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Enron Mail |
USA: WRAPUP 1-Credit quality in broad decline as defaults soar.
Reuters English News Service- 10/29/01 USA: U.S. firms say deals with Enron at normal levels. Reuters English News Service- 10/29/01 Enron Bonds Stabilize But Market Players Are Concerned Capital Markets Report- 10/29/01 Enron's stock continues slide on credit woes Associated Press Newswires- 10/29/01 UK: UK power mkt focuses on prompt after low peak deal. Reuters English News Service- 10/29/01 USA: UPDATE 2-Enron says in talks with banks for new credit line. Reuters English News Service- 10/29/01 USA: TRADE IDEA-Junk rating not likely for Enron. Reuters English News Service- 10/29/01 USA: Enron shares drop to near seven-year lows. Reuters English News Service- 10/29/01 Enron long-term ratings all placed on review for downgrade - Moody's AFX News- 10/29/01 Enron Shares Fall After Moody's Cuts Credit Rating (Update6) Bloomberg- 10/29/01 Enron's Lenders to Demand Harsher Terms, Analysts Say (Update2) Bloomberg- 10/29/01 Enron Credit Cut by Moody's; CP Rating Put on Review (Update3) Bloomberg- 10/29/01 Enron May Be Royal Dutch/Shell Takeover Target, Newsletter Says Bloomberg- 10/29/01 Insiders at Electric Utilities Showing Their Faith TheStreet.com- 10/29/01 A Debacle Like Enron's Can Undermine the Entire Market RealMoney.com- 10/29/01 Moody's downgrades Enron's debt Enron asking banks for more credit=20 CBSMarketWatch.com- 10/29/01 Enron Goes Begging=20 Forbes.com- 10/29/01 In these challenging times, Enron deserves our thanks Houston Chronicle- 10/29/01 USA: WRAPUP 1-Credit quality in broad decline as defaults soar. 10/29/2001 Reuters English News Service (C) Reuters Limited 2001. (Wraps FINANCIAL-CREDITQUALITY-MOODYS and FINANCIAL-DEFAULTS-S&P)=20 By Jonathan Stempel NEW YORK, Oct 29 (Reuters) - Corporate credit quality will likely grow much= worse before it gets better, and about $100 billion of corporate debt will= likely go into default this year as the United States heads into recession= , according to reports issued on Monday by two top credit rating agencies.= =20 Moody's Investors Service said it put ratings on review for downgrade for 1= 22 U.S. companies with $543 billion of debt in the third quarter, dwarfing = the 22 companies with $66 billion of debt it put on review for upgrade. Rev= iews are a leading indicator of the direction of corporate credit.=20 "A wide excess of rating reviews for downgrade over upgrades in the third q= uarter suggests credit deterioration will persist at least into early next = year," said John Puchalla, Moody's senior economist.=20 Meanwhile, Standard & Poor's said more than 200 companies will default on a= bout $100 billion of debt this year, compared with 117 defaulting on a reco= rd $42.3 billion in 2000.=20 It said the default rate for junk bonds - those rated "BB-plus" or lower by= S&P and "Ba1" or lower by Moody's because of their credit risks - will rea= ch 9.4 percent by year end. Moody's forecasts a 10 percent rate.=20 "The U.S. economy is clearly in a recession," said S&P Chief Economist Davi= d Wyss in a statement. "Although Standard & Poor's expects it to be relativ= ely mild and end in early 2002, the risk of a longer and deeper downturn is= high."=20 Both agencies said the Sept. 11 attacks contributed to a deepening of a thr= ee-year slump in corporate credit quality. Moody's blamed 38 reviews for do= wngrade in September alone on the attacks.=20 COSTS RISE, PROTECTION WEAKENS=20 U.S. corporate credit quality is falling for many reasons.=20 These include the weakening economy, the inability of many marginal compani= es to raise cash at tolerable interest rates, share buybacks, debt-financed= merger activity, and fallout from the attacks on such industries as airlin= es, insurance and travel.=20 "Many companies in financial difficulties will see their funding sources dr= y up and be pushed over the brink," said David Keisman, managing director a= t S&P Risk Solutions.=20 Even well-known companies are suffering rating declines.=20 On Monday alone, for example, S&P downgraded McDonald Corp. after the world= 's largest fast-food chain said it will buy back up to $5 billion of stock,= at a time S&P said the company's "growth prospects for the future are less= optimistic."=20 Meanwhile, Moody's downgraded Enron Corp., and warned it may downgrade it a= gain. The energy trading giant is struggling with vanishing investor confid= ence, reflected in a share price that has plunged by more than half in two = weeks, as it tries to keep access to cash it needs to run its business.=20 Puchalla said the credit quality decline could slow next year, in part beca= use interest rates are low and companies are managing their balance sheets = more conservatively.=20 "Lower borrowing costs and slowing debt growth should reduce debt servicing= costs, and fiscal stimulus from the federal government should boost busine= ss revenues," he said.=20 Still, through Friday, Moody's has said in the fourth quarter it may downgr= ade 47 companies, and upgrade just four. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 USA: U.S. firms say deals with Enron at normal levels. By Andrew Kelly 10/29/2001 Reuters English News Service (C) Reuters Limited 2001. HOUSTON, Oct 29 (Reuters) - Major U.S. wholesale natural gas and electricit= y traders said on Monday their deals with troubled Enron Corp. are still ru= nning at normal levels.=20 But some are keeping a wary eye on the company's finances and credit status= after a downgrade by one of the major rating agencies. "We certainly are very well aware of what our exposure is to them and watch= ing that on a daily basis," Chief Executive Marce Fuller of Atlanta energy = marketer Mirant Corp. told Reuters.=20 "At this point, I would categorize it as pretty much as business as usual w= ith Enron, but we'll have to keep a close eye on it as we move forward," sa= id Fuller.=20 Officials at companies such as Houston natural gas firm El Paso Corp. and C= olumbus, Ohio, utility holding company American Electric Power Co. Inc. exp= ressed similar sentiments, saying nothing had changed in their dealings wit= h the Houston-based energy company, at least for the time being.=20 "We continue to trade with them," said spokeswoman Jennifer Pierce of Charl= otte-based utility Duke Energy Corp.. "They've always been meticulous in th= eir credit management and we continue to see that with them," she added.=20 Enron's shares fell to yet another new low on Monday as the company said it= was lobbying banks for a new credit line and rating agency Moody's Investo= r Service downgraded the company's senior unsecured debt to two notches abo= ve junk-bond status.=20 Since Oct. 12 Enron's stock has fallen some 60 percent after the company re= ported its first quarterly loss in over four years, wrote down shareholders= ' equity by $1.2 billion dollars and failed to quell investors' jitters abo= ut a series of complex off-balance-sheet financial deals.