USA: Some fault rating agencies on Enron debacle.
Reuters English News Service, 11/28/01
USA: UPDATE 1-Enron names two to new litigation committee.
Reuters English News Service, 11/28/01
USA: Enron hires Blackstone for corporate advice-source.
Reuters English News Service, 11/28/01
USA: Metals traders lament loss of EnronOnline liquidity.
Reuters English News Service, 11/28/01
USA: U.S. stocks fall as Enron woes ripple through market.
Reuters English News Service, 11/28/01
USA: Enron falls victim to the deregulation it preached.
Reuters English News Service, 11/28/01
USA: Northwest Natural files to acquire Enron utility.
Reuters English News Service, 11/28/01
Enron Employees 'Angry, Stunned' As Merger Dies
Dow Jones Energy Service, 11/28/01
Mirant 'Confident' in Light of Enron Situation
Dow Jones News Service, 11/28/01
Enron Trade Partners Can Liquidate Positive Portfolios
Dow Jones Energy Service, 11/28/01
Citigroup, JP Morgan Bonds Weaken After Enron Downgrade
Dow Jones Capital Markets Report, 11/28/01
POINT OF VIEW: Enron Mess Is No Long Term Capital Mgmt
Dow Jones News Service, 11/28/01
IN THE MONEY: Enron Trades Heavily Off The NYSE
Dow Jones News Service, 11/28/01
Stocks Finish Lower on Merger Collapse, Weak Fed Report
Dow Jones Business News, 11/28/01
U.S. Physical Gas Prices End Up; Converge With Nymex
Dow Jones Energy Service, 11/28/01
Dynegy Pulls the Plug on Enron
TheStreet.com, 11/28/01
Dynegy abandons Enron deal
CBSMarketWatch.com, 11/28/01
Citi, Morgan sink on Enron exposure
CBSMarketWatch.com, 11/28/01
At Enron, best Lay plans go awry Commentary: From cabinet prospect to bankruptcy 
CBSMarketWatch.com, 11/28/01





USA: Some fault rating agencies on Enron debacle.
By Jonathan Stempel

11/28/2001
Reuters English News Service
(C) Reuters Limited 2001.

NEW YORK, Nov 28 (Reuters) - Now that Enron Corp.'s credit and debt ratings have fallen to junk status, crippling what once was the largest U.S. energy trader, observers are pointing fingers, and wondering what took the top three U.S. credit rating agencies so long to act. 
"The rating agencies are at fault here for waiting so long and thinking they could hold the deal together," said Tom Burnett, a director of Merger Insight, a research and analysis firm. "That's not their job. There's not one new piece of information available today that wasn't available last week."
The agencies - Standard & Poor's, Moody's Investors Service and Fitch - denied being influenced to keep Enron's once investment-grade ratings, or they declined to discuss the issue. 
Observers, though, said investment banks arranging Enron's now-dissolved merger with once-smaller rival Dynegy Inc. - Citigroup Inc. and J.P. Morgan Chase & Co. - had been fighting to preserve those ratings. They now stand to lose millions of dollars of advisory fees with the merger's collapse. 
"S&P and Moody's have stated that they're not going to be the cause of problems for a company, and in my opinion waited until Dynegy decided not to proceed with the merger," said Sean Egan, managing director at Egan-Jones Ratings Co. in Philadelphia. Egan-Jones on Wednesday cut its own debt rating for Enron to "C," one notch above default. 
ANGER GROWS 
Prices on Enron's distressed bonds had been in a tailspin for several sessions, and after Wednesday's cuts they fell by more than half. Traders bid them on Wednesday near 25 cents on the dollar, with often triple-digit yields. 
"I do get the feeling there is a lot of anger and feeling that something should have occurred before" Wednesday, said Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson in Seattle. "There was talk in the markets that the absence of official statements from Dynegy and Enron (on) Tuesday should have been taken by the rating agencies as a clue that the merger was about to fall apart." 
That happened on Wednesday. 
Within about a two-hour period, the rating agencies cut their senior unsecured debt ratings for Enron - to "B-minus" by S&P, to "B2" by Moody's, and to "CC" by Fitch. 
Almost simultaneous with the Fitch downgrade, Dynegy announced it had backed out of the $9 billion merger. 
The three big rating agencies are paid by companies to assess their ability to repay debt. Many companies need these ratings to raise money from investors. Sometimes, though, the agencies face criticism for being too slow to act, or being susceptible to outside pressure. 
Indeed, in January they were criticized for waiting for actual defaults before downgrading California utilities Pacific Gas & Electric Co. and Southern California Edison to junk status. 
ROLE OF AGENCIES 
With regard to the proposed Enron-Dynegy merger, on Nov. 8, a day before the merger was announced, top Citigroup and J.P. Morgan officials met with Moody's, a person familiar with the meeting said. A day later, Moody's cut Enron's rating, but not to junk. 
John Diaz, a Moody's managing director, denied facing new pressures this week. "In any rating activity, we're discussing developments with the companies, so we've been in touch with the companies as we normally would do," he said. "We have not had contact with the banks." 
Ron Barone, an S&P director, denied getting pressure from banks this week to hold off on a rating downgrade. 
"None whatsoever," he said in a conference call. "No substance at all. We have not been in contact with the banks." 
Meanwhile, Glen Grabelsky, a senior director in Fitch's policy group, said "our conversations with the issuers and the agents are confidential." 
Diaz and Grabelsky said their respective agencies did not decide until Wednesday morning to downgrade Enron. 
"There wasn't one specific event to trigger the downgrade," said Diaz. "In the last couple of days our concerns were heightened given the rate of erosion of the (Enron) franchise, and the declining probability the merger would be consummated as originally expected." 
Grabelsky said: "when we lost confidence in the transaction, that's when we started preparing to notify the markets." 
D.A. Davidson's Hurley said the delays could be understandable. 
"Given that the merger or buyout by Dynegy wasn't officially called off" until Wednesday, she said, "it would have been really hard for the rating agencies to move (Enron) to junk status when there was a buyout that was pending." 
(additional reporting by Lynn Adler and Tom Johnson in New York, and C. Bryson Hull in Houston.).

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	



USA: UPDATE 1-Enron names two to new litigation committee.

11/28/2001
Reuters English News Service
(C) Reuters Limited 2001.

HOUSTON, Nov 28 (Reuters) - Enron Corp. on Wednesday named two outsiders to a new litigation committee that will evaluate claims in shareholder lawsuits as the troubled energy trader totters at the edge of one of the biggest corporate collapses in U.S. history. 
Analysts said one would have to go to the days before the Securities and Exchange Commission was formed in the 1930s to find a corporate unraveling of the magnitude that Enron currently faces.
The drop in the value of Enron's stock - to 60 cents a share at one point Wednesday from an all-time high $90.56 15 months ago - has attracted a flood of suits alleging the misleading of investors to inflate the stock price to the benefit of corporate executives. 
Enron said Raymond Troubh, a New York-based financial consultant who has been a non-executive director of more than 25 public companies, was elected a director to chair the Special Litigation Committee. 
William Powers Jr., dean of the University of Texas School of Law, who joined Enron's board in October, also will serve on the litigation committee, the company said in a statement. 
Lawsuits have been filed against Enron and top management after a series of surprise disclosures, including the admission the company erred on its financial statements. 
Earlier Wednesday, Dynegy Inc. terminated its merger agreement with Enron, causing Enron shares to close down $3.53, or 85.27 percent, at 61 cents.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	



USA: Enron hires Blackstone for corporate advice-source.

11/28/2001
Reuters English News Service
(C) Reuters Limited 2001.

NEW YORK, Nov 28 (Reuters) - Enron Corp. , the troubled energy trading firm, hired New York-based investment bank Blackstone Group for advice on corporate matters, according to a person familiar with the situation. 
Enron, which is threatened with collapse after rival Dynegy Inc. on Wednesday scuttled a proposed $9 billion purchase of the company, hired Blackstone late last week, the source said.
Enron could not be immediately reached for comment. Blackstone declined to comment. 
Blackstone, which has advised troubled companies including Xerox Corp. , Chiquita Brands International Inc. and Globalstar Telecommunications Inc. , provides advice on reorganization and debt restructuring, as well as mergers and acquisition services.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	


USA: Metals traders lament loss of EnronOnline liquidity.

