ENE drops 23% on debt concern
marketwatch.com;
Enron slides on news of debt woes
Energy merchant restates Q3 results
By Leticia Williams & Lisa Sanders, CBS.MarketWatch.com
Last Update: 2:30 PM ET Nov. 20, 2001
WASHINGTON (CBS.MW) -- Shares of Enron slid back to single-digit levels Tuesday after the embattled energy merchant revealed that it has a week to settle a $690 million debt and restated its third-quarter earnings.
Investors fled the stock, which cast off $2, or 22 percent, to trade at $7.06. Enron led the market with 56.2 million shares changing hands.
Late Monday, Enron said in a Securities and Exchange Commission filing that its third quarter loss-per-share would increase by 3 cents per share to 87 cents.
Houston-based Enron (ENE: news, chart, profile), which is being purchased by rival Dynegy to escape a recent spate of problems and shattered Wall Street confidence, also increased nine-month earnings by a penny to 20 cents a share.
Dynegy (DYN: news, chart, profile) plans to purchase Enron for $9 billion in stock and assume $13 billion in debt. Dynegy did not return calls seeking comment.
Enron must also pay off or refinance $690 million in debt obligations by Nov. 26 or risk triggering nearly $4 billion in additional payments, according to the SEC filing.
If the company doesn't make the $690 million payment on the aforementioned date, and doesn't post collateral, the note becomes a demand obligation on Nov. 27. At that time, investors have the right to immediately begin to liquidate the assets of a limited partnership for an amount equal to the note payable.
In addition, Enron may sell the limited partnership's assets for amounts below their carrying values.
"The net proceeds from the sale of such assets can be used to repay Enron's obligation, " according to the company's 10Q filed Monday with the Securities and Exchange Commission.
Enron is in talks with lenders to "develop a mutually acceptable" amendment or waiver to avoid having to issue payment on the $690 million note.
Failure to make the payment could cause Enron to lose its investment-grade ratings. In that event and if Enron's stock price fell below a certain level, the company could have to refinance or pay in cash $4 billion of debt mainly from its Osprey Trust and its Marlin Water Trust.
Since Enron is effectively barred from the capital markets, raising $4 billion on the quick would be difficult. Karen Denne, a spokeswoman for Enron, declined to address the possibility of bankruptcy protection, but said: "we are talking to the lenders." She also said the company's plans to restructure "are designed to raise necessary capital." See related story.
Standard & Poor's currently has the company rated at BBB-, a notch above speculative grade, and the rating is on watch for further downgrades. Fitch rates the company's credit at BBB-, evolving. Moody's Investor Service rates the company Baa3, under review. All ratings apply to the senior unsecured debt of the corporation.
"If they get lowered below investment grade, it causes significant problems for them, but we're just digesting this information," said Ralph Pellechia, senior director at Fitch.
Standard & Poor's and Moody's weren't immediately available for comment.
Leticia Williams is a reporter for CBS.MarketWatch.com in Washington. The Associated Press contributed to this report.
Lisa Sanders is a Dallas-based reporter for CBS.MarketWatch.com |