=20 CONFIDENCE CRUMBLES=20 Analysts say that if confidence in Enron continued to crumble, it could res= trict the company's access to credit and thus create problems for its core = energy trading operations.=20 European energy industry sources told Reuters earlier on Monday that there = was already evidence of European companies shying away from trading with En= ron because of credit worries.=20 Several large energy groups have frozen their dealings with Enron in Europe= as they hold urgent talks with the U.S. group about setting up new credit = arrangements, the sources said.=20 "They are talking with us about bank letters of credit," said the head of r= isk management at one U.K. utility that halted its trade with Enron last we= ek. "The people that are still trading with them are doing so on a very res= trictive basis."=20 Traders in the U.S. wholesale energy markets said on Monday that they were = continuing to deal with Enron and still regard the company as a reliable tr= ading partner.=20 "I don't have any problems dealing with Enron, especially since I'm doing d= ay-ahead trades. But I have heard the rumors of people not wanting to deal = with them," one natural gas trader in the U.S. Southeast told Reuters.=20 A trader who specializes in longer-term deals in the forwards market for el= ectricity said publicity about Enron's woes had not yet led to any loss of = market liquidity.=20 "Obviously there's a concern, but the financial situation is not a factor n= ow," the trader said.=20 Despite the public words of reassurance that many of them have been speakin= g, Enron's major competitors and trading partners continue to monitor the s= ituation closely.=20 "Any time a counterparty starts looking like their credit rating is deterio= rating, then that would certainly be a signal to us to become more worried,= " said Mirant's Fuller. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron Bonds Stabilize But Market Players Are Concerned By Michael C. Barr Of DOW JONES NEWSWIRES 10/29/2001 Capital Markets Report (Copyright © 2001, Dow Jones & Company, Inc.) NEW YORK -(Dow Jones)- Uncertainty about Enron Corp. (ENE) continues to dog= investors concerned about the future of the Houston-based energy services = company.=20 "It's such a fluid situation that the market would like to see a clarificat= ion of the company's circumstances," said Eric Bergson, portfolio manager, = Northern Trust Global Investments, Chicago. Until this occurs, the outlook = for the company's bonds is choppy, he added. Enron drew down about $3 billion in credit lines last week to increase cash= reserves and calm jittery markets, buying back its outstanding commercial = paper. And, it's currently negotiating with its bank group for an additiona= l $1 billion to $2 billion in new credit, according to a report in Monday's= Wall Street Journal.=20 Enron's troubles began earlier this month with the announcement of a $618 m= illion third-quarter loss and the disclosure of a $1.2 billion erosion of i= nvestor equity related to transactions conducted with its former chief fina= ncial officer, Andrew Fastow.=20 "The company did not learn from the mistakes of others by not being ahead o= f the game on disclosure," said Mitch Stapley, portfolio manager and chief = fixed income officer, Fifth Third Investment Advisors, Grand Rapids, Mich. = It becomes harder to regain investors' trust, he said.=20 Moody's Investors Service lowered the company's senior unsecured long-term = debt rating Monday to Baa2 from Baa1. The debt is rated triple-B-plus by St= andard & Poor's Corp., with a negative outlook. Fitch also maintains a trip= le-B-plus rating and it placed the debt on Rating Watch Negative late last = week.=20 Both Fitch and Moody's cited negative investor reaction to recent company d= evelopments. And Moody's added that its "analysis of the developing situati= on will focus on management's success in lining up further liquidity suppor= t and on their ability to retain credit availability from their major count= erparties."=20 One money manager said he was concerned "about the fallout and its impact o= n the company's ability to trade" energy.=20 The company's bonds already have suffered as a result of the uncertainty. T= he bonds with a 6.40% coupon maturing in 2006 were offered at a dollar pric= e of 80 on Friday. Many investors believe that the 80 dollar price point is= a demarcation separating high-yield debt from distressed debt levels.=20 The company's bonds improved a little on Monday, to about an 83 dollar pric= e.=20 "I'm seeing offerings but no bids," said Harold Rivkin, principal, H. Rivki= n & Co., Princeton, N.J. There is a reluctance on the part of potential buy= ers because of the threat of future downgrades, he said.=20 The cool reception that Enron's bonds are receiving is "another example of = an investment grade company not having sponsorship when it has problems," s= aid Northern Trust's Bergson.=20 The company did not respond to a telephone request for comment.=20 -By Michael C. Barr, Dow Jones Newswires; 201-938-2008; michael.barr@dowjon= es.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron's stock continues slide on credit woes 10/29/2001 Associated Press Newswires Copyright 2001. The Associated Press. All Rights Reserved. HOUSTON (AP) - Enron Corp.'s stock slid to new lows on Monday, pushed down = in part by Moody's Investors Service announcing a possible downgrade of the= company's credit rating pending a review.=20 The downgrade came as Enron negotiates with banks to establish new credit l= ines as the largest U.S. natural gas and power marketing company struggles = to bounce back from disappointing third quarter earnings and a scandal over= losses stemming from partnerships managed by the company's former chief fi= nancial officer. In trading Monday afternoon on the New York Stock Exchange, Enron shares we= re down nearly 9 percent, or dlrs 1.38 a share, at dlrs 14.02 - their lowes= t level in nearly seven years. A year ago, Enron stock sold at nearly dlrs = 85 a share.=20 Enron's efforts to acquire more credit came after the Houston-based company= last week decided to cash in about dlrs 3 billion in revolving credit it h= as with various banks to shore up investor confidence.=20 "We are in discussions about new credit lines," Enron spokeswoman Karen Den= ne said Monday. "We're taking action to restore investor and market confide= nce."=20 Denne would not disclose how much credit the company was seeking. But The W= all Street Journal quoted unidentified sources who said the amount is betwe= en dlrs 1 billion and dlrs 2 billion and that the deal is close to being co= mpleted.=20 Denne said of the dlrs 3 billion in credit Enron cashed in last week, dlrs = 2 billion of it was used to pay short term debt. Currently, there are no pl= ans for the other dlrs 1 billion, she said.=20 Moody's on Monday placed all of Enron's long term debt obligations on revie= w for downgrade, citing "substantially reduced valuations in several of its= businesses."