Ken, Lay Your Cards On the Table
Fortune Magazine, 11/12/01
Editor's Desk
Fortune Magazine, 11/12/01
S.E.C. Opens Investigation Into Enron
The New York Times, 11/01/01
Enron Partnerships Led by Fastow Face a Formal SEC Investigation
The Wall Street Journal, 11/01/01
Broadband Trading's Prospects Narrow Fast
The Wall Street Journal, 11/01/01
BEFORE THE BELL: Microsoft Up Off Possible Antitrust Deal
Dow Jones Commodities Service, 11/01/01
COMPANIES & FINANCE THE AMERICAS: Enron's weakness may be a buyer's strength: Sheila McNulty, Matthew Jones and Julie Earle on the risks of buying into the group: 
Financial Times; Nov 1, 2001

COMMODITIES & AGRICULTURE: EIA to take over US gas report 
Financial Times; Nov 1, 2001

WORLD STOCK MARKETS: Wall St falters after modest morning revival 
Financial Times; Nov 1, 2001
What went wrong with Enron?
Houston Chronicle, Nov 1, 2001
Formal upgrade of Enron investigation gives subpoena power to SEC
Houston Chronicle, Nov 1, 2001
Enron Discloses SEC Probe
The Washington Post, 11/01/01
Enron Corp. Cut to Near-Term `Neutral' at Merrill
Bloomberg, 11/01/01

SEC opens formal investigation into Enron, company says
Associated Press Newswires, 10/31/01
SEC probe of dealings is official, Enron says
Chicago Tribune, 11/01/01
Exchanges Add OTC Products as Option to Enron.
The Oil Daily, 11/01/01
INDIA: Bank meeting on Enron Indian unit postponed-source.
Reuters English News Service, 11/01/01
BG Extends Talks With ONGC, Reliance Over Gas Fields (Update1)
Bloomberg, 11/01/01

INDIAN FINANCIAL INSTITUTIONS FAIL TO RESOLVE DABHOL POWER ISSUE
Asia Pulse, 11/01/01
Indian lenders, Enron officials discuss Dabhol crisis
Business Standard, 11/01/01
US Utilities Are Slow To Make Life Harder For Enron
Dow Jones News Service, 10/31/01
Enron Says SEC Inquiry Now a Formal Investigation (Update4)
Bloomberg, 10/31/01
SMARTMONEY.COM: The Data Mine: Come Sales Away
Dow Jones News Service, 10/31/01
USA: Enron trusts may prove troublesome if ratings cut.
Reuters English News Service, 10/31/01
USA: UPDATE 3-Enron says SEC inquiry now full-scale probe.
Reuters English News Service, 10/31/01
USA: Funds still shying away from former darling Enron.
Reuters English News Service, 10/31/01



First/Enron
Ken, Lay Your Cards On the Table
Bethany McLean

11/12/2001
Fortune Magazine
Time Inc.
37
(Copyright 2001)

"I want to make sure we restore that credibility." So said Enron CEO Ken Lay in August, after his company's stock had fallen from over $80 to $36 since January, after the shocking resignation of his handpicked successor, Jeff Skilling, and after growing complaints about the company's incomprehensible financial statements. 
Today there's mounting evidence that Lay--a senior statesman who helped create Enron in the mid-'80s--may not be part of the solution. In the past two months Enron's stock has sunk another 60%, to $16, amid concern that the company's murky disclosure may be a sign of deeper business problems. A conference call that Lay held on Oct. 23, ostensibly to reassure skittish investors, was widely regarded as a disaster. Enron "wiggled, squirmed, and gave a bunch of nonanswers," as one listener puts it. Even formerly docile sell-side analysts are turning hostile. After the call, Prudential's Carol Coale downgraded Enron to a sell, "not because of things that we know, but because of things that we potentially don't know."
Enron's stock began its plunge in mid-October after the company announced its third-quarter results. As always, Enron made its earnings number--that is, before a gigantic, $1.01 billion charge due to a slew of investments gone sour. Worse, Enron was less than up- front about an additional $1.2 billion reduction in shareholders' equity, caused by the early termination of controversial outside investment partnerships run by former Enron CFO Andy Fastow. Lay reassured investors that Enron's credit rating was intact but made no mention of Moody's, which after the call put Enron's debt on review for a possible downgrade. As Enron acknowledges, it is critical that the company's debt be rated investment-grade, given the requirements of its huge trading operations. Enron's debt is currently rated several notches above investment-grade, and at the end of the second quarter the company had $12 billion in debt, or a not unhealthy debt- to-capitalization ratio of 46%. But the most recent figures aren't yet available (Enron doesn't release a balance sheet with its earnings results), and there's concern about Enron's ability to meet its near-term liquidity needs. 
The stock sank further when Enron announced that the SEC was inquiring into the Fastow-run partnerships, which did a variety of bewildering deals with Enron, raising questions about possible conflicts of interest. Lay contends that the partnerships, named LJM and LJM2 (for Fastow's children, says one analyst), were done merely to "mitigate volatility." A so-called Chinese wall--meaning that Enron and the partnerships were run as two separate businesses-- protected Enron shareholders, he insisted. But here's an extraordinary line from one copy of LJM2's marketing material: "Enron board of directors has waived 'Code of Conduct' for A. Fastow's activities relative to LJM2." (Enron says it claims absolutely no responsibility for what may have been represented by an independent company.) As for Lay's assertion of a Chinese wall, well, how can there be a Chinese wall within Fastow's brain? On Oct. 24, Enron announced a fall guy--Fastow would take a "leave of absence." At the very least the partnerships demonstrate horrific judgment by people other than just Fastow. Enron's board, for example, gave its okay. One document shows that Ben Glisan, Enron's treasurer, was also on the partnership's investment team. (Enron says that document is a draft.) 
Perhaps the biggest concern is the true profitability of Enron's core business, its energy trading operation. The heart of the Enron story, the stuff that captivated Wall Street, was the company's transformation from a stodgy gas pipeline into a technology phenomenon that could make a market in anything, from electricity to broadband. It's impossible to know if Enron has used the partnerships and off-balance-sheet vehicles to influence its reported earnings. Enron also mingles profits from asset sales with its trading income-- and despite its pledges, in the most recent quarter the company provided less, not more, disclosure on that front. In addition there are questions about how aggressively Enron books trading-related revenue. In fact, a knowledgeable source at a competitor says that Enron recognizes its revenues at two to five times the rate of that company's. If energy trading is really such a fabulous business for Enron, why does it need to play so many games? 
As for Ken Lay, who was once thought to be in Jack Welch's league, he has accomplished the truly remarkable feat of destroying much of what was left of Enron's credibility in just a few short months-- along with some of his own. Some observers suspect that the problem is not that Lay is avoiding questions, but that he doesn't know the answers. In either case, Lay is a long way from keeping his promises. 
Quote: Despite promises from CEO Ken Lay, Enron's financial disclosure is still far from sufficient.

