News > Deals
Enron in talks with lenders
graphic November 21, 2001: 12:46 p.m. ET

Energy trader committed to Dynegy merger, in talks with primary lenders.
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  • Dynegy set to buy Enron for $9.5B - Nov. 9, 2001
  • Dynegy, Enron confirm talks; Enron restates earnings - Nov. 8, 2001
  • Enron under SEC probe - Oct. 31, 2001
  • Enron looks for more credit - Oct. 29, 2001
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  • Enron
  • Dynegy
    NEW YORK (CNN/Money) - Enron Corp. reaffirmed its commitment Wednesday to a takeover by Dynegy Inc. while also revealing that it is in talks with its primary lenders to restructure its debt obligations.

    Enron received an extension on its $690 million debt note due until mid-December, which will give the energy company time to restructure the debt. Enron expects the extension to be formalized shortly, the company said in a release.

    "We have been in continuous contact with our banks and believe we can identify a mutually beneficial restructuring to enhance our cash position, strengthen our balance sheet and address upcoming maturities," Enron Chief Financial Officer Jeffrey McMahon said.

    For its part, Dynegy said it is encouraged that Enron has received an extension on its $690 million note.

    "We are continuing our confirmatory due diligence and working to

    accelerate the regulatory approvals required to complete the merger in

    accordance with the previously announced agreement," Dynegy CEO and Chairman Chuck Watson said in a statement.

    Enron (ENE: down $1.98 to $5.01, Research, Estimates) shares dropped a further 28 percent Wednesday, while Dynegy (DYN: down $1.94 to $39.76, Research, Estimates) shares fell nearly 5 percent.

    Enron also closed Wednesday on the $450 million remaining on a $1 billion credit line from J.P. Morgan and Salomon Smith Barney. Earlier this month, Enron secured $1 billion in financing from the banks, using assets, Northern Natural Gas Co. and Transwestern Pipeline Co., to support the credit lines.

    Of the loan, $550 million closed Nov. 16 while the remaining amount was finalized Wednesday. James Lee, vice chairman of J.P. Morgan Chase & Co., said the bank is working with Enron and other financial lenders to strengthen the troubled company's financial position.

    Enron also reaffirmed its commitment to the merger. "We continue to believe that this merger is in the best interests of our shareholders, employees, and lenders," CEO Kenneth Lay said.

    CIBC World Markets downgraded Enron to a "hold" from a "buy" while Goldman Sachs analyst David Fleischer cut his rating on Enron's shares to "market perform."

    Dynegy's cash infusion into Enron "appears inadequate to restore the confidence of Enron customers, and we now question the accretion to Dynegy in a combination and valuation of energy convergence shares during the current uncertain period," Fleischer said.

    Fitch also speculated on the chances of Dynegy re-evaluating its planned Enron takeover. "In light of recent developments Dynegy's position regarding the merger must be considered less certain," the rating agency said.

    Enron's surprise liquidity developments and unanticipated deterioration could lead to Dynegy's renegotiating its $9 billion buy of Enron or using the "material adverse change" clause to opt out of the merger, Fitch said.

    "If Dynegy steps away entirely from the merger, Enron's credit situation seems untenable with a bankruptcy filing highly possible," the agency said.

    More Enron problems

    Further problems at Enron (ENE: down $1.98 to $5.01, Research, Estimates) came to light Monday in a Securities and Exchange Commission filing that revealed the company could be forced to pay a $690 million debt by next week due to a credit downgrade. The company also was required to cut its already weak third-quarter earnings again.

    Dynegy executives were in meetings earlier this week pitching the merger to potential investors, a source familiar with the situation told CNN/Money. "If Dynegy had cold feet they wouldn't be doing that," the source said late Tuesday. "It's pretty slim that Dynegy could pull out."

    Dynegy, for its part, indicated no problems with the disclosures made in the SEC filing Monday. "We are in due diligence, and the 10Q is an important part of due diligence," a Dynegy spokesman said late Tuesday.

    Analysts and traders said the new filing suggested that the proposed $9.5 billion stock purchase by Dynegy could collapse or be renegotiated because of the new financial outlook for the Houston-based energy trader.

    "This is as high a high-wire act as I have ever seen," analyst John Olson of investment house Sanders Morris Harris told Reuters Tuesday. "If this merger is to survive, equity investors will need to have a reason to buy the stock and their confidence will need to be restored, because the equity investor has been leading the way down."

    Other analysts said they believed the deal eventually would be completed, despite current worries.

    "Dynegy will do what it needs to make sure the deal will prevail," Duane Grubert, an analyst with Sanford C. Bernstein and Co., told the Associated Press.

    But a Dynegy spokesman was cautious in his support of the deal Tuesday. John Sousa told the New York Times that "to the best of my knowledge, there have been no changes" in the merger plans.

    Click here for a look at energy stocks

    An unnamed executive close to the talks told the Times that bankers saw the proposed Dynegy deal as "a light at the end of the tunnel" for Enron, so they had an incentive to roll over the loan. graphic


    Dynegy set to buy Enron for $9.5B - Nov. 9, 2001

    Dynegy, Enron confirm talks; Enron restates earnings - Nov. 8, 2001

    Enron under SEC probe - Oct. 31, 2001

    Enron looks for more credit - Oct. 29, 2001