=20 On Oct. 16, Enron reported a net loss of dlrs 638 million in the third quar= ter, taking a one-time charge of dlrs 1.01 billion attributed to investment= losses, troubled assets and unit restructurings.=20 Enron's stock was hammered over the next week as it became apparent some of= those losses were tied to partnerships managed by Enron's former chief fin= ancial officer, Andrew Fastow.=20 Concerns about a potential conflict of interest touched off an inquiry by t= he Securities and Exchange Commission.=20 Enron ousted Fastow last week.=20 Moody's said in a press release the "magnitude of the announced charges wil= l reduce Enron's equity base and increase nominal financial leverage to som= ewhat over 50 percent while slashing earnings." Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 UK: UK power mkt focuses on prompt after low peak deal. 10/29/2001 Reuters English News Service (C) Reuters Limited 2001. LONDON, Oct 29 (Reuters) - Interest in Britain's electricity markets focuse= d on the prompt after the sale of peak power at an unexpected low price tug= ged other prompt contracts lower.=20 Traders said the market was surprised by the sale of day ahead peak power f= or EFA blocks three and four, from 0700 to 1500, at 13.50 pounds per megawa= tt hour which they said was below coal-or gas-fired power stations' operati= ng cost. "It was an interesting day. It was hard to believe someone could sell at th= ose prices - it's below marginal costs," said one trader.=20 Day ahead baseload opened relatively firm at 19.50/20.50 pounds but slipped= during the day to around 18 pounds and was traded at about 17.56 pounds af= ter the low peak trades.=20 Traders said the forward curve was quite with contracts ending slightly low= er.=20 Attention focused on troubled U.S. energy trader Enron with European compan= ies shying away from dealing with the utility because of credit concerns.= =20 Several large energy groups have frozen their dealings with Enron as they h= old urgent talks with the U.S. group about setting up new credit arrangemen= ts.=20 Enron is one of the largest traders in the UK market but traders said it wa= s too early see any impact on liquidity.=20 "Friday and Monday tend to be quieter anyway - it's hard to tell if there's= any effect from Enron," said one trader.=20 Enron in London declined to comment on the situation. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 USA: UPDATE 2-Enron says in talks with banks for new credit line. 10/29/2001 Reuters English News Service (C) Reuters Limited 2001. (Changes paragraph 1, adds background details and byline, updates stock pri= ce)=20 By David Howard Sinkman NEW YORK, Oct 29 (Reuters) - Energy trading giant Enron Corp., its shares i= n a new free-fall to near seven-year lows, said on Monday it is seeking add= itional credit to bolster investor confidence after tapping about $3 billio= n in credit last week.=20 Enron, the nation's biggest energy trader, declined to comment on the size = of the credit line, which banks it is in talks with or when it expects to c= omplete an agreement on the new credit line.=20 "We want to restore investor and market confidence and nothing instills con= fidence like cash," said Enron spokesman Mark Palmer in Houston, referring = to company efforts to secure new credit.=20 Company shares again tumbled on Monday, shedding $1.57, or 10.13 percent, t= o $13.93 in midday trade on the New York Stock Exchange. Once a Wall Street= darling, the stock has tumbled more than half in price since Enron release= d earnings two weeks ago, losing about $15.1 billion in market capitalizati= on as investors fretted about the transparency of off-balance sheet transac= tions.=20 Moody's Investors Service on Monday cut Enron's senior unsecured debt ratin= g to two notches above junk status, and warned it may cut it again, as well= as its rating for Enron's commercial paper. Rating agency Standard & Poor'= s on Thursday revised its outlook for Enron's ratings to "negative" from "s= table."=20 Enron's credit-worthiness has a direct affect on the price it pays to take = out loans, and the perception among its trading partners on the company's a= bility to make good on trades.=20 Moody's said Enron is suffering from deteriorating financial flexibility si= nce it announced big write-downs and equity charges from previously undiscl= osed partnership investments. It said this triggered "difficulties in rolli= ng over commercial paper."=20 Industry sources on Monday said several large energy companies in Europe ar= e shying away from trading with Enron amid concerns about the company's cre= dit status.=20 SIGN OF WEAKNESS=20 Enron shares have tumbled since the company reported its first-quarterly lo= ss in more than four years on Oct. 16. The company also wrote down $1.2 bil= lion in equity, including transactions with partnerships formerly run by it= s chief financial officer who was forced to step down from Enron last week.= =20 The sell-off was sparked by investor concern about the transparency of the = transactions, which the Securities and Exchange Commission is examining. En= ron last week replaced CFO Andrew Fastow as part of efforts to restore inve= stor confidence.=20 The Wall Street Journal reported Monday the size of the credit line Enron i= s negotiating is between $1 billion to $2 billion. Enron said it drew down = about $3 billion in credit lines last week, and has a net cash liquid posit= ion in excess of $1 billion.=20 However, many industry observes see the request by Enron, which has about $= 63.4 billion in energy assets, for an additional credit as a sign of weakne= ss.=20 "Clearly, both the stock and bond market view Enron as being in dire strait= s," said independent research firm Gimme Credit analyst Carol Levenson, who= specializes in high grade corporate bonds.=20 "We are not of the opinion that drawing down all of one's backup bank lines= is a demonstration of financial strength, but instead it's an act of despe= ration." Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 USA: TRADE IDEA-Junk rating not likely for Enron. 10/29/2001 Reuters English News Service (C) Reuters Limited 2001. NEW YORK, Oct 29 (Reuters) - A collapse of market=20 confidence could hurt the credit quality of energy trading giant Enron Corp., but its bonds are not likely to end=20 up in junk territory, fixed-income research service GimmeCredit=20 said on Monday.=20 Moreover, Enron's bonds could be undervalued if the=20 company's off-balance-sheet obligations amount to no more=20 than $3 billion, as reported, GimmeCredit said.=20 "Worst case, Enron doesn't look like a junk credit,"=20 GimmeCredit analyst Carol Levenson said. "But perception is=20 all, and clearly both the stock and bond markets view Enron=20 as being in dire straits."=20 Enron's bonds fell sharply on Friday after the energy=20 giant drew down about $3 billion from a credit line and=20 said it was in talks with its banks to obtain a new=20 multibillion-dollar credit line.