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News > Companies
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Enron failure may be biggest
graphic November 29, 2001: 5:40 p.m. ET

Company's $62B in assets could make it biggest bankruptcy in U.S.
By Luisa Beltran
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  • Dynegy scraps merger, Enron's future in doubt - Nov. 28, 2001
  • S&P on Enron downgrade - Nov. 28, 2001
  • Enron staff fatalistic about news - Nov. 28, 2001
  • Dynegy set to buy Enron for $9.5B - Nov. 9, 2001
  • Dynegy, Enron confirm talks; Enron restates earnings - Nov. 8, 2001
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  • Enron
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    NEW YORK (CNN/Money) - Enron Corp. edged closer to bankruptcy Thursday as the crippled energy company struggled in a possibly futile attempt to right itself after smaller rival Dynegy Inc. pulled the plug on a $9 billion bailout.

    After failing to salvage the deal with Dynegy on Wednesday, Enron, once one of the biggest and most influential companies in the United States, looked set to file what would be the biggest bankruptcy case in the nation's history.

    With about $62 billion in assets, according to filings with regulators,

    Enron's bankruptcy would dwarf that of Texaco Inc., which had $36 billion in assets when it filed in the spring of 1987, according to BankruptcyData.com.

    While embattled Enron does not expect to file for bankruptcy protection Thursday, a filing could come as soon as Friday or perhaps early next week, a source familiar with the situation told CNNfn Thursday.

    The news follows comments from Enron Chief Financial Officer Jeff McMahon, who said late Wednesday that he prefers to fix Enron without a bankruptcy filing. But the executive did not rule out a bankruptcy filing.

    Meanwhile, accounting firm PricewaterhouseCoopers has been appointed administrator of Enron's European holding company and several of its operating companies. The Securities and Exchange Commission also plans to investigate the Enron situation "thoroughly but quickly," Chairman Harvey Pitt told Reuters.

    Houston-based Enron (ENE: down $0.25 to $0.36, Research, Estimates)  shares tumbled another 41 percent Thursday to close at 36 cents while shares of Dynegy (DYN: down $2.24 to $33.65, Research, Estimates) dropped more than 6 percent.

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      graphic CNNfn's Casey Wian reports from Houston on Enron's troubles.

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    Dynegy CEO Chuck Watson told CNN's Lou Dobbs Moneyline that the companies had worked on the merger up until Wednesday morning. But any hopes of a deal ended when Standard & Poor's cut its ratings on Enron bonds to "junk" status.

    "It was difficult to continue support so we terminated the merger," he said.

    Dynegy shares have dropped nearly 13 percent since it announced its $9 billion Enron takeover on Nov. 9. But Watson said the deal's failure will have limited long term impact on Dynegy.

    "At then end of the day Enron has a model much different than Dynegy and many others," he said.

    Enron could not be reached for comment.

    Bankruptcy protection

    An Enron bankruptcy would have a serious impact on the company's 21,000 employees and thousands of investors and creditors.

    Enron, the biggest U.S. energy trader, hired Blackstone Group, which specializes in reorganizations, to serve as advisor. Law firm Weil Gotshal & Manges, which specializes in bankruptcies, is already serving as legal advisor.

    Should Enron go the bankruptcy route, it could file under Chapter 11 or Chapter 7. Most likely, the company will choose Chapter 11, where the goal is to reorganize the company and keep it in business, said attorney Andrew Rahl, head of the bankruptcy group at Anderson Kill & Olick.

    In Chapter 11, the judge overseeing the bankruptcy case has broad discretion to direct the company's operations while its contracts and most of its other business dealings are suspended temporarily, he said.

    Enron also could file Chapter 7, under which its assets would be liquidated. But the chances of such a filing are minimal. "More likely Enron starts out Chapter 11, reaches the conclusion that can't be reorganized and so goes Chapter 7," he said.

    With its huge book of commodity trades, Enron's bankruptcy is sure to be vastly complex and could take years to unwind. Its creditors would be divided into classes and two-thirds of each class, as well as a majority of the creditors overall, would have to approve a reorganization plan. A bankruptcy judge then would have to bless the plan.

    Enron shareholders are likely to lose their investments since they will be last in line to get paid. Secured creditors are first, followed by creditors whose loans have no collateral and then shareholders, according to the U.S. Bankruptcy Code.

    "Creditors would have to be paid in full before equity gets anything," Rahl said.

    With Enron teetering on the brink of collapse, a bankruptcy would affect many different companies. J.P. Morgan Chase & Co., which advised Enron on the Dynegy takeover, has about $500 million in unsecured debt and an additional $400 million in loans.

    Citigroup, which also acted as advisor, has from $700 million to $1 billion in debt with half unsecured, a source told CNN/Money.

    Rival El Paso Corp. (EPG: down $0.25 to $44.66, Research, Estimates) has reduced its trading with Enron over the past several weeks and has about $50 million in exposure, El Paso said.

    Duke Energy said it didn't completely stop trading with Enron until Wednesday. The company has about $100 million in non-collateralized Enron debt.

    ABN Amro is part of a group of international banks that helped finance the $3 billion Enron plant project, Daphol. ABN Amro's exposure is a fraction of the cost of the plant, another source familiar with the situation told CNN/Money.

    Also Energy trader Mirant said it has about $50 million to $60 million in pretax exposure.

    Citigroup (C: up $0.56 to $48.36, Research, Estimates) and ABN Amro declined to comment.

    Dividend suspensded

    Meanwhile, Enron's move to weigh suspending dividends on its common and preferred stock is a move to save cash and try to preserve its core energy business. The common stock dividend of 12.5 cents was to have been paid Dec. 20 to shareholders of record Dec. 3.

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    Separately, accounting firm PricewaterhouseCoopers said Thursday it had been appointed administrator of Enron's European holding company and a number of its operating companies. It said job losses are inevitable.

    "There is already very serious interest in Enron's metal business and negotiations are expected to lead to a successful deal in the near term," said Tony Lomas, one of the administrators.

    The online trading business of Enron Metals Ltd., the metals trading arm of the company, was switched back on after shutting down Wednesday evening. "EnronOnline Metals is definitely up and running," a senior official told Reuters.

    Reflecting Enron's woes, Standard & Poor's, whose debt-rating arm cut its ratings on Enron bonds Wednesday, also said it was removing Enron from its S&P 100 and S&P 500 stock indexes.

    The company will be replaced on the S&P 100 by brewer Anheuser-Busch Cos. (BUD: up $0.43 to $43.23, Research, Estimates), which already was a member of the S&P 500. The company is being replaced on the S&P 500 by nVidia Corp. (NVDA: Research, Estimates), a maker of computer chips used in video games and other graphics applications. graphic


    Reuters contributed to this story

      RELATED STORIES

    Dynegy scraps merger, Enron's future in doubt - Nov. 28, 2001

    S&P on Enron downgrade - Nov. 28, 2001

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

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

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