11/28/2001
Reuters English News Service
(C) Reuters Limited 2001.

NEW YORK, Nov 28 (Reuters) - U.S. metals dealers lamented the loss of a leading online trading platform after crippled Enron Corp shut down its EnronOnline system Wednesday, but they said it might present an opportunity to grab market share in base metals brokerage business. 
Things quickly unraveled for the once giant commodities trader Wednesday when cross-town rival energy trader Dynegy Inc. pulled out of a deal to buy it, saying conditions had changed since the takeover was agreed on almost three weeks ago.
Unless EnronOnline comes back on-line, dealers who used the Internet-based system will have to swiftly migrate their business to other brokerages, market sources said. 
"You're hoping you are going to be able to do the business (done formerly on EnronOnline). That was a usable platform and it was easy to trade at any time - it was an around-the-clock system. That is going to dry up," a New York broker said. 
Houston-based Enron said it indefinitely suspended future operation of EnronOnline on Wednesday. U.S. and European traders said it closed down shortly after Standard & Poor's cut the financially troubled Houston-based company's credit rating to "junk" status. 
Now, base metal markets could be poised to lose, at least temporarily, a degree of liquidity during off-hours, after the New York Mercantile Exchange and London Metal Exchange close in the afternoon. 
"People are going to make adjustments, go back to the way it was before EnronOnline, and either there is going to be some other kind of quoting ability or the markets are going to be quiet after the exchange hours," the broker told Reuters. 
The question remains whether any of Enron's competitors would step up to fill the void. 
A spokesperson at energy and precious metals platform IntercontinentalExchange, which offers physical and cash-settled trading in gold, silver, energy and power products, said ICE would accommodate customers if they demanded trading in base metals products. 
"If after-hours trading in (base) metals is something that their customers want to see on the ICE system, then they'll look into seeing how they can implement it," the spokesperson for Atlanta-based ICE said. 
"Their market participants pretty much dictate what is on the system, and that is how it works with metals as well," she said. 
One of ICE's partners, Mirant, said on Wednesday that ICE trading volume had increased 30 percent last month as players flocked to ICE as an alternative to EnronOnline. 
A Midwestern base metals trader said markets would feel strong ripple effects from Enron's problems, although players seemed immediately puzzled at how to react. 
"It should really affect futures markets, and that could mean business for their (Enron's) competitors," said the trader. 
An Enron Metals trader in New York on Wednesday declined to comment when asked about the outlook of the company's trading. 
Enron Metals acquired MG Plc in 2002, taking over its positions on the LME and its sizable physical metal book. 
EnronOnline until recently accounted for about 60 percent of the daily trade volume handled by Enron. 
"Nobody wishes for this to happen because Enron have good people and they did business in a professional way - that's my opinion," said the Midwestern trader.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	


USA: U.S. stocks fall as Enron woes ripple through market.
By Denise Duclaux

11/28/2001
Reuters English News Service
(C) Reuters Limited 2001.

NEW YORK, Nov 28 (Reuters) - Stocks sank on Wednesday as energy trader Enron Corp. teetered on the brink of one of the biggest corporate implosions in U.S. history and added more fuel to the debate swirling around the market's powerful run-up. 
"The market has come awfully far, awfully fast," said Jon Brorson, director of equities for Northern Trust, which manages more than $300 billion. "Enron is weighing on it, too. I think people are a little squeamish as to the reverberations, and it's a great excuse to take some profits."
Enron plunged more than 85 percent in frenzied trading after rival Dynegy Inc. pulled out of its planned $9 billion takeover of the beleaguered energy trader. Credit rating agencies slashed Enron's bonds to junk status and shoved the once mighty company another step closer to bankruptcy. 
Enron squeezed other energy traders and financial giants Citigroup Inc. and JP Morgan Chase & Co. Inc., which may suffer losses of more than $400 million combined on their lending to the energy trading group, according to at least one analyst. 
Gold stocks rose as skittish investors sought out safe havens. 
The blue-chip Dow Jones industrial average surrendered 160.74 points, or 1.63 percent, to 9,711.86, the largest drop in about a month and the lowest close since Nov. 12. The broader Standard & Poor's 500 Index slid 20.98 points, or 1.83 percent, to 1,128.52. The technology-laced Nasdaq Composite Index dropped 48 points, or 2.48 percent, to 1,887.97. 
Enron dragged on the market as questions swirled around a strong rally that has lifted stocks well off the Sept. 21 lows reached in the aftermath of the attacks on the United States. Investors, still expecting an economic recovery in 2002, pocketed profits on worries that share prices are getting too far ahead of prospects for corporate earnings. 
"The market felt it was getting a little too optimistic a little too quickly and there's recognition of the many, many risks in this environment," said Milton Ezrati, a senior strategist at Lord Abbett & Co., which oversees $40 billion. 
Losers outpaced winners by a ratio of 2 to 1 on the New York Stock Exchange and Nasdaq. More than 1.4 billion shares traded on the Big Board and more than 1.8 billion on the Nasdaq. 
Economic conditions were still sluggish in late October and early November in the wake of the Sept. 11 attacks, according to a Federal Reserve "beige book" report - an anecdotal snapshot of the economy based on reports from the Fed's 12 regional banks. The Fed added the slowdown deepened in most regions, outweighing signs of recovery in a few areas. 
Enron plunged $3.53 to 61 cents after snagging a year high of almost $85 late last year. The stock's trading volume soared to more than 181 million shares during the regular session, setting a new record for any stock for a single day on the New York Stock Exchange. 
Negative disclosures about its finances have strangled the once-proud energy giant, which was forced to lower its reported earnings by $600 million over the past four years as a result of questionable off-balance-sheet transactions. 
Enron "entrapped the sophisticates," said Robert Stovall, senior strategist at Prudential Securities, referring to what was once an almost fawning admiration for Enron by institutional investors. "I think this is going to become a classic case." 
Dynegy, off $4.92 at $35.97, pulled out of its deal to rescue Enron, saying conditions had changed since the takeover was agreed on almost three weeks ago. Dynegy had planned to buy its rival for about $9 billion in stock, but the collapse of Enron's stock led Dynegy to invoke escape clauses allowing it to get out of the deal. 
J.P. Morgan, down $2.30 at $37.50, and Citigroup, down $2.75 at $47.80, pulled the Dow down as investors worried over their exposure to Enron, which could be facing bankruptcy. The two investment banks accounted for more than one-fifth of the blue-chip Dow's losses. 
The Standard & Poor's natural gas index sank 9.36 percent, reflecting the losses by Enron and Dynegy and other sectoral issues such as El Paso Corp., down $3.59 to $44.91, and Kinder Morgan Inc., off $1.03 to $47.60. 
The Philadelphia Stock Exchange semiconductor index tumbled 4.70 percent. Chip leader Intel Corp. lost 55 cents to $31.76. Semiconductor shares have surged in the past two months as investors hoped they would be the first to benefit from an economic recovery. 
Major U.S. airlines sank as the sector pulled back from recent gains fueled by a slump in oil prices. The S&P airline index surrendered 2.76 percent. 
Continental Airlines Inc. fell $2.40 to $21.70 after an announcement of a public share offering that will add 12 percent more stock. US Airways Group Inc. fell $1.58 to $6.42 after the unexpected resignation of its chief executive on Tuesday. 
Nexell Therapeutics Inc. surged more than 220 percent, or $1.65 to $2.40. The drug developer said its experimental drug for a rare blood ailment has been granted "orphan" drug status by U.S. regulators. A drug company receives seven years of U.S. marketing exclusivity if an orphan drug is approved for sale by the Food and Drug Administration. 
SRI/Surgical Express Inc. tanked 41 percent, or $10.35, to $14.63. The medical supplies company said it restated quarterly results, cutting reported earnings below Wall Street estimates. It also said it lost customers and failed to expand business as it had anticipated. 
Flextronics International Ltd. added 80 cents to $26.35 after the contract manufacturer said business was "good" and it was comfortable with quarterly estimates.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

USA: Enron falls victim to the deregulation it preached.
By Vibeke Laroi

11/28/2001
Reuters English News Service
(C) Reuters Limited 2001.