=20 The company's stock has lost more than half of its=20 value in the last two weeks as investors questioned=20 off-balance-sheet transactions between the company and two=20 limited partnerships run by former Chief Financial Officer=20 Andrew Fastow. The U.S. Securities and Exchange Commission=20 is looking into those transactions for possible conflicts=20 of interest.=20 "We admit management's financial disclosure remains=20 woefully inadequate," GimmeCredit said. "However, botched=20 investor communication does not necessarily equate to=20 illegal or fraudulent behavior."=20 Still, Enron's move last week to draw down all of its=20 backup bank lines was "an act of desperation," GimmeCredit=20 said. The move eventually may lead to renegotiated bank=20 agreements, which could be more expensive and restrictive=20 and could also subordinate the position of bondholders, it=20 said.=20 "On the plus side is our belief that management will do=20 everything in their power to preserve the company's=20 investment-grade ratings," the firm said.=20 Another positive is a precedent the rating agencies set=20 with Kmart Corp. in the mid-1990s, when they tried to avoid=20 being the cause of a company's financial downfall, GimmeCredit=20 said.=20 Moody's Investors Service on Monday cut Enron's senior=20 unsecured rating to "Baa2" from "Baa1" and kept it on=20 review for further downgrade. Moody's said its actions were=20 prompted by deterioration in Enron's financial flexibility=20 since the company announced significant write-downs and=20 equity charges in previously undisclosed partnership=20 investments.=20 Last Thursday, Standard & Poor's revised its outlook on=20 Enron to negative while affirming its "BBB-plus" long-term=20 rating. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 USA: Enron shares drop to near seven-year lows. 10/29/2001 Reuters English News Service (C) Reuters Limited 2001. NEW YORK, Oct 29 (Reuters) - Enron Corp. shares fell to their lowest level = in almost seven years in early trade on Monday following news that North Am= erica's largest natural gas and electricity trader was considering tapping = additional credit lines to ease financial concerns that have sent its stock= slumping more than 50 percent in the past two weeks.=20 Enron shares were down $1.55, or 10 percent, to $13.95 on the New York Stoc= k Exchange. The shares have not been under $14 since December 1994. Earlier, the credit-rating agency Moody's Investor Service placed all long = term-debt obligations of Enron under review for downgrade following the com= pany's announcement of significant write-downs and charges, reflecting subs= tantially reduced valuations in several of its businesses.=20 Moody's said the actions affect Enron's broadband operations, its merchant = portfolio, and the Azurix water company holdings.=20 Last week Enron shares lost almost $14 billion in market value as a series = of piecemeal disclosures about the company's involvement in complex partner= ships began to trickle out.=20 Many industry observers see Enron's request for additional credit, after th= e company tapped its banks for $3.3 billion last week, as a sign a weakness= .=20 "We are not of the opinion that drawing down all of one's backup bank lines= is a demonstration of financial strength, but instead ... it's an act of d= esperation," said Carol Levenson, an analyst with independent research firm= gimmecredit.com. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron long-term ratings all placed on review for downgrade - Moody's 10/29/2001 AFX News © 2001 by AFP-Extel News Ltd NEW YORK (AFX) - Moody's Investors Service said it placed all the long-term= debt obligations of Enron on review for downgrade following the company's = announcement of significant write-downs and charges, reflecting substantial= ly reduced valuations in several of its businesses.=20 The magnitude of the announced charges will reduce Enron's equity base and = increase nominal financial leverage to somewhat over 50 pct while slashing = earnings, Moody's said in a statement. The company's previously announced sale of Portland General, however, will = result in cash proceeds approximating 1.8 bln usd which management is earma= rking for debt reduction. In addition, the sale will remove approximately 1= bln usd of debt obligations from Enron's balance sheet.=20 However, Moody's noted that, while this transaction will go a long way to h= elp restore Enron's balance sheet, it requires regulatory approval and is l= ikely to take up to a year to complete.=20 Enron has a Baa1 senior unsecured rating.=20 lj For more information and to contact AFX: www.afxnews.com and www.afxpres= s.com Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron Shares Fall After Moody's Cuts Credit Rating (Update6) 2001-10-29 16:46 (New York) Enron Shares Fall After Moody's Cuts Credit Rating (Update6) (Adds bondholder quote and background on commercial paper.) New York, Oct. 29 (Bloomberg) -- Enron Corp. shares declined a ninth day as Moody's Investors Service lowered its credit rating, raising concern the largest energy trader would be cut off from raising the cash it needs to fund day-to-day operations. Moody's lowered Enron's senior unsecured long-term debt ratings to ``Baa2,'' two levels above junk, from ``Baa1'' and also placed the Houston-based company's ``P-2'' rating for commercial paper on review for downgrade. Moody's may downgrade Enron's commercial paper rating, which would make it harder for the firm to borrow the short-term cash needed to run its trading businesses. Ahead of a potential cut, Enron took out bank lines to repay $2 billion in commercial paper last week, largely removing itself from that borrowing arena. ``They've pretty much already written off coming to the commercial-paper market,'' said Shannon Bass, who holds Enron bonds in the $50 million he helps manage at Pacific Investment Management Co. ``The real issue now is trying to get their house in order.'' Pimco is ``well underweight'' Enron bonds relative to bond benchmarks the portfolios are matched to, Bass said. Shut Out Companies such as Xerox Corp., which was shut out of the commercial-paper market a year ago before its credit ratings were reduced, were forced to borrow on bank credit lines to access cash. Investors in commercial paper, borrowings due in nine months or less, also stopped buying Motorola Inc. and Lucent Technologies Inc. short-term debt, forcing the firms to restructure borrowing, sell assets, and find alternative financing sources that typically cost more. Enron shares plunged $1.59, or 10 percent, to $13.81, continuing a slide that dates back to Oct. 17, when Enron reported $1.01 billion in losses from investments outside its business of energy trading. The stock traded near $90 in September 2000 and touched a seven-year low of $13.55 today. Enron has lost more than $50 billion in market value this year. On Dec. 31, the company had a market capitalization of $62.7 billion. Today, the market value was $10.5 billion. Deterioration While Enron shares have sank about 60 percent in a week, its bonds are down about 20 percent. A company's stock typically falls faster than its debt because bondholders have first claim on assets