That's the question, is ENE on a death spiral or is the market simply overdoing it on the downside? My personal view is why take what looks like at pure gamble at this level or even $4, if all the players are simply tossing in their cards. You want to gamble, maybe there'll be a place at the table at $1.50 or $0.95.
Lisa Sanders at Marketwatch gives you the current play by play, and this team is definitely out of the playoffs:
Energy traders are icing out Enron
Shares trade at 9-year lows for 2nd straight day
By Lisa Sanders, CBS.MarketWatch.com
Last Update: 1:47 PM ET Nov. 7, 2001
NEW YORK (CBS.MW) -- Amid mounting questions about Enron's liquidity and creditworthiness, players in the energy-trading business have already begun to limit their exposure to the embattled power merchant.
The revelations came Wednesday as Enron's stock (ENE: news, chart, profile) plunged 24 percent following news that Standard & Poor's cut its ratings for the company's credit-linked notes to two notches above junk status.
"Everybody's trying to balance out their exposure to Enron as best they can," said an energy trader who spoke on condition of anonymity. "That means not doing business or minimizing their business with Enron."
1 of 4 energy trades
Traders' attempts to isolate the company underscore concerns about the stability of the overall energy-trading market, in which Enron is involved in 1 out of every 4 trades.
However, some industry watchers are confident that the energy market can survive if Houston-based Enron were to disappear.
"Even though they quote-unquote make the market, the market exists whether Enron is there or not," said Phil Flynn, senior markets analyst at Alaron.com. "Those that think this is the end of energy trading have another thing coming."
Enron, its shares trading at levels not seen since 1992, saw the stock fall $2.27 to $7.40 on in afternoon volume of 58 million.
On Wednesday, Standard & Poor's, which just last week downgraded Enron's corporate credit rating, cut the rating on the credit-linked notes of Enron Credit Linked Notes Trusts to BBB from BBB-plus. S&P also added a "Watch negative" designation, meaning the rating agency is poised to issue further downgrades if warranted.
"The CreditWatch placements recognize the uncertainties that surround the company and its credit quality in the short run due to the possibility of further anticipated developments in the capital markets," the rating agency wrote.
Wednesday's downgrade affects $500 million worth of notes, which are derivatives linked to Enron's senior unsecured debt, now rated BBB.
"The investors are taking the risk of Enron credit" by purchasing the securities from the trusts even though these are not issued by Enron," said Tom Fritz, a Standard & Poor's managing director.
In addition, Standard & Poor's cut to BBB Yosemite Securities Co. Series 2000-A. The obligations use Enron's corporate rating as a backstop.
The counterparty to Yosemite and the credit-linked notes is Citibank, Fritz said. Last week, J.P. Morgan joined with Salomon Smith Barney, which along with Citibank is a unit of Citigroup (C: news, chart, profile), to extend $1 billion in new credit to Enron to help the company's liquidity.
'Not business as usual'
"With these downgrades, it's not business as usual," the energy trader said. "We're already in the process of losing a counterparty that contributed a good deal of liquidity to the energy-trading market."
The trader cited Calpine (CPN: news, chart, profile), Dynegy (DYN: news, chart, profile), and El Paso Energy (EPG: news, chart, profile) as energy traders that have a chance to gain market share, but he conceded that Enron won't be replaced overnight, should it cease to exist.
"Energy trading won't be destroyed at all," the trader said. "It will certainly be diminished but not gone."
What Enron's absence would do is make it more difficult for lesser creditworthy companies to participate in the market. Exchanges such as the New York Mercantile Exchange and the Intercontinental Exchange may gain a higher profile.
Both of them are trying to establish a clearinghouse for the unregulated market for derivative-energy transactions, as the NYMEX already does with futures.
In other news, Enron is preparing to close most of its Asian broadband telecommunications business, part of a global restructuring that comes as the company is seeking a capital infusion of as much as $2 billion to help it through a financial crisis. See previous story.
"Poor demand for broadband is being exacerbated by falling prices, requiring Enron to consider the best options for managing its global broadband business," according to a recent company memo obtained by CBS.MarketWatch.com.
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