SAN FRANCISCO, Nov 28 (Reuters) - Enron Corp., once the champion of energy deregulation, has fallen victim to the very volatility that often accompanies the transition from an orderly, regulated marketplace to one that follows the harsh laws of supply and demand. 
Enron, until recently the nation's largest energy trader, stood at the brink of one of the biggest corporate collapses in U.S. history on Wednesday as its rescue by rival Dynegy Inc. fell apart.
"Enron is in some ways the victim of its own success," said Gerald Keenan, lead energy strategy partner at PwC Consulting, part of PricewaterhouseCoopers. "All this wouldn't have occured if the market wasn't deregulated." 
Enron was one of the earliest and most aggressive advocates of power deregulation, which breaks down traditional utility monopolies by letting customers choose their electricity provider, banking on competition to drive down prices. 
Its aggressive strategies gave Enron 20 percent of the North American electricity and natural gas market, and Enron was ranked No. 7 on Fortune magazine's list of the biggest U.S. companies. 
THE DOWNFALL 
But in recent weeks, Enron's credit and debt spiralled out of control as a series of partnerships designed to hide debt off of its balance sheet caused its investors to lose faith. 
The partnerships, which included top Enron executives, are the subject of a U.S. Securities and Exchange investigation. 
In a fluid, competitive marketplace, punishment comes quickly. Enron's share price closed at 61 cents on Wednesday, down $3.53, or 85 percent, from a peak of over $90 in August 2000, after the top three U.S. rating agenices downgraded Enron to junk status. 
"There are winners and losers in deregulated markets and people who champion them are not necessarily those who will be around in the end," Keenan said. 
As more business and mounting profits fell into Enron's hands, the company took on a air of invicibility. 
Despised by some market players, many of its trading partners nevertheless were willing to go out on a limb because of Enron's good reputation, smart traders, and high-flying share price. 
Enron's core business of trading electricity and natural gas relies highly on creditworthiness, and much of its trading was backed by a corporate guarantee, a kind of standby IOU. 
Once that credit guarantee began to be be doubted, credit managers pulled the fire alarm and reduced their exposure. 
"Up to about two months ago, an Enron corporate guarantee was seen by many as money in the bank. Then the whole house of cards came down," Keenan said. 
People began looking at Enron more closely, especially since October when a series of negative disclosures about the company's finances forced the company to lower its reported earnings by $600 million over the last four years as a result of questionable off-balance sheet transactions. 
Enron's trading business - its crown jewel - has also suffered from lower volumes as wary trading partners shifted business away from the cash-poor and credit-threatened Enron. 
WHAT NOW? 
If Enron's fallout has a significant affect on the regulated companies it did business with, regulators and policymakers could slow down the pace of power deregulation. 
But if the damage is confined to the wholesale trading market, there will not be as much impact, analysts said. 
So far, 23 states and the District of Columbia have moved to deregulate their retail power markets, although nearly one third of them have delayed the onset of competition partly due to California's failed free market experiment. 
Analysts also said if Enron is no longer a major player in the large customer market, where it has been very effective, deregulation is not likely to proceed as quickly. 
"It's a perception issue. Enron's struggle may have adverse consequences on retail choice even though it has very little to do with it," said Sharon Reishus, an associate director of North American power at Cambridge Energy Research Associates (CERA), an independent research firm based in Cambridge, Massachusetts. 
"This puts us more into the muddle of whether deregulation is good or not."

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	



USA: Northwest Natural files to acquire Enron utility.

11/28/2001
Reuters English News Service
(C) Reuters Limited 2001.

SALEM, Ore., Nov 28 (Reuters) - Northwest Natural Gas Co on Wednesday said it had applied with Oregon regulators to acquire utility Portland General Electric, a unit of troubled energy giant Enron Corp . 
In a statement, Northwest Natural Gas made no mention of the crisis at PGE's parent and the growing fears Enron could be forced into bankruptcy after its credit ratings were slashed to junk status and a rescue by rival Dynegy Inc. collapsed on Wednesday.
But analysts have said that a bankruptcy filing by cash-strapped Enron could complicate the proposed sale of Oregon's largest utility and constrain its ability to buy power for customers if credit concerns deepen. 
Ratings agencies took different positions on how PGE's own credit rating would be affected by Enron's financial crisis. 
Moody's Investor Services cut the credit ratings of PGE on Wednesday, citing concerns about the utility's ability to remain insulated from the collapse in investor confidence in Enron. 
But another major ratings agency, Standard & Poor's, excluded PGE from a downgrade of Enron and subsidiaries, citing protective restrictions in the relationship between the utility and its parent. 
Northwest Natural Gas agreed on Oct. 8 to acquire PGE, the state's largest utility, for around $1.8 billion plus about $1.1 billion in assumed debt and preferred stock. 
Enron's stock plunged more than 80 percent on the New York Stock Exchange Wednesday to around 76 cents. Despite several trading halts, turnover surged to near 166 million shares, shattering the record for a single day trade in a stock on the New York Stock Exchange. 
Northwest Natural was due to hold a conference call for investors at 1330 PST/1630 EST to discuss the filing with the Oregon Public Utility Commission. 
Shares in Northwest Natural were trading down 54 cents at $23.80 in late trading on the New York Stock Exchange.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Enron Employees 'Angry, Stunned' As Merger Dies
By Erwin Seba
Of DOW JONES NEWSWIRES

11/28/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

HOUSTON -(Dow Jones)- Enron Corp. (ENE), which pioneered trading in new commodities, ceased all trading activity Wednesday as a credit rating downgrade led to the collapse of a buyout by Dynegy Inc (DYN). 
Employees leaving Enron's corporate headquarters in downtown Houston for lunch expressed anger, frustration and shock at what appeared to be the end of their careers with what was once one of the most powerful companies in the U.S.
"The mood is bad," said a trader. "People are angry. They're unhappy. They're not really interested in working a couple of more days for a company that's not going to be a going concern." 
Most employees said they were learning of events from television or the Internet, though a trader said voicemail messages did tell employees they would be paid. 
Since Monday, rumors had circulated that Enron would announce layoffs in its non-core busineses sometime this week. The rumors had gained so much credibility that Houston Congresswoman Sheila Jackson Lee had issued a statement earlier in the week urging no layoffs be undertaken. 
Sony Wilson, a 17-year employee in risk management, said she expected to learn this week if she would have a job with Dynegy or the size of her severance package from Enron. 
"We're in shock, stunned," Wilson said. "There are people whose lives are wiped out, whose retirement is gone. I'm surprised there aren't people actually committing suicide. There are 6,000 people who may be on the street tomorrow." 
Employees, Wilson said, had been told they could take long lunches, go for walks or go home for the rest of the day if they couldn't handle the stress. 
"They told us not to quit," she said. 
Most employees were expecting word from Enron Chairman and Chief Executive Kenneth Lay. Some said they had been told a memo would be issued by midafternoon, and others said they just expected to be told sometime Wednesday of the company's condition and fate. 
Victor Maysont, who has worked in Enron's Global Markets unit for a year-and-a-half, said for the most part employees were calm, but extremely worried. 
"Everybody still has high hopes that something for the better will happen," Maysont said. 
One employee used Wednesday's weather to explain events. During the weekend, temperatures in Houston were in the low 80s, but in the past three days a cold front has produced rain and cold, north winds which had many shivering as they walked to lunch. 
"When Enron was at ($)83 (a share), someone asked me if Enron would go out of business," the employee said. "I said 'when Hell freezes over.' If we have ice tomorrow, then Hell's frozen over." 
-By Erwin Seba, Dow Jones Newswires; 713-547-9214; erwin.seba@dowjones.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Mirant 'Confident' in Light of Enron Situation