after bank loans are paid. The company's 6.4 percent bonds maturing in 2006 fell 4 cents to 80 cents on the $1 of face value after the Moody's downgrade. Yields have risen to 12.1 percent, up from 10.8 before that downgrade, traders said. The bonds were trading at 100 cents the week before. Moody's said the cut was prompted by the ``deterioration in Enron's financial flexibility'' since the write-downs and charges. The partnership investments had not been disclosed before this month, which ``led to a substantial loss in investor confidence,'' according to Moody's. ``A credit downgrade will be punitive as far as their borrowing power,'' said Joe Correnti, who follows Enron for Wayne Hummer Investments LLC in Chicago. ``That's not a good place for them to be. They have somewhat aggressive expansion plans.'' Enron's recent woes had many investors factoring in a credit- rating reduction. ``This move was anticipated,'' said Mike Dineen, who holds Enron bonds in the $5 billion of fixed-income assets he helps manage at Mony Life Insurance Co. There are about $15.8 billion of Enron bonds outstanding, almost $9 billion of which comes due between 2003 and 2006, according to Bloomberg data. Cash Needed Last week, Enron ousted Chief Financial Officer Andrew Fastow after the U.S. Securities and Exchange Commission asked for information about transactions he conducted for partnerships he headed. In August, Jeff Skilling quit as Enron chief executive, eight months after taking the position, and Chairman Ken Lay moved back into the position. Enron is trying to get $1 billion to $2 billion in loans from Citigroup Inc., J.P. Morgan Chase & Co. and other banks to calm investors, the Wall Street Journal reported. The company's stock has plummeted 57 percent since Oct. 17, when Fastow's partnerships were disclosed. Enron uses its investment-grade credit rating to borrow money for the cash it needs every day to settle commodities trades and to keep trading partners. ``When you act as a middleman you need high credit ratings. It's likely their trading volumes will go down'' as other energy and financial firms seek higher-rated trading partners, said Sean Egan, managing director at Egan-Jones Ratings Co., which gives Enron's credit a junk grade of ``BB+.'' Enron's long-term ratings outlook was changed last week to negative from stable by Standard & Poor's. S&P affirmed the firm's rating of ``BBB+'', the equivalent of Moody's ``Baa1''. ``We have been split-rated before and it did not affect our growth,'' said Karen Denne, a spokeswoman for Houston-based Enron. ``We are still investment grade.'' Enron's Lenders to Demand Harsher Terms, Analysts Say (Update2) 2001-10-29 16:08 (New York) Enron's Lenders to Demand Harsher Terms, Analysts Say (Update2) (Updates with closing share price in last paragraph.) Houston, Oct. 29 (Bloomberg) -- Enron Corp., which can't get low-interest, short-term loans, faces skeptical lenders who will demand increasingly harsher terms as the largest energy trader tries to get cash in the bank, credit analysts said. ``Anyone providing new funding is going to be nervous,'' said Sean Egan, managing director at Egan-Jones Ratings Co. ``It's likely that lenders are going to demand collateral.'' Enron is trying to get $1 billion to $2 billion in loans from Citigroup Inc., J.P. Morgan Chase & Co. and other banks to calm investors after a 52 percent drop in the company's stock since Oct. 17, the Wall Street Journal reported. The company needs cash every day to settle commodities transactions and to keep trading partners. The company on Thursday tapped $3.3 billion in bank credit lines last week to pay off about $2 billion in commercial paper, or short-term corporate loans. A week ago, the Enron said the U.S. Securities and Exchange Commission had began an inquiry into related-party transactions. They cost the company $35 million and $1.2 billion in lost shareholder equity. ``Banks are in the driver's seat, and Enron is a little desperate,'' said Peter Petas, a debt analyst at CreditSights Inc. ``I think their interest rates for loans would go up.'' Sells Assets for Cash Companies in Enron's situation often agree to other bank terms in order to secure loans, Petas said. Those can include agreeing to use proceeds from selling assets to pay debt and putting up assets as collateral. Enron is attempting to sell assets to raise cash. Two related partnerships, Osprey and Marlin, depend on selling power plants and similar assets to repay $3.3 billion borrowed to buy the plants. Enron may have to pay any difference between the debt and sales proceeds. The company plans to complete the $2.9 billion sale of Portland General Electric, an Oregon utility, to Northwest Natural Gas Co. next year. Shares of Houston-based Enron fell $1.59, or 10 percent, to $13.81. The stock has tumbled 82 percent in the past 12 months. Enron May Be Royal Dutch/Shell Takeover Target, Newsletter Says 2001-10-29 13:31 (New York) Houston, Oct. 29 (Bloomberg) -- The Royal Dutch/Shell Group, the second-largest publicly traded oil company, may be interested in buying Enron Corp., which has seen its stock price plunge in the last two weeks, industry newsletter Power Finance & Risk reported, citing unnamed sources. With Enron's market valued dropping below $11.5 billion from a high of more than $55 billion, companies such as Royal Dutch/Shell would be able to buy it with ``little trouble,'' the newsletter reported. Royal Dutch/Shell, based in London and The Hague, Netherlands, had approached Enron about a buyout in August, and has sought to purchase the company for three years, the newsletter said, citing an unnamed banker in London and an unnamed analyst in New York. Shell spokesman Mary Brennan said the company wouldn't comment on market speculation. Enron didn't immediately return calls seeking comment on reports of possible buyout offer. Enron Credit Cut by Moody's; CP Rating Put on Review (Update3) 2001-10-29 12:29 (New York) Enron Credit Cut by Moody's; CP Rating Put on Review (Update3) (Adds yield data in fourth paragraph; adds Moody's comments in sixth and seventh paragraphs.) New York, Oct. 29 (Bloomberg) -- Enron Corp.'s credit rating was cut by Moody's Investors Service after the largest energy trader wrote down the value of its assets because of losses from private partnerships. Moody's also said it may downgrade Enron's commercial paper rating, which could make it harder for the company to borrow the short-term cash it needs to run its trading business in the future. The company borrowed from banks to repay $2 billion in commercial paper last week. ``This move was anticipated,'' said Mike Dineen, who holds Enron bonds in the $5 billion of fixed-income assets he helps manage at Mony Life Insurance Co. Enron's 6.4 percent coupon notes due in 2006 fell as much as 4 cents to bid at 80 cents on $1 of face value after the Moody's downgrade, traders said. The bonds tumbled from about par value a week ago. Yields have risen to 12.1 percent, up from 10.8 before that downgrade, traders said. Shares of Enron fell as much