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

Editor's Desk
Rik Kirkland/Managing Editor

11/12/2001
Fortune Magazine
Time Inc.
5
(Copyright 2001)

The Chitlin Strut is about to crank up again in Salley, S.C. (I'm talking beauty pageant, fireworks, and 10,000 pounds of fried pig intestines--you're there, right?) If not, there's plenty of other great stuff going on in November, as you'll learn by checking out our new FORTUNE Business Calendar in the front of the current Fortune Advisor. Written by reporter Grainger David (above), it's the wittiest, most delightful monthly guide anywhere. Trust me on this. Do not miss it! Otherwise, your colleagues will know when Comdex starts, what connects Cisco to Guy Fawkes Day, and the date of the next beaver moon. And you? You'll just be your usual chitlin- struttin', clueless, uninformed self. 
Combine the intelligence and ferocious accuracy of a research scientist with the voice of a lyric poet and what do you get? David Stipp. David keeps FORTUNE on the cutting edge of medicine, genomics, and a host of technologies. Any boomer fretting about his growing inability to recall old friends' names (much less the date of the Battle of Hastings) will be heartened by David's story on the drive to develop "A Pill to Help You Remember." And in his second piece in this issue, "The Coming Hydrogen Economy," David shows how improved wind power, fuel cells, and other innovations are reducing America's reliance on hydrocarbons faster than most of us realized. It makes you wonder why our political leaders aren't already debating how they can help accelerate this welcome shift and eventually free us from our dependence on Middle Eastern oil. My advice: Send David's report to your representatives and the President.
It may have been the call of the year. In our March 5 issue, senior writer Bethany McLean asked, "Is Enron Overpriced?" Yes, she argued. She was especially exercised about Enron's opaque accounting and dubious rationalizations for its sky-high multiple. The stock was then at $75, 13 of 18 analysts rated it a buy, and the company, which vigorously objected to Bethany's piece, was still telling Wall Street it should be valued at $126 a share. Eight months later, Enron is trading around $15, and that opaque accounting is a big part of its problem. See First for Bethany's latest take on this ex-highflier. 
Who is this guy? I'm not telling, because it would steal from the punch line of senior writer Jerry Useem's marvelous essay on leadership, "What It Takes." Jerry's story isn't on our cover merely because the challenge of running a company--or any group of people-- in a crisis has, since Sept. 11, become topic A for business folks. It's there because it's really good. Reading it could lower the odds you'll end up like our sad little bearded dude.

B/W PHOTO: JOANNE CHAN B/W PHOTO: RICHARD E. SCHULTZ COLOR PHOTO: JANE HUNTINGTON B/W PHOTO: BROWN BROTHERS 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Business/Financial Desk; Section C
S.E.C. Opens Investigation Into Enron
By ALEX BERENSON

