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Non-Tech : The ENRON Scandal -- Ignore unavailable to you. Want to Upgrade?

To: dave rose who wrote (307)	1/14/2002 1:16:02 PM
From: Karen Lawrence	Read Replies (2) \| Respond to of 5185

UBS near deal to assume trading operation By LAURA GOLDBERG Copyright 2002 Houston Chronicle Enron Corp. would exit the energy trading and marketing business that was once the heart of the company under a deal it was close to finalizing late Sunday with Swiss investment bank UBS. Under the terms being hashed out, UBS would start up a new trading operation in Houston using employees, technology and office space provided by Enron. UBS would hire key Enron people to run the business and would be expected to offer jobs to most of the 800 energy trading and marketing employees Enron has retained in Houston. Enron wouldn't have an ownership stake in the UBS venture, but UBS is expected to give Enron and its creditors a cut of the new business' profits -- 33 percent before taxes, Enron Chief Financial Officer Jeff McMahon told the Chronicle. UBS wouldn't give Enron any cash upfront, though it would pay it rent for the office space. The business UBS is taking over previously generated about 80 percent of Enron's operating profits, but most of it was shut down shortly before the company sought bankruptcy protection in early December. Energy trading and marketing involves buying and selling commodities such as natural gas and electricity. Enron matched buyers and sellers and sometimes bought energy directly that it would sell later. Enron also offered a variety of financial contracts, or hedging tools, designed to help insulate energy producers and users from volatile prices. The company plans to use the cash flow from UBS to help bolster its balance sheet as it seeks to emerge from bankruptcy. Enron plans to build a smaller company around hard assets, such as pipelines and energy exploration and production. Doing so would take it back to its roots as a natural-gas pipeline company. Some observers have been skeptical that Enron can rise from bankruptcy and avoid liquidation, but company officials say they intend to do just that. "We absolutely still expect to have an energy business that emerges here out of bankruptcy," McMahon said Sunday. Dynegy will soon get Enron's largest pipeline, the 16,500-mile Northern Natural Gas, as a result of a failed merger deal between the companies. But Enron still has a number of other assets, including: · Transwestern Pipeline, which runs 2,500 miles. · Florida Gas Transmission, which runs 4,800 miles. · A large stake in the 1,200-mile Northern Border Pipeline. · Domestic natural-gas and production assets and natural-gas storage facilities. Enron envisions continuing to provide energy management services to large commercial and industrial customers, including utilities. It may end up managing customers' natural-gas storage facilities or doing long-term deals to provide electricity, company officials said. Major terms for the UBS deal were agreed to by Enron and UBS on Sunday evening, but final details were still being worked out. Documents were expected to be signed by early this morning. Enron is hoping the New York bankruptcy judge overseeing its case will approve the agreement during a hearing Thursday. The company hopes to close the transaction within 30 days. Enron's creditors committee approved the general terms and conditions behind the UBS deal Friday, Enron spokesman Mark Palmer said. UBS officials couldn't be reached for comment Sunday. While the approval by the creditors committee should carry significant weight with the judge, individual creditors will be able to file objections if they have any. McMahon expects Enron to contribute people, office space, furniture and technology, including the EnronOnline Internet trading platform, in a 10-year deal with UBS. In the third, fourth and fifth years of the deal, UBS is expected to get options to reduce Enron's share of the profits from 33 percent to 22 percent, then to 11 percent and finally to zero. UBS would pay Enron cash each time, using a formula pegged to profits made in the prior year. If UBS doesn't exercise its options by the end of the fifth year, Enron's share of the profits would begin increasing at the end of 7 1/2 years, reaching 45 percent by the end of the 10-year agreement. It was previously expected that another company would buy a majority stake in Enron's trading business, with Enron retaining an equity interest. But Palmer said the royalty payment idea was a creative option UBS proposed. At the bottom line, Enron was concerned with the amount of cash its estate could get, Palmer said. UBS is expected to set up shop in the state-of-the-art trading floor in Enron's second headquarters building, which is up for sale. Even though the building is still under construction, some employees have already started working there. If the building is sold, the UBS operation would move to Enron's original headquarters building. UBS' strong balance sheet and high credit rating combined with Enron's traders should make the UBS venture a success, Enron officials said. To retain key employees, Enron paid out about $105 million in retention bonuses to almost 600 people it said were critical to the business. That move drew criticism from some of the thousands of people who lost their jobs when the company filed for bankruptcy. But having trading employees around to send to UBS was the key to getting the deal done, Palmer said. Contracts Enron traders entered into before bankruptcy for the purchase or sale of gas and power won't move to UBS, McMahon said. Most of those will be liquidated, though Enron will probably hold on to to some of them, such as long-term deals to supply energy to certain customers.