Bankruptcy Tangles Enron's Future
By Peter Behr
Washington Post Staff Writer
Tuesday, December 3, 2002
On Dec. 2, 2001, a destitute Enron Corp. entered bankruptcy court, seeking protection from a horde of hostile creditors after its monumental collapse. In the year since, Enron has created a different monument -- to the cost and complexity of the U.S. legal process.
The Houston company, its workforce cut in half, to 14,000, is still wrestling with what is left of its future -- whether to sell off its big-ticket assets and close its doors or try to limp on as a vastly smaller natural-gas-pipeline company, repaying creditors as much as it can.
Stephen F. Cooper, Enron's court-approved interim chief executive, is soliciting bids this month on a dozen power plants and pipeline networks that Enron valued at $10 billion in August. If the bids are strong enough, Enron will sell the projects, he promises.
But this decision, like hundreds of related ones, is entangled in the bankruptcy process. Enron's fate will be decided by creditors under the eye of U.S. Bankruptcy Judge Arthur Gonzalez in New York in a proceeding that has rung up more than $1 million a day so far in legal and accounting fees and consulting costs, including charges by lawyers representing executives and employees in the federal investigations swirling around the company.
The bill for professional services represents 40 percent of Enron's current overhead, prompting complaints by some creditors that the legal fees are running out of control. Time is not the creditors' friend, said Aaron Cahn, a lawyer with Carter, Ledyard & Milburn, who represents a number of energy companies in the bankruptcy proceeding. "The longer you stay in bankruptcy, the more difficult it is to emerge with a successful resolution," he said, and the harder Enron will have to bargain with prospective bidders for its assets.
"It is probably the most costly bankruptcy ever filed," said James A. Beldner of Kronish Lieb Weiner & Hellman, which represents about 40,000 past and present Enron employees. "There are a lot of law firms, but this is a big case."
Indeed, a range of legal disputes and negotiations will affect how much Enron ultimately is worth to its creditors and how the pie is split. For example, Enron has sued Sierra Pacific Resources, a Nevada energy company, saying it is owed $307 million under a long-term power contract. Sierra Pacific asked Judge Gonzalez to dismiss the claim, citing accusations that Enron rigged West Coast power trades -- an issue under investigation by federal regulators and a federal grand jury in California.
Enron is also trying to recover $230 million from Houston rival Dynegy Inc. in a dispute over energy trades between the two companies. Further action is planned against other power traders that pressured Enron for payments in the weeks before its bankruptcy filing, according to Martin Bienenstock, a lawyer with Weil, Gotshal & Manges, Enron's lead bankruptcy counsel. Enron got a $97 million payment from Dynegy to settle another pre-bankruptcy dispute, he noted. "That's a multiple of our fees," he said.
In addition to its burgeoning legal fees, Enron's assets could be eroded by court judgments if the company is indicted and convicted of securities fraud. Thus far, the Justice Department and the Securities and Exchange Commission have moved against former Enron employees, but the government's complaints implicate the company as well for allegedly deceiving investors about its financial condition.
Attorneys for Enron's employees have sued executives who ran its retirement plan, charging that they should have heeded warning signs about the company's looming problems last year and reduced the plan's holdings in Enron stock. That dispute has a long way to go, acknowledges Eli Gottesdiener, a Washington lawyer representing the employees in a class action.
"The employees are still at the back of the line. It seems to be a process that is assisting the primary creditors and the corporate lawyers. But employees have seen nothing" from the legal actions, he said.
Nor have shareholders, whose class-action suit against Enron executives and directors is still awaiting preliminary rulings by U.S. District Judge Melinda Harmon in Houston.
Some current and former Enron employees are concerned that Cooper and his team of reorganization specialists now running the company may drag out the reorganization for another year or more, while their fees and salaries mount.
That is not Cooper's intent, replied Bienenstock, who predicted that a reorganization plan will be completed and put before the creditors before the end of 2003. Cooper didn't return a call seeking comment yesterday.
"Mr. Cooper wants to finish this quickly and move on. He doesn't need the money. He just wants this to be a success. He's spent his life on reorganizations and he wants this to be a model," Bienenstock said.
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