as $1.85, or 12 percent, to $13.55. Moody's lowered the senior unsecured long-term debt ratings of Enron to ``Baa2,'' two levels above junk, from ``Baa1.'' The ratings company said they may be lowered further. Moody's placed the company's ``P-2'' rating for commercial paper on review for downgrade. Moody's said the cut was prompted by the ``deterioration in Enron's financial flexibility'' since the write-downs and charges. The partnership investments had not been disclosed before. Enron's recent disclosures have ``led to a substantial loss in investor confidence,'' Moody's said in its news release. Cash Needed Enron reported $1.01 billion in losses this month from investments outside its business of trading commodities such as electricity and natural gas. Chief Financial Officer Andrew Fastow quit as the U.S. Securities and Exchange Commission asked for information about transactions he conducted for partnerships he headed. Enron is trying to get $1 billion to $2 billion in loans from Citigroup Inc., J.P. Morgan Chase & Co. and other banks to calm investors, the Wall Street Journal reported. The company's stock has plummeted 57 percent since Oct. 17, when the partnerships were disclosed. Enron uses its investment-grade credit rating to borrow money for the cash it needs every day to settle commodities trades and to keep trading partners. ``Enron definitely depends on higher ratings,'' Dineen said. Enron's long-term credit ratings outlook was changed last week to negative from stable by Standard & Poor's. S&P affirmed the Houston-based company's rating of ``BBB+'', the equivalent of Moody's ``Baa1''. ``We have been split-rated before and it did not affect our growth,'' said Karen Denne, a spokeswoman for Houston-based Enron. `` We are still investment grade.'' Insiders at Electric Utilities Showing Their Faith=20 By Jonathan Moreland <<mailto:jonathan@insiderinsights.com<< Special to TheStreet.com 10/29/2001 03:30 PM EST URL: <<http://www.thestreet.com/comment/moreland/10003164.html<;< Name an industry where one of its best-known players went public in 1996, s= aw its stock rise more than 1,800% in the following five years, but now fin= ds its shares half off their 2001 highs? Internet? Telecom equipment?=20 Surprise! The stock is Calpine (CPN:NYSE - news - commentary) , and the ind= ustry is electric utilities.=20 Three other stocks in the same group have given investors pretty wild rides= as well, only to find themselves well off their 52-week highs: AES (AES:NY= SE - news - commentary) , Mirant (MIR:NYSE - news - commentary) and NRG Ene= rgy (NRG:NYSE - news - commentary) .=20 These four companies also have something else in common: Insiders at all of= them are signaling that their stocks are oversold. When there is significa= nt insider buying in so many related firms, we cannot help but think there = is a positive industry trend to profit from.=20 Utilities may not seem like a sexy sector, but these particular stocks have= proved that they can move as well as any small-cap, high-tech play. Their = volatility stems from the fact that the companies they represent are not re= gulated utilities paying fat dividends, but independent power producers (IP= Ps) that derive as much profit as they can from the margins over fuel costs= .=20 In some ways, IPPs are to regulated utilities what the old English navy was= to the Spanish Armada. IPPs are less restricted in the scope and geography= of their business movements. This has spurred a more entrepreneurial cultu= re at IPPs that often allows them to outmaneuver regulated utilities when c= hasing after business opportunities.=20 The insider buying at all four companies was obviously interesting. They al= l had several insiders recently purchasing within a short time period, and = many of the buyers also had good track records trading their companies' sha= res. Several were also adding significantly to their holdings.=20 At AES, for example, three of the eight executives that purchased shares in= late September for $13 a share or less, were also smart sellers over the p= ast few years when AES fetched between $40 to $60. And at Mirant, the five = insiders that purchased in September increased their holdings by an average= of 53%.=20 This confluence of positive insider signals was more than enough to get me = researching these companies and this industry further, and I like what I se= e.=20 "There's been a lot of talk about if we have an oversupply of energy," rema= rks Calpine spokesperson Katherine Potter on one of the main reasons IPP st= ocks are weak now. "But while supply may be fine right now, you also have t= o look at the quality of [that] supply. There is such a tremendous opportun= ity to replace infrastructure."=20 Out With the Old, In With the New The fact is, there are a lot of antiquated power plants and overburdened ba= ckbones in the power industry, and IPPs stand to benefit tremendously from = replacing the older infrastructure to service the growing demand for energy= in the U.S. and abroad.=20 With more scheduled and unscheduled maintenance of the present, aging facil= ities exacerbating price spikes, municipalities and industry would much rat= her choose reasonably priced energy from dependable sources if they are ava= ilable.=20 Although most IPPs use oil, gas, coal or a combination of these fuels to po= wer present facilities, the vast majority of plants they're building now ar= e a new generation of natural gas-powered turbines that are much more effic= ient than old gas-fired facilities. An IPP will typically build one of thes= e new plants near cities or other areas with high and growing electricity n= eeds, and compete with the older facilities in the region for the business.= =20 But it's not really fair competition. New plants can generate up to 40% mor= e energy from the same amount of gas used by some older designs. The new na= tural gas turbines also have a smaller footprint and fewer emissions than t= heir predecessors, and can therefore be located closer to where the power i= s needed. Can you say lower transmission costs?=20 So with the cost of the natural gas representing a good two-thirds of a gen= erator's cost, less fuel expenditure combined with a decrease in transmissi= on infrastructure to pay for leaves more love left for an IPP's bottom line= .=20 As older gas-fired and nuclear plants are decommissioned, IPPs will continu= e to increase the amount of product (and profits) they produce. At the same= time, the trend toward more efficient gas plants will help slow the increa= ses in overall demand for natural gas, and keep the cost of this commodity = from reaching stratospheric levels.=20 Although, as previously mentioned, IPP stocks are well off their highs, ana= lysts are as taken with the group as insiders are right now. Most analysts = following the four IPPs I've recommended rate them a buy or strong buy.=20 This is not too surprising considering that bottom-line growth for NRG, AES= , and Calpine next year is forecast at 24% to 25%, while analysts expect Mi= rant to boost earnings per share by 30% in 2002. All of these shares are tr= ading for 12 times or less the low end of next year's EPS expectations.