Enron draws on credit
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October 26, 2001: 7:52 a.m. ET
Energy trading firm secures cash as future borrowing ability is in question.
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NEW YORK (CNNmoney) - Enron Corp. is tapping into its credit lines as the energy marketer's ability to raise cash has come into question after the disclosure that dealings with its former chief financial officer's partnerships are under investigation by federal regulators.
Houston-based Enron said it drew on its existing credit lines to provide more than $1 billion in cash, but a newspaper reported that the company drew on about $3 billion in credit in a bid to bolster confidence in its financial position.
"This is an important step in our plan to restore investor confidence in Enron," Chief Executive Kenneth Lay said in a statement. "Additionally, we will update investors over the next several days regarding our plans to maintain our long-term credit rating."
Several agencies are scrutinizing Enron's debt rating after the company reported a $618 million third-quarter loss and a $1.2 billion reduction in shareholder equity associated with the transactions with two partnerships created by its former chief financial officer, Andrew Fastow.
The move to boost its cash comes a day after the company named Jeff McMahon to replace Fastow, whose dealings regarding the limited partnerships are under investigation by the Securities and Exchange Commission.
If Enron's credit rating were cut below investment grade, which is still several notches away, it would be more expensive for the company to borrow money. If it were to default on loans, Enron would then have to issue millions of shares of stocks to its creditors, diluting the value of its existing outstanding shares, the Journal said in its report.
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Enron (ENE: Research, Estimates) stock, which has tumbled in recent weeks, fell six cents to close at $16.35 Thursday.
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