11/28/2001
Dow Jones News Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

ATLANTA -(Dow Jones)- Mirant Corp. (MIR) said it is "confident" the energy marketing sector is mature enough to function without Enron Corp. (ENE), and Mirant estimated its pretax exposure to Enron at $50 million to $60 million. 
In a press release Wednesday, Mirant said it began limiting its exposure risk early in the Enron crisis.
Mrinat is already seeing new business opportunities develop because of Enron's situation. 
Earlier Wednesday, Dynegy Inc. (DYN) terminated its troubled merger agreement with Enron, backing away from the deal despite frantic last-minute attempts by both sides to save it. 
Dynegy cited Enron's breaches of representations, warranties, convenants and agreements, including the material adverse change provision. 
The announcement came after Standard & Poor's cut the beleaguered energy trader's debt rating to B-minus, essentially rendering it to junk status. 
The downgrade triggered financial covenants and raised the possibility that Enron will be forced to file for protection under Chapter 11 of the federal bankruptcy code. That could be a fatal blow for Enron, which needs huge sums of cheap money to keep its trading operations alive. 
New York Stock Exchange-listed shares of Mirant closed Wednesday at $23.40, down $1.50, or 6%, on composite volume of 4.27 million shares. Average daily volume is 1.96 million shares. 
Company Web site: http://www.mirant.com 
-Consella A. Lee; Dow Jones Newswires; 201-938-5400

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	



Enron Trade Partners Can Liquidate Positive Portfolios
By Jason Leopold and Mark Golden
Of DOW JONES NEWSWIRES

11/28/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

LOS ANGELES -(Dow Jones)- Energy companies said Wednesday they have the right to liquidate their contracts with Enron Corp. (ENE), based on Enron's bonds being downgraded to junk status Wednesday morning by the major ratings companies. 
Companies such as BP Plc (BP), Calpine Corp. (CPN), Edison International (EIX), PG&E Corp. (PCG) and Sempra Energy (SRE) said they have the right to liquidate their positions with Enron, but they haven't decided yet whether to do so. Master agreements generally would force a choice between liquidating all or none of a counterparty's trades with Enron.
"Our contracts have a provision that gives us the right to begin the liquidation process if Chapter 11 becomes imminent," said a spokesman for BP. BP hadn't decided whether to take that step as of Wednesday afternoon. 
The decision rests more on whether liquidation is advantageous for particular energy companies, not on whether a liquidation event has occurred. Not only did Standard & Poor's Corp. and Moody's Investors Service Inc. deeply downgrade Enron debt Wednesday, but S&P called a voluntary bankruptcy filing by Enron "a distinct possibility." 
Liquidation could be advantageous for companies that have an overall in-the-money portfolio with Enron. For example, companies that sold long-term gas and power supplies to Enron in the first half of the year would have the strongest motivation to liquidate, because North American gas and power prices declined sharply after peaking last winter. Any counterparty with an in-the-money portfolio with Enron could demand in cash the difference between their sales prices to Enron and current market prices. If they don't liquidate, they must wait to get paid monthly upon physical delivery. 
So, companies need to make their calculations. Sempra, for example, declined to say if it plans to liquidate the contracts it still has with Enron, according to spokesman Doug Kline. 
There may not be that many companies with an overall net positive position in their portfolios with Enron. Generally, Enron was seen as an aggressive short-seller of both power and gas as prices declined earlier this year, according to traders. And larger companies with long-term, in-the-money positions already have made offsetting deals with Enron or other market participants over the past four weeks. 
Sean Egan, managing director of Egan-Jones Rating Co., said things could move quickly, though. "There's going to be a strong pressure to move to liquidation. Enron's dead in the water with their trading ability. Their counterparties are going to want to unwind those positions in an orderly manner," said Egan, whose company first downgraded Enron in June and downgraded Enron to below investment level a month ago. 
As bond holders and other creditors move quickly, Enron will seek protection, Egan figures. "A bankrupt company has the right to disavow certain contracts as just too expensive. The court will do the best it can to get rid of those liabilities," he said. 
Smaller producers of gas and power that hedged future revenue by selling to Enron could move to liquidate, said the manager of one large energy trading company. The smaller companies may not have had the resources to hedge against Enron risk the past few weeks. 
Liquidation terms vary, but they include time delays. Counterparties must wait several days from a liquidation event, such as a major credit downgrade, before they can notify Enron that they want to liquidate their positions. They then must wait several days between the notification and the exchange of funds. 
"Typically, there's a time period for all of that depending on what you've negotiated, but we will be well into December before you see any liquidations begin to flow," said a senior trading manager for one large energy company. 
For the past two months, natural gas prices have rebounded. Enron continued to sell generally into that market, energy traders said, and has been hurt by the move. So, companies that bought gas from Enron since Oct. 1 could also move to liquidate contracts. 
-By Jason Leopold and Mark Golden, Dow Jones Newswires; 323-658-3874; jason.leopold@dowjones.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Citigroup, JP Morgan Bonds Weaken After Enron Downgrade
By Richard A. Bravo
Of DOW JONES NEWSWIRES

11/28/2001
Dow Jones Capital Markets Report
(Copyright (c) 2001, Dow Jones & Company, Inc.)

NEW YORK -(Dow Jones)- J.P. Morgan Chase & Co. (JPM) and Citigroup Inc.s' (C) outstanding paper weakened marginally Wednesday afternoon, after major ratings agencies lowered Enron Corp.'s (ENE) credit rating to junk and potential acquirer Dynegy Inc. (DYN) nixed a deal. 
During afternoon trading, the spreads to Treasurys on J.P. Morgan and Citigroup outstanding bonds were around 11 basis points wider. The bank sector in general was trading seven to eight basis points wider.
Both Citigroup and J.P. Morgan Chase invested a considerable amount of equity in Enron to facilitate the company's proposed merger with Dynegy. 
Shortly after the downgrades were announced, Dynegy ended its merger agreement with Enron. 
J.P. Morgan and Citigroup committed $800 million to Enron, around $270 million of which was unsecured lending, said Richard Strauss, bank analyst at Goldman Sachs Group Inc., said. 
Standard & Poor's was first out of the box - cutting Enron's senior unsecured debt to single-B-minus from triple-B-minus, lowering the company to junk status, on concerns over the merger with Dynegy. Moody's cut Enron's senior unsecured ratings to B2 from Baa3 and Fitch cut the rating to double-C from triple-B-minus - also speculative. 
"There is concern in the market about sectors that have exposure [to Enron], whether they are pipelines or financials," said Brendan Burke, corporate credit analyst at ASB Capital Management. "Anyone who has Enron exposure is focused solely on that today." 
Market analysts, however, question the extent that this will have on the banking sector. 
"Much of the exposure is secured and the capacity to absorb any potential losses is strong," said Michael DeStefano, senior banking analyst at S&P. "They have large capital bases, which will mitigate the impact." 

-By Richard A. Bravo, Dow Jones Newswires; 201 938-2087 richard.bravo@dowjones.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	



