Enron's Stock, Bonds Drop on Concern for Dynegy Bid (Update8)
By Jennifer Ryan
New York, Nov. 26 (Bloomberg) -- Enron Corp.'s stock price declined to a 14-year low and its bonds plunged 10 points on concern the company won't secure $1 billion in fresh capital, threatening its plan to be acquired by Dynegy Inc.
``The clock is definitely ticking,'' said Jon Kyle Cartwright, a debt analyst at Raymond James and Associates. ``The question is the survivability of Enron.''
J.P. Morgan Chase & Co. and Citigroup Inc. executives met today to line up investors for as much as $2 billion of bonds convertible into stock. The company needs the money to operate until Dynegy completes its $23 billion purchase. Dynegy unveiled its plan to make the acquisition on Nov. 9.
Enron shares and bonds, which opened lower, tumbled after 1 p.m. when no announcement for fresh financing was made. Enron's 6.4 percent notes that mature in 2006 plunged to 48 cents on the dollar, down from 55 cents on Friday. The bonds now yield 26 percent. Enron shares declined 15 percent, or 70 cents, to $4.01.
Concern that rival Dynegy may change or cancel its bid for Enron has pushed Enron's stock down 55 percent in the past week. Enron's shares had plummeted 86 percent since mid-October after the company reported a $618 million third-quarter loss and said expansion into water, telecommunications and retail-energy sales cost it $1.01 billion.
``Bit Scary''
``You haven't heard anything from Dynegy today, and that is a bit scary,'' said Andy Palmer, who doesn't hold Enron bonds in the $2 billion he helps manage at ASB Capital Management Inc. in Washington.
Part of the third-quarter charge was connected with limited partnerships run by the chief financial officer. He was ousted, and the U.S. Securities and Exchange Commission started an investigation into Enron's accounting. The company earlier this month restated its earnings for the past four years.
Enron's bankers have met with leveraged buyout firms and two industrial companies to seek an investment, the New York Times reported last week. J.P. Morgan and Citigroup agreed to terms that give each of them a $250 million equity stake as part of a transaction that was supposed to be completed today. ``If people who've looked at Enron are willing to put in that kind of money, it sends a message that their core businesses, trading, pipelines, and energy management, are still healthy,'' said Kathleen Vuchetich, who helps manage $1.4 billion in assets, 4.2 percent Dynegy shares, at the Strong American Utilities Fund.
Doubt
Under the buyout, Enron investors would receive 0.2685 Dynegy share for each share held. That valued Enron at $10.41 a share, 21 percent more than Enron's share price that day.
On Friday, the buyout valued Enron at $10.85 a share, more than double Enron's closing price of $4.71. The widening of the difference between the value of the offer and Enron's stock price indicates investors doubt the buyout will go through.
Shares of Enron traded as low as $3.76 today, rebounding to close at $4.01. The stock was the most active in U.S. trading Wednesday and Friday. Dynegy dropped $1.15, or 2.85 percent, to $39.25. The stock has fallen 30 percent this year. Both companies are based in Houston.
Egan-Jones Ratings Co. lowered its rating on Enron's credit today to ``BB-'' from ``BB.'' ``Dynegy needs to show its support, or Enron will slide,'' the firm said in a report.
`More Problems'
Moody's Investors Service hasn't issued a report on Enron since the company filed its 10-Q quarterly report with the SEC a week ago. The ratings agency's analysts haven't returned calls for comment.
Moody's cut Enron's long-term credit rating on Nov. 9, though it maintained an investment grade.
``Time is not Enron's friend,'' said Stewart Morel, co-head of investment grade debt research at UBS Warburg LLC. ``There is increased concern in the market that there may be more problems that are yet to be disclosed.''
On Wednesday, Enron got a three-week reprieve from lenders on a $690 million note due this week, giving the company more time to restructure its finances. Dynegy Chief Executive Officer Chuck Watson said he was ``encouraged'' by the commitment to extend the note payment, as well as the closing of a $450 million credit facility, and that Dynegy remained committed to the merger.
``Dry Up''
Terms of the $690 million note were outlined for the first time in the Enron filing a week ago. Enron also said that it has less than $2 billion in cash and credit lines left. If the company's cash reserves run too low, Enron's credit rating may be cut below investment grade. That would trigger $3.9 billion in debt repayments for two affiliated partnerships.
Enron said in the filing that fourth-quarter profit might be hurt by a drop in its trading business. Companies such as Aquila Inc. and Mirant Corp. have reduced their activity with Enron because of credit concerns.
``Should the Dynegy deal fall through, we don't view it likely that Enron would be able to remain as a stand-alone company,'' Youngberg of Edward Jones said. ``Without Dynegy, the credit rating will fall, causing their trading business to dry up further.''
Enron, the biggest energy trader, once handled about a quarter of U.S. gas and power transactions. |
