data. Enron Gets $1 Bln Loan to Bolster Cash, Credit Rating (Update8) 2001-11-01 16:59 (New York) Enron Gets $1 Bln Loan to Bolster Cash, Credit Rating (Update8) (Adds S&P credit rating downgrade in fourth paragraph.) Houston, Nov. 1 (Bloomberg) -- Enron Corp., the largest energy trader, received a $1 billion loan from J.P. Morgan Chase & Co. and Salomon Smith Barney Inc. after agreeing to use the company's natural-gas pipelines as collateral. Enron shares fell 14 percent a day after the U.S. Securities and Exchange Commission began formally investigating partnerships run by its former chief financial officer. Pledging the pipelines signals Enron's desperation to convince shareholders and trading partners that it's creditworthy, investors said. ``It's not reassuring, it's worrisome,'' said Donald Coxe, manager of the Harris Insight Equity Fund, which owns about 78,000 Enron shares. ``If they had to secure the loan, obviously the lenders don't think they can rely on Enron's financial statements.'' After U.S. markets closed, Standard & Poor's cut Enron's long- term credit rating to ``BBB,'' the second-lowest investment grade, from ``BBB+.'' The energy trader's short-term debt rating was cut to ``A-3,'' the lowest investment grade, from ``A-2.'' The SEC is investigating partnerships run by former CFO Andrew Fastow that bought and sold Enron shares and assets. Those trades cost Enron $35 million and $1.2 billion in lost shareholder equity. Questions about Enron's dealings with the partnerships have shut it out of commercial-paper markets, where most large corporations go to find low-interest, short-term debt. Last Friday, Enron tapped a $3 billion credit line to pay off $2.2 billion in commercial paper it has outstanding. Proceeds from the $1 billion secured loan will go for debt payments and to supplement cash reserves, Enron said. Business With Enron To get the $1 billion loan, Enron pledged assets of its Northern Natural Gas Co. and Transwestern Pipeline Co., which own gas pipeline systems that combined are about 19,000 miles long and can deliver as much as 6 billion cubic feet of gas a day. Enron, based in Houston, got its start as a natural gas- pipeline operator. Over the past decade, the company has shed assets such as pipelines and power plants and focused on trading electricity, gas, wood pulp and other commodities. Enron now accounts for about a quarter of U.S. power and gas trades. The company still has about 25,000 miles of gas pipeline. Mortgaging those lines is ``maybe not such a good signal,'' said Roger Hamilton, who manages John Hancock Value funds, which owns 600,000 Enron shares. ``It shows they can't convince banks with anything but secured assets.'' Shares of Enron fell $1.91 to $11.99. Earlier, they dropped to $11.70. The stock has fallen 86 percent this year. Enron's 6.4 percent coupon notes due in 2006 fell about 3 cents today to be bid at 74 cents on the dollar and offered at 77 cents, traders said. Until last week, the notes were trading near par value. Credit Rating Enron must have investment-grade credit to borrow enough to settle its transactions daily. Energy companies including Exelon Corp. and Northeast Utilities have restricted business with Enron as the company sought new sources of credit. On Monday, Moody's Investors Service lowered Enron's long- term credit rating to ``Baa2'' from ``Baa1,'' two notches above junk status. It also placed the company's ``P-2'' rating for commercial paper on review for possible downgrade. Standard & Poor's said in downgrading Enron's credit rating today that the company has enough liquidity to see it through the ``current period of uncertainty.'' Still, S&P said, Enron's ``financial flexibility has continued to diminish'' because of its ``inability to calm investors that are unsure about the strength of Enron's core energy marketing business.'' Falling below investment grade would trigger early repayment terms for affiliated companies such as the ones created by Fastow. A lower credit rating also reduces the amount of cash that Enron can raise to back its trading business. Investor Confidence The financing is to ``enhance market and investor confidence,'' Enron Chief Financial Officer Jeffrey McMahon said in a statement. Enron can borrow another $200 million by bringing other banks into the loan, spokeswoman Karen Denne said. ``We don't have any plans to do so at this point,'' she said. ``We are moving aggressively to strengthen our balance sheet and maintain our investment grade credit rating,'' McMahon said. McMahon, head of Enron's industrial markets group, was named CFO last week. Fastow was ousted in an attempt to restore investor confidence. ``It seems until we know more about the SEC investigation, it's going to be a difficult time for the stock,'' said Tara Gately, an energy analyst at Loomis Sayles & Co., which sold most of its Enron shares early last year. J.P. Morgan is advising Enron on the sale of part of its Azurix North America water business to American Water Works Inc. for $148.8 million in cash and assumed debt. Salomon Smith Barney is the investment-banking arm of Citigroup Inc. Enron falls after SEC steps up probe CBSMarketWatch.com, 11/01/01 HOUSTON (CBS.MW) -- Enron shares fell for the 11th time in 12 sessions Thursday after the energy merchant said the Securities and Exchange Commission launched a formal investigation into two of its limited partnerships. Late Wednesday, the nation's largest natural gas and power trader said it retained William McLucas, a partner in the Washington, D.C.