POINT OF VIEW: Enron Mess Is No Long Term Capital Mgmt
By Gene Colter

11/28/2001
Dow Jones News Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

A Dow Jones Newswires Column 

NEW YORK -(Dow Jones)- The unraveling of the planned merger between Enron Corp. (ENE) and Dynegy Inc. (DYN) is going to hurt, no doubt.
But before discussions of "systemic risk" and other doomsday scenarios gain too much of a foothold, it's worth pointing out that the Enron mess is no Long Term Capital Management. 
The death of the Enron-Dynegy deal is probably tantamount to the demise of Enron, too. And that eventuality, should it come to pass, is going to have repercussions beyond one or two energy-trading companies. So it's fair enough that this news pulled down stocks of all kinds Wednesday. 
Yet the deal's demise and troubled Enron's likely subsequent fate isn't a call on the broader value of stocks, whose fortunes remain tied to other fundamentals (more on this later). 
The bottom line: a major corporation with about $62 billion of assets seems destined to fail. In some ways Enron could indeed end up being like the implosion of hedge fund Long Term Capital Management, since so much of Enron's assets are involved in trading. 
And it's for sure that the still relatively new industry of trading energy commodities like gas and oil - the so-called merchant energy business - is in shock and will have to regroup. 
Stepping back a bit from the energy business, some big-name banks and other firms may end up with some bad debts if Enron ends up in bankruptcy, as most industry observers now expect. 
Individual investors, including mutual-fund holders unlucky enough to own some power-company shares, will also take a hit, as will some pension funds. All told, holders of Enron stock have lost more than $60 billion this year, with the stock down more than 99%. 
But the Enron-Dynegy deal's undoing, while painful and headline-grabbing, is not about to endanger financial markets across the globe, and there is where the analogy to a failed hedge fund thankfully breaks down. Even at the epicenter of the Enron debacle, there's no systemic risk: Other merchant energy traders are already saying they'll be able to adjust, and S&P said in a conference call Wednesday afternoon that it didn't expect to downgrade firms similar to Enron. 
In fact, the biggest risks to stocks remain the same as they were yesterday or last week or last month. They're fundamentals unrelated to what's going on at Enron, whose problems started with questionable off-balance sheet transactions. 
Key among those risks, ironically, is stocks' recent good fortune, which has driven share prices back up to levels that are unsustainable if history is any guide. This is big concern for technology shares but a host of other sectors, too. Here's proof from elsewhere in Wednesday's news: Gap shares may be trapped near their 52-week low, but according to Prudential Securities, which lowered its rating on Gap to sell, they're still trading at 93 times projected 2001 earnings. 
Another fundamental worry for stocks is the consumer economy, whose health is being hampered by the rising unemployment rate. U.S. payrolls, beefed up like never before during the 10-year economic expansion, will be pared plenty more. Fired people - or those who fear that fate - spend less and certainly pull back on equity investments. 
A third fundamental that will continue to weigh on stocks is the uncertainty about when exactly corporate earnings will return to meaningful growth. While companies of many stripes have begun to talk about bottoming out, when exactly they'll start to see real revenue gains again isn't clear. But you can bet that fundamental No. 2 (the consumer economy) is a factor here, and until revenues and thus earnings start advancing again, fundamental No. 3 (share price valuations) are also at risk. 
As for the Enron debacle, bankruptcy might be the only way out. Dynegy will probably have to cough up some money for breaking up the deal and cover some credit exposure to Enron (though it also stands to gain a natural gas pipeline owned by Enron). ChevronTexaco Corp. (CVX), which owns just over a quarter of Dynegy and which also injected cash into Enron, might have to kiss that money goodbye. 
Houston might also suffer, as it's the home of both Enron and Dynegy. 
But the Enron story is, despite all the headlines, a relatively contained one, and the challenges and risks for the rest of the stock market haven't changed. 
- By Gene Colter, Dow Jones Newswires 201.939.2068 
e:mail: gene.colter@dowjones.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	



IN THE MONEY: Enron Trades Heavily Off The NYSE
By Carol S. Remond

11/28/2001
Dow Jones News Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

A Dow Jones Newswires Column 

NEW YORK -(Dow Jones)- Numbers often speak volumes.
Or in the case of Enron Corp. (ENE), they speak to the lack of it. 
Enron securities suffered from a massive meltdown Wednesday as rescue efforts for the embattled energy trader fell apart. Investors started to run for the exit after Standard & Poor's announced that it downgraded Enron to a below investment or `junk' status. The move triggered about $3.9 million in debt that became due immediately and was a confirmation that a desperately needed merger with once rival Dynegy Inc. (DYN) was off the table. 
But for investors jolted by the news, getting out of Enron stock was easier said than done. 
That's because the New York Stock Exchange, where Enron is listed, halted trading of the company's stock some seven minutes after S&P made its rating cut public. 
Enron stock was the most actively traded Wednesday, with 342.2 million shares traded. 
But the NYSE's decision to halt trading between 10:58 a.m. and 11:27 a.m. for a "trading imbalance" created a bottleneck in trading at a time where investors were trying desperately to exit the stock. About 10.1 million shares traded on other exchanges during the NYSE
halt. With about 60% of that going through Instinet Corp. (INET)'s
electronic brokerage system. An Instinet spokeswoman said Enron was
the most traded stock on Instinet Wednesday with about 21.8 million
shares. Trading volume was also up on Island ECN Inc. with about 14 
million Enron shares trading on Island, making Enron the second most
traded stock on that platform. 

Interestingly, that 30 minute trading gap in the morning wasn't the only time investors felt it was better or easier to trade off the NYSE. Overall, about 53% of Enron stock trades took place on NYSE Wednesday. That's a low percentage, especailly when compared with other actively traded stocks on the Big Board. 
The second most actively traded stock on the NYSE was EMC Corp. About 75% of all trades took place on the Big Board. General Electric was the third most actively traded stock. Roughly 82% of all trades took place on the NYSE. 
How severe was the backlog created by NYSE's halt? 
In the five minutes following the trading resumption on the Big Board, 15.9 million Enron shares traded on NYSE, with 5.3 million going through other exchanges. Within a half hour of trading resumption, about 31.6 million Enron shares traded on NYSE and 17.5 million elsewhere. 
The NYSE for its part defends its practice to halt stock for trading imbalances. (When a stock is halted for news, no trading can take place on any exchange or third-party trading platform. In the case of trading imbalances, trading can continue on other exchanges while the NYSE specialist is trying to match buy and sell orders.) 
A spokesman for the NYSE said that such halts are in general designed to protect investors from trading "at a disadvantage". The spokesman declined to comment on Enron's halt but said that in general, the specialist making a market in a stock alerts an NYSE floor official of the order imbalance. The NYSE official then makes the decision on whether to halt the stock. The halt allows the specialist, in this case Fleet Meehan Specialist Inc., to alert the market to the imbalance and hopefully attract buyers. 
What is for sure is that investors rushing to sell Enron stock between 10:58 a.m. and 11:27 a.m. had good reason to want to move quickly. Enron stock price plummeted from about $2.70 a share to $1.10 a share between the NYSE halt and trading resumption. 
After being halted a second time, this time for "news" later Wednesday, Enron shares closed 85% lower on the day to 65 cents after Dynegy confirmed that it decided not to merge with Enron. 
By Carol S. Remond; 201-938-2074; Dow Jones Newswires 
carol.remond@dowjones.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Stocks Finish Lower on Merger Collapse, Weak Fed Report
By Stacy Forster

11/28/2001
Dow Jones Business News
(Copyright (c) 2001, Dow Jones & Company, Inc.)