=20 Chartists will note that the technicals of the IPP stocks I've mentioned st= ill look weak, and may choose to wait for a better entry point. But longer-= term investors should feel comfortable joining the insiders now.=20 Postscript Readers will note that we have not included Enron (ENE:NYSE - news - commen= tary) in our group of recommended IPPs. Although we cannot boast of foresee= ing its present travails (resulting from too-clever-by-half off-balance she= et investments), we had ignored it because Enron did not have a positive in= sider signal like its peers.=20 Insiders were still selling Enron as late as Aug. 2 of this year when the s= tock was nearly half off its highs, and although there was one insider purc= hase in August, there was not a cluster of activity as in the other IPP sto= cks we've recommended. There was no buying after Sept. 11.=20 If Enron's problems are unique to it, as the industry insiders we talked to= believe, this is yet another case of insiders giving investors an excellen= t signal of relative attractiveness of stocks within an industry.=20 A Debacle Like Enron's Can Undermine the Entire Market By James J. Cramer <<mailto:jjcletters@thestreet.com<< RealMoney.com 10/29/2001 02:14 PM EST URL: <<http://www.thestreet.com/p/rmoney/jamesjcramer/10003162.html<;< Sometimes one stock can completely transfix the market in a negative way.= =20 Right now that one stock is Enron (ENE:NYSE - news - commentary) . It trans= fixes us because it acknowledges a simple truth: We are just dealing with p= ieces of paper here, pieces of paper backed up by nothing but the honesty a= nd culture of the people who work at the company.=20 When you put it that way, you realize how fragile this game can be. We have= to believe that the system of checks and balances we have -- outside accou= ntants, lawyers and the SEC -- can put enough pressure, honest pressure, on= execs to keep them from doing the wrong thing.=20 When they don't we have no clue of what we are buying.=20 I keep thinking back to Cendant (CD:NYSE - news - commentary) , which colla= psed three years ago when it turns out that one of the companies that made = up Cendant was a bogus company: CU International. Who knew what the company= was really worth if CU was a fraud? Who knew what the multiple might be? W= ho knew what the company was worth? Who knew how to value it?=20 When you don't know, you don't average down. You sell. You ask questions la= ter.=20 That's what is going on with Enron right now, and it is freaking out everyb= ody as Enron, while not a keystone of this market, was a core holding of ou= tfits like Janus, Putnam, Citigroup, State Street and Fidelity.=20 Anytime you get a stock that is widely held that loses billions in market c= apitalization overnight, whether it be Lucent (LU:NYSE - news - commentary)= or Nortel (NT:NYSE - news - commentary) or Enron, you scare portfolio mana= gers. When the selloff is exacerbated by fears of chicanery, it gets even w= orse. Enron's turning into the story that threatens to be a crossover, one = that is doing more than just pulling down utilities. The market is about co= nfidence. We have to have confidence that paper assets are backed up by som= ething, even if it is the prestige and honor of executives. When that confi= dence is undermined in one major stock, it gets undermined in all.=20 That's where we are right now.=20 Random musings: Fixing your 401(k) today on Cramer's RealMoney; give me a c= all at 1-800-862-8686 between 3 and 4 p.m.=20 Moody's downgrades Enron's debt Enron asking banks for more credit=20 Lisa Sanders CBSMarketWatch.com 10/29/01 NEW YORK (CBS.MW) - Shares of Enron fell further Monday after Moody's Inves= tors Service downgraded Enron's long-term debt a notch. Enron, which hit a 52-week high of $84.88 on Dec. 29, was well on its way t= o another year low Monday. Heading for a ninth straight day of losses, Enro= n shed more than 9 percent, or $1.41, to $13.99. The stock was again the mo= st active mover on the New York Stock Exchange as close to 28 million share= s had changed hands. Moody's said it cut the senior unsecured long-term debt to Baa2 from Baa1, = and the ratings remain on review for potential additional downgrades. The a= ction follows Enron's reported $1.01 billion charge in the third quarter an= d was driven by the expectation of further write-downs and the swift deteri= oration of the company's financial picture, said Stephen Moore, vice presid= ent at Moody's.=20 "However, we do feel the move Enron made to draw down their revolvers to pa= y off their commercial paper was a smart business move," said Stephen Moore= , vice president at Moody's. The rating agency said it would review the Pri= me-2 rating on Enron's commercial paper. Last Thursday, Enron announced it had tapped its lines of credit to provide= more than $1 billion in cash liquidity and that would it use $2 billion to= pay down commercial paper. The decision to pay off the commercial paper, he said, accomplishes two goa= ls. "It increases liquidity on a short-term basis, and additionally, it enables= them to focus on other areas they need to focus on right now," Moore said.= "They are working on setting up an additional facility for further capital= to support their wholesale trading business."=20 Karen Denne, an Enron spokesperson, confirmed Monday that the company is in= discussions with banks for further financing. Additional credit would help= boost Enron's liquidity position. The lingering concern for Moody's is that there "yet may be something else = out there that gets to the credibility issue of Enron itself," Moore said.= =20 At the heart of the credibility issue are two limited partnerships -- LMJ a= nd LMJ2 - created in 1999 by former CFO Andy Fastow and since dissolved. En= ron ousted Fastow last week. See related story. </news/story.asp?guid=3D%7B= FCA73BA9%2D55D0%2D4EE8%2DB6E7%2DBD924898CA4B%7D&siteid=3Dmktw< "The market = was unaware," of the existence of the partnerships, Moore said. "Quite frankly, we don't think there is anything else," he said. "But Enron= is huge, and if this could happen...there is a lingering concern that some= thing else might happen. We cannot confirm or deny that this is true. We wi= ll be meeting soon with them to resolve issues such as these." Moore said the meeting could come as soon as this week. "Should the wholesale trading business and the counterparties therein becom= e impacted by these events, that could lead to the slowing growth of the wh= olesale business, the Enron engine," he said.