11/01/2001
The New York Times
Page 4, Column 6
c. 2001 New York Times Company

The Securities and Exchange Commission has opened a formal investigation into transactions among the Enron Corporation and partnerships headed by Andrew S. Fastow, the company's former chief financial officer, Enron said yesterday. 
The commission's move comes as Enron struggles to reassure investors and its partners that its profits are real and that its cash position is strong. Shares of Enron, the world's largest trader of electricity and natural gas, have plunged 83 percent this year as investors question the company's complex and opaque accounting. Shares of Enron rose $2.74 yesterday, to $13.90, ending a 10-day string of losses.
In addition, Enron's board said yesterday that it had appointed a special committee to examine the transactions. The panel will be headed by William Powers Jr., the dean of the University of Texas law school, who was elected to Enron's board yesterday. The committee has hired William R. McLucas, a former head of the division of enforcement at the S.E.C., as its counsel. He is a partner in the law firm of Wilmer, Cutler & Pickering in Washington. 
Enron disclosed 10 days ago that the commission had opened an informal inquiry into its transactions with Mr. Fastow. A formal investigation significantly increases the pressure on the company. 
John Heine, a spokesman for the commission, said he could not comment on the S.E.C.'s investigation of Enron. But, speaking generally, Mr. Heine said the opening of a formal inquiry enabled the commission to subpoena documents and was used when S.E.C. staff members thought that the companies or executives were not responding voluntarily to their questions. 
If staff members ''run into situations where they feel they need information to look further and the sources for that information are not cooperative, the staff can go to the commission and recommend that the commission issue a formal order of investigation authorizing that the staff issue subpoenas,'' Mr. Heine said. 
When it disclosed the commission's informal inquiry on Oct. 22, Enron promised to cooperate fully with the S.E.C. ''We welcome this request,'' Kenneth L. Lay, Enron's chairman, said. 
A spokesman for Enron did not return calls yesterday. 
Enron began this year on an apparently unstoppable growth streak. But the company has suffered one setback after another. The company's efforts to become a profit-making water supplier and to create a new market in broadband communications capacity have been expensive failures. In August, Jeffrey K. Skilling resigned as chief executive, forcing Mr. Lay, his predecessor, to resume day-to-day control. 
Enron's problems came to a head in mid-October, when it disclosed that its shareholders' equity, a measure of the company's value, dropped $1.2 billion in the third quarter because of a deal with partnerships led by Mr. Fastow. Because of complex accounting rules, the write-down was not apparent in Enron's quarterly earnings report. News of the write-down disturbed investors because it suggested that Enron might have found a way to hide losses, throwing the accuracy of its financial statements into question. 
Last week, the company ousted Mr. Fastow, but it is now struggling to explain the transactions to its shareholders and bond-rating agencies. Amid rumors that the company might face a cash squeeze, Enron used a $3.3 billion line of credit last week and is seeking additional financing. Still, some energy companies are shying away from making trades with Enron that will take more than a few weeks to close.

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

Enron Partnerships Led by Fastow Face a Formal SEC Investigation
By John R. Emshwiller and Rebecca Smith
Staff Reporters of The Wall Street Journal

11/01/2001
The Wall Street Journal
A4
(Copyright (c) 2001, Dow Jones & Company, Inc.)

The Securities and Exchange Commission elevated to a formal investigation its inquiry into Enron Corp.'s financial dealings with partnerships headed by its former chief financial officer, Andrew Fastow. 
Enron disclosed the SEC action late yesterday. As a matter of policy, the SEC doesn't comment on what it is or isn't investigating.
A formal investigation involves the SEC's enforcement branch going to the five-member commission and obtaining formal subpoena power to pursue its inquiry. A person familiar with the SEC probe said the agency felt it needed subpoena power to compel the release of information by parties that have done business with Enron. 
Enron last week disclosed that the SEC had contacted the company as part of what it described as an informal inquiry into the Fastow-related partnerships. At the time, Enron said it welcomed the inquiry and that it would cooperate fully with the SEC -- a position the company has restated repeatedly since. 
While a formal order of investigation doesn't indicate that the SEC has decided that there is wrongdoing, it is a sign "of a decision to pursue the investigation," said former SEC enforcement attorney Jacob Frenkel. "It clearly is one level up" from an informal inquiry, he said. 
As part of its efforts to deal with the overall situation, Enron also announced the appointment of University of Texas law-school dean William Powers to its board. Mr. Powers will head a four-member board committee to look into the Fastow-related transactions and other matters. 
Former SEC enforcement chief William McLucas, who is now with the Washington D.C. law firm of Wilmer, Cutler & Pickering, has been retained to advise the committee, Enron said. 
The other members of the four-person board committee are all outside Enron directors: Frank Savage, chief executive of Savage Holdings LLC; Paulo Ferraz Pereira, executive vice president of the Brazilian-owned investment bank Group Bozano and Herbert S. Winokur, Jr., chairman and chief executive of Capricorn Holdings, Inc. Enron chairman and chief executive Kenneth Lay has asked the committee to "take a fresh look at these transactions and take any appropriate action," the company spokeswoman said. 
Enron has consistently said its dealings with the Fastow-connected partnerships were legal and properly disclosed to investors. According to Enron filings with the SEC, the company did deals involving billions of dollars of assets and Enron stock with entities related to the Fastow partnerships. Internal partnership documents indicate that Mr. Fastow and possibly others made millions of dollars from the partnerships. Mr. Fastow, who was replaced as chief financial officer last week, has consistently declined to be interviewed. 
News of the SEC investigation came at the end of what lately had been a rare up day for Enron in the stock market. After plummeting for 10 straight trading sessions, Enron shares rose by nearly 25%. In 4 p.m. New York Stock Exchange composite trading, Enron rose $2.74 to $13.90 a share and was once again the Big Board's most active issue, with about 43.8 million shares changing hands. A little more than two weeks ago, Enron shares were above $33 each. About a year ago they were around $85. 
Analysts and other observers said the rebound was partly due to bargain-hunting as well as continued speculation about a possible takeover bid for Houston-based Enron, given its current severely depressed stock price. Starting about two weeks ago, Enron suffered a sharp loss in investor confidence following big third-quarter write-downs, partly related to the Fastow partnerships, and the disclosure of the SEC inquiry. 
Enron officials argue that investors have been overreacting and say the company is fundamentally sound. They have promised to be more forthcoming about the company's extremely complex finances. Investors need to know more about the company's potential liabilities, said A.G. Edwards analyst Michael Heim. "Until you know the worst-case scenario, it is hard to move forward," he said. 
To improve its liquidity, Enron is nearing completion of a new bank credit line of roughly $1 billion to be secured by gas-pipeline assets, say people familiar with the matter. The new line would supplement existing credit facilities, which were largely used up last week when Enron drew down about $3 billion to help it weather the current crisis. 
--- 
Jathon Sapsford and Michael Schroeder contributed to this article.