The Wall Street Journal Online 
Blue-chip stocks sank Wednesday, after a key survey of regional conditions from the Federal Reserve revealed that many sectors of the U.S. economy continued to struggle.
Investors also were rattled by news that Dynegy had pulled out of merger talks with energy-trading giant Enron. 
In 4 p.m. trading in New York, the Dow Jones Industrial Average was down 160.74 points to 9711.86, after flirting with a return to 10000 over the last two sessions. The industrials finished down 110.15 points, or 1.1%, at 9872.60 Tuesday. 
Meanwhile, the Nasdaq Composite Index lost 48 to 1887.97, after declining 5.26 points to 1935.97 Tuesday. 
Other indexes also fell. The Standard & Poor's 500-stock index dropped 20.98 to 1128.52, the Russell 2000 Index declined 7.01 to 453.70, and the New York Stock Exchange Composite Index lost 9.33 at 575.25. 
Investors were caught off guard Wednesday after Standard & Poor's Ratings Group downgraded Enron's debt to junk status, a move that was immediately followed by word that prospective suitor Dynegy had called off its agreement to merge with the struggling energy company. The downgrade triggered financial covenants and raised the possibility that Enron will be forced to file for protection under Chapter 11 of the federal bankruptcy code. 
Shares of Enron tumbled $3.50, or 85%, to 61 cents in composite trading at 4 p.m. EST. On the New York Stock Exchange alone, 181.9 million Enron shares traded hands, setting a Big Board volume record. Dynegy lost $4.92, or 12%, to end at $35.97. 
The news hit shares of other energy-trading companies, including El Paso Corp., which skidded $3.59, or 7.4%, to $44.91, and Williams Cos., lost $1.80, or 6.2%, to 27.05%. 
Meanwhile, the Fed's so-called beige book survey of regional economic conditions indicated the economy remained soft in October and November. The report showed "signs of further slowing outweighed signs of recovery" in early November, indicated that production declined at American factories, and said that airlines and hotels struggled with a sharp drop-off in travel. 
The Fed also found "evidence of additional slowing in most regions" which outweighed the faint signs of recovery reported by a few Fed districts. The report rekindled speculation that the Fed will reduce interest rates again in an effort to stimulate the economy. 
Investors already had been in the mood to take some money off the table, a trend that started Tuesday after the Conference Board issued a disappointing report on consumer confidence, and Federal Reserve Gov. Laurence Meyer said it is likely that U.S. economic output is continuing to shrink. 
Indeed, market analysts said the Fed survey wasn't a surprise, and instead are trying to anticipate when the news will get better. Alfred Goldman, chief market strategist at A.G. Edwards & Sons, said the market was due to correct itself after an "uninterrupted up move" since the Sept. 11 terrorist attacks. 
"We'll have another week or two of normal, moderate correction," Mr. Goldman said. "A pause to refresh." 
Several other key indicators are due out over the next couple of days, including the Commerce Department's report Friday on third-quarter gross domestic product. 
Overseas, stocks closed lower as continued signs of weakness in the U.S. spurred worries about the economic outlook world-wide. Frankfurt's DAX closed down 2.2%, while London's Financial Times-Stock Exchange 100-Share Index finished off 1.2%. Earlier, Tokyo's Nikkei 225 Stock Average closed with loss of 3%, and Hong Kong's Hang Seng Index dropped 1.7%. 
Among other activity traded shares on Wall Street: 
Shares of Dow components General Electric and Boeing were under pressure after J.P. Morgan lowered its earnings estimates for the two companies. Shares of General Electric lost $1.72, or 4.2%, to $39.35, while Boeing was down $1.33, or 3.8%, to $34.17. 
Hewlett Packard gained modestly on reports that the company delayed notification of its acquisition of Compaq Computer to European regulators pending talks on possible competition problems; the European Union Commission expects the companies to request approval for the merger "soon." Shares of Compaq fell 46 cents, or 4.8%, to $9.06. 
Shares of handset phone makers slid after Nokia said global sales of mobile phones across the industry will only grow 10% to 15% in 2002 after falling this year, weakening hopes of a recovery for the industry. ABN Amro trimmed its views on Motorola following the forecast. Shares of Nokia fell $1.62, or 6.8%, to $22.10, while Motorola lost 50 cents, or 2.9%, to $17.01. 
In major U.S. market action: 
Stocks slid. On the Big Board, where 1.4 billion shares traded, 2,074 stocks fell and 1,073 rose. On the Nasdaq, 1.88 billion shares traded hands. 
Bonds were mixed. The 10-year Treasury note lost 1/32; its yield, which moves inversely to its price, fell to 4.929%. The 30-year bond lost nearly 1/2 to yield 5.356%. 
The dollar fell. The dollar declined against the euro to 88.81 cents, down from 88.64 cents, and weakened against the yen, falling to 123.07 yen, from 123.96 yen late Tuesday in New York. 
Write to Stacy Forster at stacy.forster@wsj.com 
Copyright (c) 2001 Dow Jones & Company, Inc. 
All Rights Reserved.

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

U.S. Physical Gas Prices End Up; Converge With Nymex

11/28/2001
Dow Jones Energy Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

HOUSTON (Dow Jones))--U.S. natural gas physical prices rose Wednesday, pushing toward convergence with the New York Mercantile Exchange, traders said. 
The amount of gas in storage will keep a lid on both futures and cash prices, said one trader.
"if you've got plenty of gas in the ground, there's no reason to buy futures," he said. 
With a mix of short-term cold plus no weather demand for December, traders saw a dramatic shift of gas "and a very fine line between the severe cold seen in the Midcontinent and Texas and the above-normal temperatures in the Eastern corridor," a Gulf Coast trader said. 
"You knew at some point in time they would converge," he said. 
The fate of Enron Corp., a major market maker, also mixed into the equation on Wednesday, traders said. Enron closed down its Enron On Line Internet service at midmorning when Standard & Poor announced it had lowered Enron's bond ratings. 
The New York Stock Exchange also stopped Enron trading with its stock around $2.72 a share. 
Swing swaps are trading $2.28 per million British thermal units for December late Wednesday, reflecting the abundant amount of gas in storage as the December contract expired at $2.316/MMBtu. 
In the last several days, the basis market for December had been bid as much as a quarter-of-a-cent over what became the December expiration price, said a trader. 
So the basis has weakened almost 3 cents for December swing swaps since Wednesday's settlement, an indication of a market flush with gas with no winter cold demand on the horizon. 
"People are starting to give up on the winter," said Allen Rather, a funds analyst in Houston. 
Traders said Enron "dramatically" impacted the market on Wednesday, pointing to a 75-cents range on the Nymex. With the Enron debacle, "The primary concern is December and going to delivery," one trader said. "You have to be sure you're cleaned up on every aspect of it." 
December expired at $2.316/MMBtu, down 29.0 cents. January settled at goes off the board Wednesday. It settled at $2.606 per million British thermal units, down 9.0 cents. 
At the benchmark Henry Hub in south Louisiana, traders paid $2.10-$2.48/MMBtu,up 38 cents-39 cents. . First-of-month November index is $3.16/MMBtu, traders said. 
Deals at Transcontinental Gas Pipe Line Station No. 65 were done in a $2.12-$2.40/MMBtu range, up 38 cents-44 cents. November first-of-month index is $3.19/MMBtu, a trader said. 
At the Arizona-California Border, where gas from El Paso's pipeline begins delivery to Southern California lines, buyers paid $2.30-$2.75/MMBtu, down 5 cents on bid and up 13 cents on the offer. November first-of-month index is $2.95/MMBtu. 
At the Katy hub in East Texas, buyers paid $2.43-$2.60/MMBtu, up 20 cents-32 cents. November index is $3.01/MMBtu. Houston Ship Channel rose 21 cents-34 cents to a $2.51-$2.60/MMBtu closing range. Index is $3.12/MMBtu. 
At Waha in West Texas, buyers paid $2.48-$2.63/MMBtu, up 18 cents-31 cents. November index is $2.86/MMBtu. 
-By John Edmiston, Dow Jones Newswires,713-547-9209; john.edmiston@dowjones.com

Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	



Dynegy Pulls the Plug on Enron
By Peter Eavis <mailto:peavis@thestreet.com>
Senior Columnist
TheStreet.com
11/28/2001 03:12 PM EST
URL: <http://www.thestreet.com/markets/detox/10004585.html>

