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Enron in Chapter 11 filing
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December 2, 2001: 7:59 p.m. ET
Beleaguered energy trader also files $10B suit against Dynegy.
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NEW YORK (CNN/Money) - Enron Corp., the financially plagued energy-trading company, filed for Chapter 11 bankruptcy protection Sunday, filed a related $10 billion breach of contract suit against former merger partner Dynegy Inc., and said it plans a reorganization program that includes substantial work force reductions.
The court filings in U.S. Bankruptcy Court in New York are the climax of a precipitious slide that has seen shares of Enron, which once ranked seventh among the Fortune 500, plunge from $90.75 in August 2000 to a close of 26 cents on Friday.
"While uncertainty during the past few weeks has severely impacted the market's confidence in Enron and its trading operations, we are taking the steps announced today to help preserve capital, stabilize our businesses, restore the confidence of our trading counterparties, and enhance our ability to pay our creditors," said Kenneth L. Lay, Enron Chairman and CEO, in a statement.
The company said it is in talks with financial institutions for a recapitalization of its wholesale energy trading business under a new ownership structure.
"If these discussions are successful, they could result in the creation of a new trading entity with a strong and unencumbered balance sheet, the industry's finest trading team, and its leading technology platform, all backed by one or more of the world's leading financial institutions," said Greg Whalley, Enron's president.
Enron (ENE: Research, Estimates) said it expects to complete negotiations with financial institutions shortly for debtor-in-possession financing. The company expects to use the financing to help meet employee payrolls and pay vendors for goods and services provided on or after the bankruptcy filing.
Jim McAuliffe, an analyst with Morgan Stanley Dean Witter, said he was surprised Enron hadn't nailed down its debtor-in-possession financing before the announcement.
"That's going to be the tricky one. That comes well ahead of all unsecured creditors and all secured creditors," he said.
One way Enron hopes to pay some of its creditors is through the suit against Dynegy, which announced last week that it was pulling out of a $9 billion merger deal. In the suit, Enron accused Dynegy of terminating the agreement without having the right to do so. It is also seeking to thwart Dynegy's claim that it has the right to exercise an option to acquire the
Enron-related entity that owns Northern Natural Gas Pipeline.
A Dynegy (DYN: Research, Estimates) spokesman told CNNfn Sunday that "Enron's claims are totally without merit."
Dynegy shares fell $3.30 to $30.35 Friday.
Enron didn't say how many employees would be affected by the work force reductions, but said the brunt of the job cuts would be felt by the company's operations in Houston, where 7,500 are employed.
Filing no surprise
The bankruptcy filing had been expected by several analysts and stockholders, many of whom were stunned by the company's fall from grace.
Enron's loss of credibility in the market stemmed from revelations that its chief financial officer was running partnerships that allowed the company to keep half a billion dollars in debt off its books. In early November, Enron restated its earnings back to 1997, eliminating more than $580 million in reported income.
Dynegy swooped in to rescue its neighbor with an $9 billion buyout, but even top officials at the smaller rival were surprised when Enron later
disclosed it had a $690 million debt within a week. Amid negotiations to reduce the purchase price, the Dynegy-Enron deal fell apart after Enron's credit was reduced to junk status.
Congressional leaders are calling for hearings into the Enron fallout, the Securities and Exchange Commission is investigating. Both investors and employees have filed several lawsuits.
On Friday, accounting firm Arthur Andersen LLP said the Securities and Exchange Commission had issued it subpoenas related to its auditing of Enron's accounts. Andersen said it had provided the information.
Andersen also said its own review would be expanded to include procedures at its Houston office, which did the Enron audits.
Enron sought bankruptcy protection for itself and 14 subsidiaries, including Enron North America Corp., its wholesale energy trading business; Enron Energy Services, the company's retail energy marketing operations; Enron Transportation Services, the holding company for Enron's pipeline operations; Enron Broadband Services, the company's bandwidth trading operation; and Enron Metals & Commodity Corp.
Companies not included in the filing include Northern Natural Gas Pipeline, Transwestern Pipeline, Florida Gas Transmission, EOTT, Portland General Electric and numerous other Enron international entities.
According to BankruptcyData.com, Texaco Inc. filed the largest bankruptcy in history in 1987 when it had $35.9 billion in assets. Adjusted for inflation, that amount would be about $56.4 billion today, the Boston-based company said. As of Sept. 30, Enron had $62.8 billion in assets, though that figure may be substantially less, given developments over past several weeks. 
--Associated Press contributed to this report
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