=20 Moody's action Monday also negatively affected the ratings on two trusts --= Marlin Water Trust and Osprey, which have combined debt of $3.2 billion. M= arlin is now rated Baa2, while Osprey carries a new rating of Baa3, both do= wn a notch. The potential issue for the trusts may be "how much equity Enron would have= to issue if the sale of the underlying assets alone isn't enough to pay of= f the debt." Enron is anticipating using the proceeds from the sale of asse= ts to meet its obligation. Lisa Sanders is a Dallas-based reporter for CBS.MarketWatch.com. Enron Goes Begging=20 Forbes.com staff, Forbes.com </news<, 10.29.01, 11:40 AM ET=20 NEW YORK - Enron said this morning that it is in talks with banks for addit= ional credit, as declining investor confidence sent its stock to a six-year= low and several large energy groups put their dealings with Enron on hold.= Last Thursday, the energy trader drew down about $3 billion from a credit = line, causing its bonds to fall sharply on Friday.=20 Enron (nyse: ENE ) has been scrambling to reassure investors and business p= artners since Oct. 16--after the company reported its first quarterly loss = in more than four years. The $638 million loss included $1.01 billion in ch= arges on ill-fated investments. A week later, it disclosed that the U.S. Se= curities and Exchange Commission had asked for information on partnerships = run by Chief Financial Officer Andrew Fastow and other executives. Fastow w= as forced to step down from the company last week.=20 The turmoil makes it clearer than ever that Enron's problems weren't solved= by the recent departure of Chief Executive Jeffrey Skilling. In these challenging times, Enron deserves our thanks=20 Houston Chronicle, October 28, 2001 By BILL WHITE=20 Enron and its employees have blessed Houston, and many Houstonians should n= ow take the time to say "thanks" when the company has experienced some high= ly publicized challenges. Enron attracted thousands of great people to Hous= ton and changed Houston's economy forever. The company's management encoura= ged their employees to be active citizens, and those folks responded by mak= ing a big difference in their community.=20 Enron's lead in shaping a nationwide market for electricity gave birth to a= multibillion-dollar new industry, with Houston as its hub. Even while it c= ompeted hard to win in the marketplace, Enron's example helped show other n= atural gas pipeline and trading firms how to move into the even bigger mark= et of electricity. The downtown concentration of these firms -- industry le= aders including Reliant, Dynegy, El Paso and Duke Energy -- led London's Fi= nancial Times to refer to Louisiana Street as the Wall Street of electricit= y.=20 This explosive growth attracted bright young people -- with the average age= of Enron employees at under 35 -- and they in turn helped fuel an explosio= n in residential growth in Houston's downtown. This, in turn, helped revita= lize downtown's retail and restaurant scene. Enron's construction of a larg= e Class A office tower, still going up, is a milestone in Houston's growth,= an official end to more than a decade of large amounts of vacant office sp= ace.=20 Virtually every civic or charitable activity in Houston learned to count on= Enron for both financial support and thousands of hours of invaluable volu= nteer activities. If Enron or its chairman, Ken Lay, led a visionary effort= , such as hosting the meeting of G7 trade ministers, or more recently the p= rivate funding of the Houston Biotechnology Center, Houstonians knew it wou= ld be done right. Without Lay our town would have lost major league basebal= l and status as a big league town.=20 Employees know Enron set a standard for hiring and promoting employees base= d on their potential, with no glass ceilings. Women have run large division= s and subsidiaries. Many military officers find that Enron called on their = talents after illustrious military careers, even at ages well past normal c= orporate entry level. The most highly recruited young people flock to a com= pany that invests heavily in their training and then lets them rise as far = and fast as their talent and ability to work hard would allow them.=20 Enron's corporate success reflects the stories of so many of its employees = who have lived the American dream. With the habits of work learned on a fam= ily farm in Missouri, Ken Lay got an education ending with a graduate degre= e at the University of Houston, served his country in government and began = a career in the gas pipeline business. When Northern Natural Gas acquired t= he smaller Houston Natural Gas, Northern's chairman surprised folks by inst= alling Lay as his successor. I was at Northern's headquarters in Omaha the = week after the merger 16 years ago when Northern's chairman reassured folks= that they could count on "best young executive in the business, Ken Lay," = to direct their future in a changing marketplace. Within 15 years, most of = Enron's revenues and profits came from businesses that did not even exist w= hen Lay had taken over, all of which had been created from within the firm.= This success did not diminish the farm boy decency and sense of fairness t= hat attracted top talent to his team.=20 Enron rewarded innovation, while many firms afraid to alter the old formula= wondered why their leadership eroded. Year after year, top executives thro= ughout the country voted Enron our nation's most innovative corporation. En= ron recognized, even when financial markets do not, that innovative firms a= re secure enough to accept occasional failure and the inevitable price of o= ther successes.=20 Rather than seeking insulation from the international marketplace, as had m= any American businesses, Enron welcomed the challenge of the international = market, confident that American firms could compete and win. Enron also wel= comed the challenge of responsible environmental stewardship, and called on= industry to address the issue of global warming even as some companies fea= red the impact of pollution control on their bottom line.=20 Enron's phenomenal success created incredible and perhaps unreasonable expe= ctations, as early this year when the stock market valued the company based= on 20 percent annual growth, forever. Enron's size and success made it a c= onvenient target for politicians in California and India, even as Enron sup= plied the electricity they so needed. Sometimes it seemed the company's ups= tart origins as the David battling utility Goliaths delayed the firm's perc= eption that it had won and no longer played the role of an underdog.=20 And so if Enron experiences problems, it will learn from them, just as stro= ng people do. Let's not prejudge Enron's current challenges. The more than = a decade of my life that was dedicated to trying cases against companies wh= o hurt consumers and investors taught me both to insist on the truth but ne= ver to jump to premature conclusions based on a headline or a news story.= =20 Throughout its years of success, Enron folks have never forgotten to find s= o many ways to make the firm's hometown of Houston a better place to live a= nd work. As Enron enters a new phase of its life, let's not forget to expre= ss thanks and steady support.=20 White is a Houston business executive and civic leader and former governmen= t official, with no relationship to Enron.
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