Updated from 1:31 p.m. EST 
Dynegy (DYN:NYSE - news - commentary) nixed its merger with Enron (ENE:NYSE - news - commentary) Wednesday, just hours after a debt downgrade dealt Enron a crushing blow. Enron shares plunged 81%, showing the market believes a bankruptcy filing is all but certain. 
Dynegy and Enron had spent the last week making a last-ditch effort to save the merger, which was originally valued at more than $9 billion and would have combined two leading energy traders. But those talks were doomed by the downgrade, which tightened the financial vise around Enron. 
The end of the merger deal substantiates the market's long-held skepticism, stemming in part from doubts about how forthcoming Enron has been about its problems. Investors have steadily voted against the agreement, steepening the slide in Enron's shares since its Nov. 9 announcement. Wednesday morning Enron stock dropped to $1.10 before it and Dynegy were halted for news of the deal's termination; afterward, Enron plunged anew, hitting 65 cents, down $3.46. 
Ali
S&P helped deliver the knockout punch Wendesday morning by cutting Enron's long-term corporate credit rating a staggering six notches to B-minus from triple-B-minus. Rival ratings agencies Moody's and Fitch later followed suit, cutting Enron bonds to junk. 
The new junk ratings immediately triggered Enron's obligation to repay some $3.3 billion in outstanding debt. With the company facing a severe liquidity squeeze and its EnronOnline unit pointedly offline, traders were nearly unanimous in their assessment that the Houston energy trader won't be able to meet its obligations. 
For its part, S&P noted in its report that there appears to be a "distinct possibility" Enron will file for Chapter 11 bankruptcy protection absent a merger. 
Enron said nothing about those obligations, or the prospect of a Chapter 11 filing, in a Wednesday afternoon press release. The company said it is "exploring options" to "protect our core energy business," but offered no specifics. 
Liston
Investors clearly expect Enron's imminent collapse to hurt Dynegy and other players, including the banks that were trying to prop the deal up. 
J.P. Morgan Chase and Citigroup, which lent large sums to Enron and took an instrumental role in arranging and trying to salvage the failed merger, skidded Wednesday amid fears that energy market dislocation could dent the banks' profits. Morgan was off 6% and Citi 5%. 
The banks' total exposure to Enron is hard to gauge. They recently arranged a two-stage $1 billion credit to Enron that is secured by the Northern Natural Gas Pipeline and the Transwestern Pipeline Company. In October, Enron drew down $3 billion of credit lines to pay off $1.9 billion of short term debt. It didn't say at the time who the banks behind this credit were. Then there's the $690 million obligation to partnership that was meant to come due Tuesday, but was pushed back to mid-December. Banks may have had some exposure to that, since Enron last week said that its "lead bank" had informed it of the obligation's extension. 
Enron had $14.3 billion of debt in mid-November, according to a quarterly SEC filing. Just over $9 billion of that was scheduled to come due by the end of 2002, according to the filing. 
Leon Spinks
Meanwhile, despite its efforts to distance itself from the carnage, Dynegy saw its shares drop 12% as investors began to wonder just what the energy trader may have gotten itself into in its Enron dealings. Many investors were astonished to see Dynegy rushing into an acquisition of a distressed company with murky accounts and, quite possibly, a raft of hidden debt obligations. The riskiness of that strategy suggested that Dynegy was desperate to see Enron stay afloat. 
It's almost impossible to tell at this stage how much damage an Enron collapse will do to Dynegy's business. Enron may have been a counterparty on trades that Dynegy is now unhedged on, and Dynegy may have to back out accrued profits booked on Enron trades. Without elaborating, Dynegy said in a Wednesday press release that it has stopped trading with Enron and that its exposure to Enron is $75 million. 
In addition, Enron's allegedly aggressive accounting may have contaminated the entire energy market, especially longer-dated trades. With Enron no longer in the game, and auditors likely more vigilant, traders such as Dynegy may not be able to book the sort of upfront gains they used to. 
One consolation is that Dynegy's $1.5 billion cash infusion, made possible with backing from Chevron, was secured by Enron's Northern Natural Gas pipeline. Dynegy moved to take ownership of that pipeline Wednesday by "exercising its option to purchase all the membership interests in the entity which indirectly owns all of the common stock of NNG." Enron said Wednesday afternoon that it was "reviewing" that claim in an apparent effort to keep Dynegy from taking ownership. 
But even if Dynegy does take control of the pipeline, the credibility of top Dynegy managers, such as CEO Chuck Watson, will have been hit hard. If it turns out that Dynegy does suffer badly from an Enron crash, investors will complain that they should've been told about the vulnerability much earlier. And if Dynegy was too tied in to Enron's fortunes, serious questions about Watson & Co.'s risk management skills will be raised. 
Kenny Norton
The ratings agency downgrades are doubly damaging for Enron because rating agencies played a critical role in efforts to shore up the Houston company. Some observers, noting the steep discount on Enron bond prices, had criticized the agencies' reluctance to downgrade Enron debt. But S&P and Moody's said they wanted to see if the Dynegy offer would revive Enron. Of course, as Enron's core operations continued to sputter even after the deal was agreed to, the rating agencies' position looked increasingly untenable. 
Inevitably, if the deal doesn't go through and Enron implodes, some people will blame S&P for Enron's demise. S&P analyst Todd Shipman replies: "We have always promised people that we wouldn't overreact, and I don't think we have overreacted." 
He adds that the turning point came when the rating agency stopped believing Dynegy and others could revise the deal terms and find cash in time to stop the deterioration in Enron's business. Also, he doubted whether those working to salvage the merger would come up with the sort of provisions needed to keep Enron viable. 



Dynegy abandons Enron deal
Shares of energy trader plunge, bankruptcy looms 
CBSMarketWatch.com
Lisa Sanders
11/28/01
Enron shares (ENE ) closed at 61 cents, down $3.50, having lost as much as 85 percent of their value on the day and having collapsed from a 52-week high of almost $85 just 11 months ago. The company lost around $2.6 billion worth of market capitalization from Tuesday to Wednesday.
Close to 342 million Enron shares had changed hands Wednesday by the close, and the stock broke the all-time volume record of 309 million shares set by Intel on Sept. 22, 2000. Dynegy (DYN ) shares lost $4.92, or 12 percent, to $35.97.
Saying in a conference call that it had to "protect" its shareholders, Dynegy announced it had terminated its agreement with Enron, citing "Enron's breaches of representations, warranties, covenants and agreements in the merger agreement, including the material adverse change provision." 
Company-specific problems?
Dynegy Chairman and Chief Executive Chuck Watson said: "some of the best deals are the ones that don't get done." 
"While it is regrettable to see a leading industry player in difficulties, this does not reflect a failure of the energy merchant business," he said. 
Dynegy President and Chief Operating Officer Steve Bergstrom said that energy traders have had weeks to prepare for Enron's diminished role in the business and that the industry has suffered "no degradation," as he put it.
"There has been a clear flight to quality, and it's occurring as we speak," Bergstrom said. "Dynegydirect is a highly scalable platform."
Dynegydirect is a platform much like Enron's flagship EnronOnline, which it turned off Wednesday and which just a month ago was the largest online energy-trading platform, accounting for an average of $3 billion in trades a day.
Dynegy's trading exposure to Enron is $75 million, and the company is no longer trading with its embattled former merger partner and fellow Houston industrial giant, Bergstrom said.
"Dynegy's customer-based, asset-backed energy delivery network has been the driver of our 45 percent compounded annual growth rate for the past 16 years and will continue to provide us with earnings sustainability and future growth." Watson said.
As part of the deal, Dynegy had the option to keep Northern Natural Gas, Enron's highly valued natural-gas pipeline, even if the agreement were terminated. The company said during the call that it would exercise that option.
ChevronTexaco (CVX ), which owns a 27 percent stake in Dynegy, originally gave $1.5 billion to the company in the transaction. Dynegy used the money to purchase 100 percent of the preferred shares of Northern Natural Gas.
Enron has 180 days from the date the merger agreement was signed, Nov. 9, to repurchase the pipeline system, Watson said. Enron said in a statement that it was reviewing Dynegy's claim of rights to Northern.
Enron representatives did not participate in the call, and Dynegy executives said they had been advised against the customary practice of taking questions.
Enron said it has temporarily suspended payments "other than those necessary to maintain" its core energy businesses and added that it is exploring options to keep those operations alive. "To do this, we will work to retain the employees necessary to the continuing operations of our trading and other core energy businesses," said Enron Chairman and CEO Ken Lay.
Enron told employees their questions would be answered in due course and they would receive their paychecks on Friday.
Analysts said the next step for Enron would likely be a bankruptcy filing.
"Chapter 11 is not the worst of all worlds by any means," said John Olson, a Houston-based energy analyst. "The key to salvaging the business is the level of debtor-in-possession financing they can get to allow them to trade in some realistic fashion."
DIP financing takes precedence over all other claims, he said.
"The equity people are now at the very bottom of the barrel, and the only people lower than them are [the people who filed] the stockholder suits," Olson said.
In a note to clients, analyst Michael Heim of A.G. Edwards said that Enron, without Dynegy, has "no value."
"Enron ... will most likely be declared bankrupt shortly," Heim said. "Unlike other bankruptcies in which a stock continues to trade at a low price, there are no hard assets to salvage."
Ahead of this news, S&P cut Enron's rating to B-minus, or junk status, from BBB-minus, which is the lowest investment-grade rating. The rating agency said that the move reflects "concerns about the viability of the merger agreement with Dynegy and liquidity implications of the possible failure of that transaction. The ratings are placed on CreditWatch with developing implications."
Moody's made its announcement of a rating cut to B2 from Baa3 and said that Enron's debt remains under review for additional downgrade.
In its report, Moody's cited the likelihood of a Dynegy-Enron breakup, fueled by Enron's declining financial performance, as the reason for the downgrade.
"Moody's ... Baa3 rating was predicated on good prospects for completion of the merger with Dynegy and reasonable prospects for marginally investment-grade characteristics of the merged entity," Moody's wrote. "Furthermore, lack of confidence in Enron by its trading counterparties appears to be adversely affecting Enron's core trading operations."
For Enron to survive, the credit agency said, it's imperative that the volumes from the trading business remain profitable. 
Fitch, which had rated Enron BBB-minus, lowered the rating to CC, which "indicates that default of some kind appears probable."
The U.S. Treasury is keeping an eye on the impact the Enron fallout is having on the credit markets, spokeswoman Michele Davis said Wednesday. 
"We are monitoring credit markets as we do every day," Davis said. "Markets always fluctuate and we haven't seen anything extraordinary." Treasury said that outside its surveillance of credit markets, it would refer any inquiries on energy trading to the Federal Energy Regulatory Commission or the Commodity Futures Trading Commission.
Earlier in the day
Dynegy, which had originally offered to buy Enron for $9 billion in stock, confirmed Tuesday that the two companies were discussing a new deal structure, and it said ahead of the credit-ratings and eventual termination news Wednesday that discussions were continuing.
"I'm not aware of any changes in any status of the merger," Dynegy spokesman John Sousa said before the S&P announcement. The merger agreement contained a material adverse-affect clause that, if triggered, allowed Dynegy to walk away from the deal.
The decline in Enron's stock price and information contained in the company's 10-Q filing of Nov. 19 could had activated the clause, but Olson said the S&P downgrade clearly fit the description of a material adverse affect. 
Also Wednesday, UBS Warburg and RBC Capital cut their ratings on Enron, to "hold" from "strong buy" and from "strong buy" to "buy-speculative," respectively.
Lisa Sanders is a Dallas-based reporter for CBS.MarketWatch.com.