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


Broadband Trading's Prospects Narrow Fast
By Elliot Spagat
Staff Reporter of The Wall Street Journal

11/01/2001
The Wall Street Journal
C1
(Copyright (c) 2001, Dow Jones & Company, Inc.)

Create a market, and they will come? 
Last year, companies led by Enron Corp. envisioned a fast-growing, and very profitable, new market trading broadband capacity. As demand burgeoned for fiber-optic lines that carry Internet and other data to offices and homes, they figured, people with too little or too much capacity would be eager to trade it -- much like soybeans, oil and electricity.
But instead of a bustling market, it has pretty much been a bust, so far anyway. Plummeting broadband prices, a dearth of creditworthy customers and now Enron's financial woes have stalled the nascent market, and the costs are adding up. 
Enron's broadband unit, for instance, had an $80 million operating loss in the third quarter on revenue of $4 million, down from revenue of $162 million a year earlier. The company also recorded a $180 million third-quarter charge to restructure its broadband unit, which included cutting 400 to 500 jobs and losses on the sale of inventory, and plans to close offices in London and Singapore. 
Enron handled just 405 trades in the third quarter, down from 759 in the second quarter. Currently, the broadband market -- in which contracts to buy and sell capacity on fiber-optic networks are traded by brokers by telephone, rather than on the floor of a physical exchange -- records fewer than two dozen trades a day. Many of the transactions take place between energy companies rather than between users and suppliers. 
That's less than what Enron and others creating the new market, including Dynegy Corp. and El Paso Corp., had expected. With characteristic bravado, they saw in telecommunications many of the same factors that drew them to gas and electricity: a newly deregulated market, plenty of inefficiency and what seemed to be insatiable demand for the fiber-optic lines to carry Internet and other data. 
For example, if a big corporation needed to quickly expand its internal "Intranet" service to send traffic among its various offices around the U.S., it could in effect buy the capacity on the new market. 
After making hundreds of millions of dollars trading in natural gas and electricity, the companies were confident they could outmaneuver the giant telecom carriers, which never welcomed them, because the telecom companies wanted to control capacity rather than see it become a tradable commodity. "It's worked so well for us in gas, it's worked so well for us in power," said Stephen Bergstrom, Dynegy's president and chief operating officer. "There's a lot of differences, but there's also a lot of similarities." 
The energy companies, nearly all of which are based in Houston, saw the telecom industry as slow and secretive. Telecom carriers typically spend six to nine months arranging multiyear deals to exchange network capacity or to serve major business customers. Their contracts, which aren't disclosed publicly, often involve custom work -- for which they could charge premium prices. And if their service turns out to be unreliable, the buyer has little recourse. 
Through trading of broadband capacity, Enron in mid-1999 saw the chance to offer telecom customers prices that were easy to understand and compare, because they would be based on standard contracts and instant delivery. Penalties would be assessed when service faltered. Contracts could change hands frequently and last for as little or as much time as the customers wanted. Enron figured that time on fiber lines could be treated just like kilowatt hours of electricity. 
Enron "kind of made it happen. The other energy players look like followers," noted Martin Gray, vice president for trading and risk management at London's Cable & Wireless PLC, one of the few telecom companies to take a serious interest in bandwidth trading. 
To back its efforts, Enron erected an 18,000-mile fiber network offering connections at blazing speed, and built 25 delivery points for companies to exchange bandwidth. It also relentlessly prodded carriers and large businesses to rethink the rules. 
But most telecom carriers never warmed to bandwidth trading. "Houston is a bad word in their mind," said Jack Blunt, senior vice president of finance at RateXChange Corp., a San Francisco-based bandwidth broker that also operates a small electronic broadband-trading exchange. "The energy merchants are perceived as cutting in on their business and trying to create a commodities market." 
Efforts to create hubs, or points where service could be delivered, stumbled when other traders balked at how much information they would have to share if they used Enron's sites. Meanwhile, bandwidth prices were falling sharply, in part because telecom companies overbuilt their fiber-optic networks, and in part because demand, while growing, didn't grow as quickly as expected. As a result, customers were reluctant to buy contracts for fiber-optic capacity that would lock them into prices that might be much higher than rates they could get just a few months later. 
At the same time, upstart phone companies and Internet service providers -- among the biggest potential clients for excess capacity traded on a broadband market -- were running into serious problems, reducing the number of creditworthy customers. 
El Paso initially planned to invest $2 billion in its telecom business. A few months ago, it cut its projected investment to $1.5 billion. Last week, the company said it would cut back "radically" and limit its focus to its existing network in Texas and a delivery hub in Chicago. "The clear line of sight to success has become very opaque," said William Wise, chief executive of the Houston-based company. 
Dynegy, which operates a 16,000-mile fiber-optic network connecting 44 U.S. cities, reported a relatively moderate $15 million third-quarter loss in its telecom business. "We are not big on [being] first mover," said Mr. Bergstrom. "We were second mover in gas, second mover in power, and we were second mover in telecom." 
Still, the Houston crowd isn't giving up on the market. An Enron spokeswoman said the company remains committed to telecom, but is reviewing costs. The company remains a chief cheerleader in trying to develop hubs and set standards. 
Dynegy is "comfortable" with its current position, a spokeswoman said. Chuck Watson, its chief executive, said demand has picked up sharply since Sept. 12 as companies have conducted more business by phone. He expects demand to grow substantially next year. But executives at several companies acknowledge that it may take months, if not years, to create an active trading market. 
If Enron retreats further, the biggest winners would be the giant telecom carriers that considered Enron a threat to their decades-old ways of doing business, analysts say. "All eyes are on Enron," said Seth Libby, an analyst at the Yankee Group research firm in Boston. "When they came into this market, they were the catalyst, and they still are the catalyst to create bandwidth as a commodity."

