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Shoring up Enron deal
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November 22, 2001: 12:22 p.m. ET
Dynegy mulls renegotiating merger terms as banks extend debt note.
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NEW YORK (CNN/Money) - Dynegy Inc. officials are debating whether to renegotiate the terms of the company's agreement to acquire rival energy provider Enron Corp., whose weak financial condition has become more pronounced, according to a published report Thursday.
An executive close to Dynegy told the New York Times that there did not yet appear to be legal grounds on which to break up the deal, but said Dynegy also was not yet prepared to demand Enron change the terms of their $9 billion merger.
Dynegy spokesman John Sousa declined to confirm or deny the report Thursday, but referred to a company statement issued Wednesday quoting CEO Chuck Watson as saying he planned to proceed with the merger.
"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," Watson said in Wednesday's statement.
The report comes as Enron's bankers granted an extension of the company's $690 million debt note to mid-December. The note was originally due next week.
Against this backdrop, the stock and energy markets continue to question Enron's financial stability, the Times reported.
An executive close to Enron said the loan extension by J.P. Morgan Chase (JPM: Research, Estimates) and Citigroup (C: Research, Estimates) is a temporary solution to get the company through the Thanksgiving holiday, buying enough time to come up with a more lasting solution, the Times said.
The paper said the bankers also met with leveraged buyout firms, two industrial companies and other investors who could potentially inject up to $2 billion into Enron as a means of protecting them from a further collapse in the company's stock.
Enron's (ENE: Research, Estimates) shares dropped a further 28 percent Wednesday to $5.01, while Dynegy (DYN: Research, Estimates) shares tumbled nearly 5 percent to $39.76.
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The fresh investments would be in Enron's Transwestern Pipeline linking natural gas fields in Texas to California. The deal would be structured similarly to the Dynegy merger, in which Dynegy agreed to put $1.5 billion into the Enron subsidiary that owns the Northern Natural Gas pipeline, the Times said.
In addition to talking to other investors, the Times said J.P. Morgan Chase and Citigroup agreed to each take a $250 million equity stake in the pipeline deal. The banks plan to close the deal with Enron officials on Monday.
Meanwhile, Enron expressed confidence in its debt restructuring and reaffirmed its commitment to the Dynegy merger.
"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," Jeffrey McMahon, Enron's chief financial officer said.
Dynegy also expressed optimism about the debt restructuring.
Analysts told the Times that bankers had little choice but to support the company since most of Enron's bank debt is unsecured. That means if the bankers pushed Enron into bankruptcy, they would be at a similar risk to the holders of more than $6 billion in Enron bonds and other debt.
Separately, a Seattle lawyer on Tuesday filed a lawsuit in U.S. District Court in Houston seeking class-action status on behalf of Enron employees who lost money on the stock through their retirement plan, the Times reported. 
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