Citi, Morgan sink on Enron exposure 
CBSMarketWatch.com
11/28/01
Greg Morcroft 
NEW YORK (CBS.MW) -- J.P. Morgan and Citigroup shares fell Wednesday as investors fretted about the banks' exposure to troubled energy trader Enron.
Enron shares collapsed after Dynegy abandoned plans to buy the largest U.S. energy trader and Standard & Poor's cut its rating on the company to junk bond status. 
J.P. Morgan Chase (JPM) fell $2.30, or 5.8 percent, to $37.50. Fellow bank stock Citigroup was the second biggest Dow loser, dropping $2.75, or 5.8 percent, to $47.80.
Both firms have served as lenders and advisers to the embattled Enron, which today saw its debt rating cut to junk status and its would-be acquirer Dynegy walk away from the deal.
Early afternoon calls to Citigroup were not returned, and a J.P. Morgan spokesman declined to comment on reports of the bank's exposure to the situation.
The Wall Street Journal reported that both banks were attempting to finance Dynegy's proposed purchase of Enron, and had each committed roughly $700 million to $800 million in the form of various loans, about half of which were unsecured.
The report noted the banks had also committed an additional $250 million in equity investments.
Enron deal falls apart
Enron (ENE ) shares ended the day at 61 cents, having lost as much 85 percent of their value. Dynegy (DYN ) shares closed down 12 percent at $35.97.
In a report Wednesday, rating agency S&P cut Enron's rating to B-minus, or junk status, from BBB-minus, which is the lowest investment-grade rating.
The rating agency said that the move reflects "concerns about the viability of the merger agreement with Dynegy and liquidity implications of the possible failure of that transaction. The ratings are placed on CreditWatch with developing implications."
Shares could be worthless
Analyst Michael Heim at A.G. Edwards said the downgrade of Enron's debt by Standard & Poor's "kills any chance of a deal" with Dynegy. 
He believes Dynegy will have no problems using the debt downgrade to walk away from the deal without paying a break-up fee.
"Without a deal, Enron has no value, in our opinion, and will most likely be declared bankrupt shortly," Heim explained in a note to clients. 
"Unlike other bankruptcies in which a stock continues to trade at a low price, there are no hard assets to salvage."
He added the S&P downgrade will force Enron to accelerate a debt payment of $3.9 billion, making it virtually impossible for Enron trades to interact with most counterparties.
U.S. Bancorp Piper Jaffray estimated that Enron represents about $500 million exposure to Citigroup and $300 million to J.P. Morgan Chase. 
"n our judgment, these credit facilities are well-collateralized," the firm said in a note, anticipating that non-performing assets would increase by $440 million at Citi in the fourth quarter and $300 million at J.P. Morgan, reflecting an Enron bankruptcy.
Greg Morcroft is New York news editor of CBS.MarketWatch.com.



At Enron, best Lay plans go awry Commentary: From cabinet prospect to bankruptcy 
CBSMarketWatch.com
11/28/01
By David Callaway
SAN FRANCISCO (CBS.MW) -- For Ken Lay, the collapse of Enron Corp. goes beyond one of the largest and swiftest corporate meltdowns in U.S. history.
It represents the destruction of a lifetime of work that until only three months ago had the Texas business leader and political rainmaker perched at the top of the corporate world, the most powerful energy mogul in history and an advisor to the president of the United States.
It was less than a year ago that the 59-year-old Lay was being touted as incoming President Bush's top choice to be Treasury Secretary, or at the very least, Energy Secretary.
He ranked No. 36 on a list of the 50 Best CEOs last year published by Worth Magazine, after having put together a 240 percent return on shareholder value in Enron (ENE ) stock over the last three years. Enron's market value rose from $2 billion in 1985, when Lay created the company through a merger of two Texas natural gas firms, to more than $80 billion earlier this year. 
But all of that power and prestige came crashing down over the last few months, culminating Wednesday in a complete collapse of Enron's shares in reaction to news that rival Dynegy (DYN ) would not step in to rescue the failing company. When the dust settled, Enron's shares stood at 61 cents each, its total market value at $454 million. See full story.
Lay and Enron now face an almost certain Chapter 11 filing, which would be the biggest in U.S. history, and a slew of lawsuits as well as a federal investigation into how they built a tangled Web of derivative trades and energy businesses into the empire that it was.
A power broker unplugged
Now Lay, a behind-the-scenes string puller in the corridors of power for more than a decade, will find out just how loyal his friends are, starting with Bush. Lay is a close friend of the Bush family and has been one of the largest contributors to the president's political campaigns for president and Texas governor.
Enron has pumped more than half a million bucks into Bush's coffers over the years, including $100,000 for last year's presidential campaign, which was matched by Lay and his wife. Lay hired former cabinet members James Baker and Robert Mosbacher after they left their positions with the cabinet of Bush's father, George Bush, in the early 1990s.
And with his political largesse came the benefits. Lay had Vice President Cheney's ear earlier this year when Cheney was presiding over the establishment of Bush's energy policy, a process cloaked in secrecy that even today Cheney refuses to shed light on.
In May, he found himself in hot water after The New York Times reported that Lay called Curtis Hebert, then chairman of the Federal Energy Regulatory Commission, and offered his support if Hebert would change his views on electricity deregulation and embrace Bush's push for retail energy competition.
Hebert said he refused, and had the impression his job was in jeopardy. Lay later denied that he had threatened Hebert's job security. Whatever the case, Hebert was later replaced as chairman of the agency by Patrick Wood, chairman of the Texas Public Utility Commission.
Lay was more successful in his adopted hometown of Houston, where he was able to convince Gov. Bush to deregulate the state's electrical markets in 1999 and where, earlier this year, the Houston Astros began playing in their new stadium, Enron Field.
That Lay is a remarkable executive and power broker is without question. He took a rinky-dink natural gas company and in just over 16 years turned into the mightiest energy empire in American history, virtually inventing a new energy market, which Enron itself controlled. Bill Gates would have been proud of the monopoly. 
But the speed with which the empire collapsed and the shambles that is left suggest that, at best, Enron was not much more than an elaborate hedge fund that bet too much on itself.
And now Ken Lay, rainmaker, has fallen back to earth. 
David Callaway is executive editor of CBS.MarketWatch.com