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

BEFORE THE BELL: Microsoft Up Off Possible Antitrust Deal
By Shaheen Pasha
Of DOW JONES NEWSWIRES

11/01/2001
Dow Jones Commodities Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

NEW YORK -(Dow Jones)- Microsoft Corp. (MSFT) is leading the action before the bell Thursday. 
The company and the U.S. Justice Department have agreed on the outlines of a settlement in the long-running antitrust case. Sources close to the matter say the wording of the agreement has not yet been finalized and negotiations could still potentially break down.
Still investors are heartened that the antitrust saga may be coming to an end. The stock has gained $1.91 or 3.2% to $60.05, according to RediBook ECN. Shares finished the primary session at $58.15. 
What goes up, must go down. Enron (ENE) shares are once again sinking after some strength in Wednesday's market. The company named William Powers Jr. to its board, which appointed a Special Committee to examine transactions between Enron and third parties and work with the SEC in its investigation of the energy trading firm. 
Enron shares have slipped $1.10 or 7.9% to $12.80 in the pre-market, after closing Wednesday's session at $13.90. 
WebMethods (WEBM) stock has gained $1.01 or 10.9% to $10.20 after Morgan Stanley upgraded the stock to outperform from neutral. The company's shares closed at $9.19. 
Morgan Stanley wasn't quite so kind to shares of International Business Machines (IBM). The firms initiated coverage on the stock at neutral on valuation concerns, sending IBM shares down before the bell. IBM recently traded down 72 cents or 0.6% to $107.35 after finishing the primary session at $108.07 
Ballard Power Systems Inc. (BLDP) shares fell before the bell after reporting in-line third-quarter losses Wednesday. However, the fuel cell maker said it expects to report losses for the next several years due to the capital spending program it needs to commercialize its product. 
The company's stock fell $1.76 or 6.5% to $25.05 after closing at $26.85. 
Lantronix Inc. (LTRX) also fell in early trading after the company reported first-quarter pro forma earnings of 1 cent a share, one penny below Wall Street estimates. 
The company's share recently changed hands at $6.30, down 12 cents or 1.8%. It closed Wednesday's trading day at $6.43. 
-By Shaheen Pasha, Dow Jones Newswires; 201-938-2312; shaheen.pasha@dowjones.com

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

COMPANIES & FINANCE THE AMERICAS: Enron's weakness may be a buyer's strength: Sheila McNulty, Matthew Jones and Julie Earle on the risks of buying into the group: 
Financial Times; Nov 1, 2001
By JULIE EARLE, MATTHEW JONES and SHEILA MCNULTY

With Enron's share price hovering around its low for the year, the question of whether this is the right time to buy into the US's biggest energy trader is not only being asked by small-time investors but also by potential acquirers. 
As of the market close on Tuesday, Enron's stock was down 67 per cent from October 16, when the company disclosed a surprise Dollars 1.2bn charge against shareholders' equity that has provoked a crisis of confidence in the company. The selling has hacked Dollars 17bn off Enron's market value in two weeks. 
"The situation is one where Enron is likely to survive, but it is hard to analyse because we don't have all the information yet," says John Olson, vice-president of research at Sanders Morris Harris, an investment banking firm. "With the stock being crunched so badly, only people with a high appetite for risk should buy." 
That goes for acquirers as well, analysts say. 
The SEC is conducting an unofficial enquiry into Enron's financial dealings. Andrew Fastow, Enron chief financial officer, has been replaced. Shareholders have subsequently filed a series of lawsuits against Enron. And not only has one of the main rating agencies downgraded Enron's long-term debt, but the other two are reviewing it for potential downgrade. 
Other outstanding issues include how much Enron will get from the Dollars 4.5bn in asset sales it has been planning, including its Dabhol power project in India, where Enron and its foreign partners want to retrieve their Dollars 1bn in costs spent building the now-defunct plant. 
Analysts warn there may be more losses to come at the company's poorly performing broadband division, where Enron has warned it sees no immediate prospect of recovery, despite recent comments by Dynegy, its rival, that the broadband market is improving. 
And there are worries Enron may have to take extra charges on its other off-balance-sheet vehicles. 
Kenneth Lay, chief executive, has said the company is watching closely its operations in India, broadband and California, where Enron is one of several energy traders facing questions over accusations of a manipulation of power prices - which it denies. But if Enron had other impaired assets, it would have announced them, he added. 
The potential risks make it more likely, analysts say, that acquirers would rather buy one or more of Enron's business units than the whole business. 
Mr Olson says Enron's trading, outsourcing and pipeline businesses are all good growth businesses. The trading business, which has been growing 31 per cent a year, has been making a 23 per cent return on equity, he says. 
Energy outsourcing, growing at 50 per cent a year, has ROE of 62 per cent, and ROE at pipelines, where growth has been 7-8 per cent a year, has been 24 per cent. 
At midday yesterday, Enron's shares were trading at Dollars 12.64, up 13.26 per cent. 
"The valuations are compelling," says Andre Meade of Commerzbank Securities. Enron is the number-one marketer of natural gas and power in North America. Mr Meade says Enron is the best platform to get into these two big businesses. 
Banking sources in London say Royal Dutch/Shell and BP have considered buying Enron but have backed off because of concerns about a culture clash and the level of Enron's debts. 
Banks have approached Enel, the Italian power utility, about acquiring Enron, but it is understood to have rejected the idea. 
Eon, the German utility group, was also named as a potential European buyer, but analysts say the regulatory hurdles may be too high because it is still in the process of gaining approvals for its purchase of Powergen, the UK electricity group with interests in the US. 
"At this price a number of large utilities and oil groups will be looking at Enron but the business is imploding so quickly that it's a real risk," says one banker. Additional reporting by Fred Kapner 
Executives campaign round the rating agencies 
Executives from Enron, the embattled energy trading company, was visiting New York rating agencies yesterday as part of a campaign to defend the company's investment-grade rating, write Sheila McNulty in Houston and Robert Clow in New York. 
The team, led by Greg Whaley, Enron's president and chief operating officer, was to meet separately with Moody's Investors Service, Standard & Poor's and Fitch. 
Moody's this week downgraded its long-term debt, citing deterioration in Enron's financial flexibility over the past two weeks. 
At the same time as the company was launching the charm offensive it was putting the finishing touches to a financing deal. Enron said over the weekend that it was searching for sources of liquidity to bolster its financial position. 
In spite of its troubles, Enron's energy trading business has continued to thrive. 
But that might no longer be the case if the company was downgraded below investment grade. Then Enron's trading counterparties might increase the amount of collateral they demand from Enron, putting pressure on margins. "Our concern is that a reduction in the debt rating could impair their ability to operate their trading and marketing operations," said Raymond Niles of Salomon Smith Barney. 
Even after the Moody's downgrade, Enron's long-term debt is still rated a few notches above junk by all rating agencies. Fitch, however, has put Enron on review for possible downgrade and Standard & Poor's has changed Enron's credit outlook to negative from stable. 
Copyright: The Financial Times Limited

