ENE--Energy Companies Still Shy On Enron Despite Dynegy Deal
By JON KAMP, JOHN EDMISTON and ANDREW DOWELL
November 12, 2001
Of DOW JONES NEWSWIRES
NEW YORK -- Credit concerns led U.S. energy companies to continue to restrict their dealings with Enron Corp. (ENE) Monday, despite last week's announcement that the company has agreed to be acquired by Dynegy Inc. (DYN).
Trading counterparties in Enron's core North American electricity and natural gas markets said they were only doing necessary transactions and low-risk, short-term deals with the Houston-based giant as they monitored developments with Enron's credit rating.
"As of last week, our value at risk to Enron was down considerably from where it once was," said Al Butkus, spokesman for Aquila Corp. (ILA), a leading trader of North American power and gas. "It's down even further today."
In comments similar to those made by others in the market, Butkus said Aquila wants to see an improvement in Enron's credit rating and won't increase its exposure on the strength of the Dynegy announcement alone.
The $8.85 billion Dynegy buyout announced Friday isn't a done deal, and Enron remains a serious credit risk if the deal doesn't go through, a power trader working in the markets east of the Rockies said.
"There just seems to be some concern that Dynegy has quite a few opportunities to get out of it," the trader said.
Added another, "This announcement hasn't changed anything."
Enron spokesman Eric Thode said, to the contrary, that the company has seen a "dramatic" increase in trading business Monday from levels seen at the end of last week.
"Today's figures are on line to be much larger than Thursday or Friday," Thode said. "The certainty now of the deal with Dynegy takes away those fears, those question marks."
Volumes on EnronOnline, the company's Internet-based trading platform, are expected to top 5,000 transactions Monday, up from around 4,000 Thursday and Friday and near the 30-day rolling average of 5,600 to 5,800, Thode said. Volumes at the beginning of last week topped 6,000, he said.
To be sure, traders generally saw the Dynegy buyout announcement as a sign Enron's prospects have improved, and traders in some regions said they were seeing more normal activity on EnronOnline after last week's reduced volumes.
Still, credit concerns are preventing many in the market from doing business with Enron.
Standard & Poor's and Moody's Investors Service rate Enron's credit at the lowest level of investment grade, and both have the company on negative credit watch or review for a downgrade.
In the absence of a deal with Dynegy or one like it, Enron's ratings would fall into junk-bond territory, S&P analysts said on a conference call Monday.
As reported, Dynegy's acquisition agreement allows the company to walk away if Enron's additional legal and financial liabilities exceed $3.5 billion. There also are other "material adverse change" provisions, officials said.
The energy markets and ratings agencies are also waiting for Dynegy to make good on its pledge to inject $1.5 billion immediately into Enron to shore up its finances. An infusion of cash would be a "stabilizing event," Moody's said last week.
Charlie Sanchez, an energy marketing manager at Gilber & Associates in Houston, said his customers think Enron's prospects look a little better but still haven't received clearance from their credit-risk managers to trade with the company.
Traders in the U.S. natural gas markets confirmed that assessment.
"We're keeping a close watch on the volume of gas that we're doing business with them on," one trader of western gas said. "We're not doing anything substantial."
Gas traders said they were avoiding dealing with Enron if possible and doing only minor deals if transactions were inevitable.
Enron is the country's largest trader of natural gas and electricity, accounting for up to a quarter of both markets by some estimates.
Markets are liquid and stable, despite Enron's troubles, Butkus, of Aquila, said.
Energy companies began shying away from Enron over the past month, as concerns about its finances precipitated a 75% drop in its stock price and left its bonds trading at levels typically associated with distressed debt.
Enron's restatement of four and a half years' worth of earnings last Thursday and ratings downgrades Friday led some companies to stop doing business with Enron altogether, even if that meant paying higher prices or accepting lower bids to do so.
Enron's value as a company depends on its ability to transact in its core North American wholesale gas and power markets, Wall Street analysts and ratings agencies have said.
-By Andrew Dowell, Dow Jones Newswires; 201-938-4430; andrew.dowell@dowjones.com
(Jon Kamp in Chicago and John Edmiston in Houston contributed to this article.)
Charlie Sanchez, an energy marketing manager at Gelber & Associates in Houston, said his customers think Enron's prospects look a little better but still haven't received clearance from their credit-risk managers to trade with the company. |