-based firm of Wilmer, Cutler & Pickering and a former SEC enforcement chief, as its counsel. McLucas works at the same firm as Stephen Cutler once did. The SEC named Cutler its enforcement division chief on Oct. 25, giving him oversight of the program in D.C. and in 11 regional and district offices across the country. According to a SEC press release, Cutler specialized in "securities enforcement and litigation" while a partner at Wilmer, Cutler & Pickering. Howard Meyers, a partner in the New York City-based law firm of Meyers & Heim and a former staff attorney in the SEC's Northeast regional office, said the McLucas-Cutler connection could give the appearance of a conflict of interest. "Whether there is or not, I don't know," he said. "If there isn't an actual conflict, you don't want to give the appearance of one. The SEC is a substantial regulatory agency that the public has to have confidence in." As new enforcement chief, Cutler has a duty to remove himself from any potential conflicts, Meyers said. "Generally speaking, I like to see someone a little more removed from any preexisting relationships," he said. No conflict, Enron says Karen Denne, an Enron spokesperson, said Enron is "satisfied that Wilmer, Cutler has no conflict, and the SEC can speak for itself on that issue." She said Cutler left Wilmer, Cutler three years ago and "severed all contacts." "As you know, the commission conducts its investigations on a non-public basis and thus we cannot confirm or deny the existence of any investigation that may or may not be taking place," said Michael Robinson, an SEC spokesperson. "Applicable government-wide ethics rules required that Mr. Cutler recuse himself from all matters involving Wilmer, Cutler for one year following his departure from the firm, and he did so." Additionally, Robinson said: "the SEC's ethics office has confirmed that Mr. Cutler's involvement in matters in which Wilmer, Cutler plays a role is entirely consistent with applicable government-wide conflict rules, as well as ethics rules applicable to all attorneys." Enron shares closed at $11.99, down $1.91, or about 14 percent. By session's end, 30 million shares had changed hands. Enron also said it had formed a special committee, headed by University of Texas Law School Dean William Powers, to deal with the SEC. John Gavin, president of Plymouth, Minn.-based SEC Insight, said that despite public assurances to the contrary, Enron's announcements Wednesday make it apparent that the company has "decided it is no longer in its interest to cooperate with the SEC." "As a formal investigation, the SEC must now use its subpoena power to compel the production of documents and witnesses. The assembly of a high-powered legal team is further evidence this company is digging in for a fight," he said. Initially, the SEC decided to pursue an informal inquiry into related-party transactions involving the company. Now, the SEC is making this a formal investigation. As such, the agency would investigate whether the company disclosed all that was required with regard to the related-party transactions, Meyers said, adding that the most important factor in the case's transition to a formal investigation is that the SEC can exercise subpoena power. Disclosure is highly important because it can determine whether an investor buys stock in a company or not, he added. After the existence of the two limited partnerships came to light, the stock plunged. "The SEC might take a look at the auditors of Enron, and certainly the SEC can take action against the officers of the company," Meyers said. "Any officer that signs off on 10-Qs or 10-Ks could be liable." Merrill Lynch analyst Donato Eassey downgraded Enron Thursday to "neutral" from "accumulate/buy," citing the uncertainty about the outcome of the SEC investigation. "We believe the timing and directional uncertainty of this new development will at best cap Enron's stock price in the mid-teen's while increasing overall volatility," Eassey wrote in a note to clients. The investigation will way on the stock until it concludes. "Timing is uncertain, but could feasibly take months." Secures $1 billion in credit Enron also said it secured $1 billion in additional financing from J.P. Morgan and Salomon Smith Barney. The new credit, supported by assets of Enron's Northern Natural Gas Co. and Transwestern Pipeline, will help Enron shore up its liquidity position. "We are moving aggressively to strengthen our balance sheet and maintain our investment-grade rating," said Chief Financial Officer Jeffrey McMahon, in a statement. Lisa Sanders is a Dallas-based reporter for CBS.MarketWatch.com.
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