COMMODITIES & AGRICULTURE: EIA to take over US gas report 
Financial Times; Nov 1, 2001
By MARY CHUNG

The US Department of Energy said yesterday it would take over a closely watched weekly survey on natural gas from an industry trade group that has been publishing the data for the past seven years. 
The report will be picked up by the Energy Information Administration (EIA), the department's statistical division, after the American Gas Association (AGA), which represents US natural gas producers and utilities, said it would discontinue publication of its gas storage estimates at the end of the year. 
Spencer Abraham, US energy secretary, said in a statement: "I believe it is important the Department of Energy continue the reporting responsibility for this vital resource." 
The AGA's decision to stop providing the data follows allegations of manipulation by some traders in the natural gas market over revisions in the survey. 
"There was a flap over revisions in the numbers. That did cause us to re-examine the whole storage survey process," said Daphne Magnuson, an AGA spokesperson. 
The weekly data are used by many in the trading community to buy and sell natural gas futures contracts, so any advance knowledge of storage volume revisions can give participants an unfair trading advantage. 
Several complaints were filed by traders to the Commodity Futures Trading Commission, the US regulatory agency, about discrepancies in the survey's data. 
A CFTC spokesperson said the commission acknowledged the "exchange of information with the AGA, which is still under review" but it would neither confirm nor deny the existence of any investigation. 
The natural gas market is a Dollars 90bn a year industry, representing 189 producers and local utilities including Duke Energy, Enron and El Paso. 
Copyright: The Financial Times Limited



WORLD STOCK MARKETS: Wall St falters after modest morning revival 
Financial Times; Nov 1, 2001
By MARY CHUNG

US equities ended mixed yesterday as technology stocks edged higher, while blue chips lost their momentum after investors digested better-than-expected third-quarter gross domestic products data. 
The Dow Jones Industrial Average closed down 46.84 at 9,075.14 after an early rally evaporated. The S&P 500 index dipped 0.01 at 1,059.78. The Nasdaq Composite rose 22.79 at 1,690.20. 
After two sessions of heavy losses, investors breathed a sigh of relief after GDP figures showing the US economy had shrunk for the first time in eight years this quarter - edging closer to a recession - were not nearly as bad as Wall Street had expected. 
Leading the Dow lower was Eastman Kodak, down 8 per cent at Dollars 25.57, after Moody's Investors Service downgraded the company's long-term rating. 
Other Dow components including Microsoft and IBM reversed early gains and lost 1.2 per cent and 0.5 per cent respectively. Intel, the world's biggest chipmaker, however, rose 3.7 per cent to Dollars 24.42 following positive comments from the company about long-term growth. 
Sun Microsystems led the Nasdaq in volume, up 6.4 per cent at Dollars 10.15 after the company said orders were tracking higher than they were at the same time last year. 
Juniper slipped 3 per cent at Dollars 22.29, still suffering from a downgrade by Merrill Lynch. Cisco System gained 2 per cent at Dollars 16.92 and Dell gained 3 per cent at Dollars 23.98 after the company said it was on target to meet third-quarter revenue estimates. Qwest Communications, however, fell 19 per cent at Dollars 12.95 after reporting quarterly earnings that failed to match expectations. 
NextCard was the biggest decliner on the Nasdaq, down 84 per cent at 87 cents after the online credit card provider's management said it was looking to sell the company to a larger financial institution. 
Adobe Systems dropped 8 per cent at Dollars 26.40 after the maker of desktop publishing software warned of weaker fourth-quarter results, and said it would cut 5 per cent of its workforce. Enron, the embattled energy trading company, rebounded 24.5 per cent to Dollars 13.90. 
Other bright spots included the retail sector as Dow components Wal-Mart and Home Depot gained 1.6 per cent and 1.7 per cent respectively. 
Toronto ended higher, led by gains in technology, bank, and oil and gas stocks after the US economy contracted less than expected. The S&P 300 composite index rose 60.29 to 6,885.70. 
Nortel Networks closed up 9 cents at CDollars 9.25 and Celestica gained CDollars 2.90 to CDollars 54.90, but Research In Motion fell 16 cents to CDollars 25.94. 
Aerospace manufacturer Bombardier ended days of losses with a 16 cents gain to CDollars 10.20. 
Copyright: The Financial Times Limited


