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Enron Mail |
FYI
Randy -----Original Message----- From: jdietert@simmonsco-intl.com [mailto:jdietert@simmonsco-intl.com] Sent: Monday, April 29, 2002 6:29 AM To: Sales_Trading@simmonsco-intl.com Subject: DYN ($15/sh): Upcoming Bank Facility. SUMMARY: We expect DYN to continue to decline until it hits break-up value (we estimate low double digits) or we get a positive data point to support the stock. We believe potential data points that will likely move the stock include news associated with the renegotiation of its $1.2B bank facility (potentially out today), positive comments from DYN's 1Q02 earnings call (Tuesday morning), a response from CVX (timing uncertain), results of the SEC inquiry (uncertain), or comments from Moodys (not likely this week and probably not next). We believe DYN has slightly better than 50/50% chance of being successful renegotiating its bank facility, although the rate may be higher, and the total amount may be slightly lower. We expect this to stabilize the stock. We are optimistic that the 1Q02 earnings call could provide support as well. While we believe a decline to the low teens is a distinct possibility, we believe long-term investors should be buying the pain today. We plan to tighten our break-up analysis after the release of the 1Q02 earnings and balance sheet information. BANK FACILITY: DYN has a $1.2B bank facility that expires Wednesday (5/1/02). Bank commitments were due on Friday. We expect commitments to be less than the current $1.2B. The Japanese banks, which we believe provided $300MM originally, are not likely to participate in this round (apparently, they have been cutting back across many sectors). We are expecting DYN to be successful renegotiating its bank facility, albeit at high rates and potentially for a lower aggregate amount (maybe in the $0.8B to $1B range). DYN's currently has access to $1.7B in liquidity, this could decline to $1.3B to $1.5B if the bank facility is reduced as we expect. In the event of a Moody's downgrade, that could trigger a requirement of roughly $1B in collateral for existing transactions, making liquidity tight. COUNTER-PARTY ACTIVITY: We believe risk-adverse counter-parties (including producers, utilities, and utility-based marketing companies) are scaling back business with DYN. Generally speaking, we believe the more established marketing & trading companies are balancing their netting agreements, but are continuing to do business with DYN. We believe DYN was forced to post collateral on incremental deals earlier in the year when Moody's placed them on negative watch. Since Moodys has once again placed DYN on negative watch, it is likely that they are being forced to post collateral on incremental deals again. However, since Moodys has not yet downgraded DYN to below investment grade, we do not believe it has triggered collateral requirements for existing agreements. This counter-party activity is similar to what Enron and MIR experienced. However, we expect the DYN experience to be very similar to the MIR experience. Both MIR and DYN have substantial natural gas production contractual commitments and equity owned power generation that helps them meet contractual sales commitments. MIR has proven that while a junk rating does squeeze margins, it does not immediately shut down an asset-backed business the way it does a pure trader (Enron). MOODYS REVIEW: We are expecting Moodys to sit on its current position for a few weeks. DYN plans to meet with Moodys later this week or next. We do not sense immediate urgency by Moodys to downgrade to junk. We expect the rating agency to perform further analysis after receiving additional information from DYN. Bottom line, we do not expect Moodys to provide a positive or negative catalyst in the near-term (next week or so). SEC INQUIRY: We would be surprised to see the SEC find anything illegal associated with the Alpha transaction, especially since its accounting arm has already determined that the reclassification of cash flows was sufficient to appropriately account for the transaction. Perhaps the SEC will require more discussion of the transaction, but we would be surprised to see much more. ***************************************************************************************************** This e-mail is based on information obtained from sources which Simmons & Company International believes to be reliable, but Simmons & Company International does not represent or warrant its accuracy. The opinions and estimates contained in this e-mail represent the views of Simmons & Company as of the date of the e-mail, and may be subject to change without prior notice. Simmons & Company International, its partners and/or employees may have positions in the securities discussed. Simmons & Company International may make a market in the securities discussed and may have served as a financial advisor and/or underwriter to companies discussed. Simmons & Company International will not be responsible for the consequence of reliance upon any opinion or statement contained in this e-mail. This e-mail is confidential, and may not be reproduced, in whole or in part, without the prior written permission of Simmons & Company International.
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