Battered Enron in Search of $1 Billion
Stock's Decline Raises Doubts About Buyout
(http://www.washingtonpost.com/wp-dyn/articles/A19204-2001Nov26.html)
By Peter Behr
Washington Post Staff Writer
Tuesday, November 27, 2001; Page E01
Shunned by investors and deserted by many former customers, Enron Corp. is searching this week for up to $1 billion in cash from lenders to sustain its once dominant energy-trading business.
Enron stock fell yesterday to new low of $4.01 a share, down 70 cents, continuing the latest plunge that began last week when the Houston company disclosed still more damaging detail about its financial condition.
A year ago, Enron stock traded for more than $78 a share, based on its leading position then as a trader of power, natural gas, various industrial and telecommunications products and financial contracts linked to these commodities.
Dynegy Inc., Enron's Houston rival, said yesterday it was not moving away from its $23 billion cash and debt offer to buy Enron. Enron declined to comment on its financial problems.
But Enron's stock has dropped more than 50 percent since the Dynegy deal was announced Nov. 9. Investors believe that Dynegy will renegotiate the deal at a cheaper price or even try to abandon it, said Brian Youngberg, a financial analyst with Edward D. Jones & Co. in St. Louis.
"The [Dynegy] deal values Enron at more than $10 a share. For a company that's trading at $4, that doesn't make much sense," said Youngberg, who last week recommended that customers sell Enron shares.
As part of the Dynegy deal, Enron received $1.5 billion in cash, secured by stock in one of its pipelines. But without another large infusion of cash, the company faces what Youngberg called a "death spiral."
Along with investors, many energy buyers and traders have lost confidence in Enron's ability to make good on the long-term energy contracts it specializes in, Youngberg said. Enron's most important operations involve contracts to deliver natural gas, electric power and other energy products to industries and utilities in the future. It also sells financial instruments designed to protect customers against sharp swings in energy prices.
These deals are the one part of Enron that Dynegy wants.
"Their core business has dropped off sharply," said Andrew Meade, an analyst with Commerzbank Securities in New York. Enron remains a sizable player in the huge daily trading of energy products, but is being frozen out of long-term markets and relegated to less profitable short-term trades, said Meade.
The lengthy span of Enron's crisis, which began a month ago, when it reported a $1.2 billion reduction in shareholder equity, has given companies time to close out contracts with Enron or limit their potential losses if Enron were to fail, said Louis B. Gagliardi, an analyst with John S. Herold Inc. in Connecticut.
"If Enron went to a Chapter 11 bankruptcy, or failed, it would unsettle the market slightly. But it wouldn't catch people by surprise. So there's not much danger of a crisis on the natural gas or power side" of energy trading, Gagliardi said. Other market participants cautioned that the extent of Enron's obligations to trading partners is not known to outsiders, making the impact of an Enron failure hard to assess.
Dynegy and its partner, ChevronTexaco Corp., could pump billions of dollars into Enron's operations if the purchase went through, but under the best of circumstances, regulatory review of the deal will drag on for another six months. Investors and traders are increasingly doubtful that Enron can hang around that long by itself, "That just adds to the uncertainty about the stock," Gagliardi said.
Dynegy's offer for Enron caused a brief rally in Enron stock price and outlook.
But that flurry of optimism was halted by a new financial report last week to the Securities and Exchange Commission detailing even more serious debt obligations than the company had previously acknowledged.
Enron was able to negotiate a three-week extension on a $690 million note that was coming due this week and finished arrangements on a $450 million line of credit, part of a $1 billion infusion it had previously announced.
However, the $690 million obligation, disclosed in the SEC filing, was a very pointed alert to investors about Enron growing cash needs, Meade said.
And the new details of Enron's plight in last week's filing further damaged the credibility of the company's financial reporting, Meade said.
"I don't think they have fully restated their earnings. There is probably more to come, Meade said."
Enron's board has turned to an outside committee to assess the company's financial condition, after acknowledging last month that Enron had overstated earnings by $586 million over the past four years.
The restatement was caused primarily by accounting decisions that concealed losses in a series of limited partnerships that Enron had helped create to buy various energy, water supply and Internet network properties it wanted to dispose of, the company said.
On Nov. 14, Enron's new chief financial officer, Jeff McMahon, briefed analysts on a series of steps the company would take to raise cash, including the current quest for $500 million to $1 billion in loans. Enron, its executives said, will reorganize the company around its business that generated the strongest cash flow -- energy trades, gas pipeline and coal operations. Other assets, worth $8 billion in book value, would be put up for sale "in an orderly fashion."
Then came the new disclosures last week, reinforcing analysts' concerned that the depths of Enron's liabilities have not yet been plumbed.
"The issues that brought Enron to this point are unresolved. It's a balance sheet that doesn't stand still and continues to deteriorate," Gagliardi said. |