Nov. 1, 2001, 12:06AM
Houston Chronicle
What went wrong with Enron? 
Since its stock hit a zenith in January, the company has been in a downward spiral 
By LAURA GOLDBERG and MICHAEL DAVIS 
Copyright 2001 Houston Chronicle 
For Enron Corp., it's a long, long way back to late January, when Houston's biggest company was flying high. 
Jeff Skilling, who played a central role in transforming Enron from a pipeline company to a trader of everything from electricity to paper to the weather, was days away from taking over from Ken Lay as chief executive officer. 
The stock had acquired a high-tech gloss, as the world's largest energy trader had moved aggressively into the broadband business, where it hoped to profit from buying and selling space on high-speed data wires. 
Today, the snapshot could scarcely be more different. 
Enron's shares, which hit a closing high for the year of $82 in late January, have been trending downward since mid-February. They hit a nine-year closing low Tuesday of $11.16. 
Skilling is gone, Enron's credibility on Wall Street is in shambles, its broadband unit has been significantly scaled back, and there's speculation the company could be a takeover target. 
The Securities and Exchange Commission is digging into business deals between Enron and investment partnerships formerly run by its ousted chief financial officer. 
Enron, which last week disclosed the SEC had begun an informal inquiry into its affairs, said Wednesday it's under formal investigation. 
The financial hits Enron revealed earlier this month, related to the investment partnerships known as LJM Cayman and LJM2 Co-Investment, quickly triggered an expanding round of unanswered questions about Enron's balance sheet and overall financial stability. A sharp decline in the stock price followed. 
Investors and analysts, who are irked because they believe Enron won't explain its complicated affairs, are painting their own worst-case scenarios. 
If Enron doesn't move to calm investor fears, they could become a self-fulfilling prophecy, Jeff Dietert, an analyst with Simmons & Co. International in Houston, wrote in a research report. 
The vicious cycle potentially goes like this, he said: Fears drive down the stock, the lower prices force credit agencies to consider downgrades, potentially lower credit ratings force trading partners to reduce business with Enron, and Enron's ability to generate earnings and cash flow suffers. 
But the fact is, questions have surrounded Enron for months. Enron has been faulted for some of its deals outside of its key business of energy marketing and trading, which at the moment is considered healthy. 
Wall Street's complaints that Enron's financial statements and disclosures were hard to follow and lacked key details were more easily brushed aside when Enron's stock price was high. 
But this month's financial disclosures and Enron's steadily falling stock, which has shaved tens of billions of dollars from the company's market value, catapulted those questions to center stage. 
A series of problems hung over Enron: 
? In California, Enron was among Houston companies painted as chief villains by Gov. Gray Davis and other top state officials earlier this year in California's energy crisis. Enron, still owed $570 million for unpaid power bills in California, drew negative publicity nationwide for its perceived arrogance. 
? Broadband lost its glow in March, when Enron and Blockbuster called off a deal to bring movies over the Internet into homes. Almost a month later, Enron revealed it had cut about 250 jobs from its broadband unit. More cuts followed. The telecommunications industry melted down, but some analysts felt Enron was slow to disclose its troubles. 
? Expensive investments Enron made in asset-based projects internationally, such as power plants, didn't generate high enough returns. Enron has been trying to unload billions worth of these assets for two years. Earlier this year, it said it would try to sell its $875 million stake in Dabhol Power Co. in India, which has been nothing but trouble for Enron almost from the time it got involved in the early '90s. 
? Enron was still cleaning up Azurix, its unsuccessful foray into the water and wastewater business. Part of a $1.01 billion write-down in the third quarter related to Azurix. 
? Over the past year, several high-ranking Enron executives have left. No departure was more jarring to investors than the August departure of Skilling, who spent just six months as CEO. 
Out of the blue, Skilling announced he was leaving for personal reasons. Lay, who had remained as chairman, reclaimed the CEO's job. 
The fact Enron's shares were already sagging fed speculation about the "real" reasons for Skilling's departure. Wall Street began cranking up its requests for better disclosures in Enron's financial reporting. Lay faced the immediate challenge of restoring Enron's credibility and convincing Wall Street more bad news wasn't on the way. 
Then, something that until last week's earnings report hadn't gotten much broad attention acted as a lightning rod to focus all of Wall Street's concerns. 
Earlier this year, some analysts and investors criticized Enron for letting its chief financial officer, Andrew Fastow, run the private LJM investment partnerships that did business with Enron. 
They wondered if Fastow, wearing his LJM hat, was doing deals that benefited LJM but hurt Enron. Fastow, in June, stepped down from LJM, and Enron also ended its financial arrangements with LJM. 
When Enron released third-quarter earnings Oct. 16, the report contained $1.01 billion worth of charges in write-downs aimed at cleaning up problems distracting Enron from its core business. 
Included was $35 million recorded because of ending its relationships with the LJM partnerships. Because of that move, Enron also reduced shareholders' equity by $1.2 billion, something it mentioned briefly in its conference call with analysts but didn't note in its earnings news releases. 
Wall Street was hoping Enron's third-quarter report would begin an era of financial frankness. While Enron did break down some of its data in new ways, Wall Street felt Lay tried to slip the equity reduction by it. 
Instead, a national spotlight was turned on the LJM partnerships, including in a series of stories in the Wall Street Journal. 
Almost a week after earnings, Enron disclosed that the SEC was looking into the LJM matters. Shareholder lawsuits quickly piled up, and Enron replaced Fastow. 
Investors and analysts have been trying to get details out of Enron about other financial vehicles it used to make investments without immediately taking on new debt or issuing shares. They fear Enron will be on the hook for billions of dollars of obligations related to these partnerships. 
Meanwhile, Enron's stock price kept plunging and Moody's Investors Service on Monday cut Enron's credit rating a notch, though it still remains at a key investment-grade status. 
Analysts believe Enron doesn't face an immediate cash crisis, nor do they think it's in danger of losing its investment-grade rating. If it were to lose that rating, Enron would face a variety of negative consequences, including some that would damage its trading business. 
At the moment, analysts believe Enron's wholesale energy trading business, which is responsible for as much as about 90 percent of the company's operating earnings and relies heavily on access to capital and credit, is fine. 
Wall Street hasn't gotten a sense that major trading players are pulling business or increasing credit requirements with Enron. 
There is evidence, though, that some smaller traders are shifting business away from Enron or requiring different trading terms. 
Spokesman Mark Palmer said Enron is working with traders, mostly smaller ones more concentrated in Europe, "to arrange credit terms that they are more comfortable with." 
Enron represents 20 percent to 25 percent of the domestic wholesale energy market, so significant problems with its operation would cause widespread disruption. On just one day last week, Enron handled about $4 billion worth of transactions through its EnronOnline. 
Traders say Enron's problems haven't damaged commodities markets in general. 
Enron, in an unsuccessful move to shore up investor confidence, last week drew down about $1.1 billion from credit lines and banked it. It used another $2.2 billion to pay off short-term debt obligations, known as commercial paper. 
"We're going to do better," Palmer said, adding that he realizes Enron has its work cut out. "We are going to provide as much information as we can to begin restoring investor confidence in this company." 
On Wednesday, Enron took a step aimed at stemming concerns. William Powers Jr., the dean of the University of Texas School of Law, joined its board and will head a special committee that will review deals between Enron and entities with links to company insiders, such as LJM. 
The company hasn't yet made its regular, detailed 10Q quarterly filing with the SEC. The 10Q will include a balance sheet and various financial footnotes, which analysts will scour looking for signs of trouble or solidity. 
Enron also must execute international asset sales worth about $600 million scheduled to close by the end of this year. Shedding other assets would also help, though there is concern Enron will be forced to accept fire-sale prices, leading to more big write-downs. 
Keeping a deal to sell power utility Portland General Electric on track is also important. The sale should bring Enron $1.55 billion in cash and take about $1.1 billion in debt off its balance sheet. The closing isn't expected until the latter part of next year. 
Speculation is swirling that Enron is a takeover target for the likes of Royal Dutch/Shell, General Electric Co.'s GE Capital and others; could be sold off in pieces; or is a bankruptcy candidate. Analysts believe bankruptcy is unlikely. 
While Enron may make an attractive acquisition target, a buyout offer is unlikely until the SEC inquiry is resolved, they said. Shares in Enron closed up $2.74 to $13.90 Wednesday, likely on takeover speculation and because it had been trading at such a cheap price. 
Another possible outcome, said Anatol Feygin, an analyst with J.P. Morgan Securities in New York, would be another large player taking a minority stake as a strategic investment in Enron, providing liquidity to shore up its balance sheet. 
At the moment, Wall Street is inclined to give Lay some time to fix the problems. 
"As time goes on in this crisis, the likelihood of Ken Lay emerging unscathed gets lower and lower," said Feygin. 

Nov. 1, 2001
Houston Chronicle
Formal upgrade of Enron investigation gives subpoena power to SEC 
By TOM FOWLER 
Copyright 2001 Houston Chronicle 
Federal regulators have upgraded their inquiry of questionable financial transactions at Enron Corp. into a formal investigation, giving officials the power to subpoena witnesses and documents. 
Enron disclosed the move by the Securities and Exchange Commission late Wednesday, saying it involved some, if not all, of the off-balance sheet financing partnerships the company has been criticized for in recent weeks. 
The primary difference between the informal inquiry the SEC started more than a week ago and a formal investigation is the power it gives regulators to force companies to submit information. Changing an inquiry into an investigation is relatively easy for regulators to do, legal sources say. The officials simply ask the five-member commission for subpoena powers, a request that is rarely turned down. 
The SEC doesn't comment on investigations as a matter of policy, so it's not immediately clear why the extra steps were taken. 
Enron officials say they have cooperated fully with the SEC, but since the investigation most likely covers transactions involving companies other than Enron, it's possible subpoenas may be needed to gain information from those entities. 
"There's no request from the SEC that we have failed to comply with," Enron spokeswoman Karen Denne said. "We've cooperated voluntarily from the very beginning." 
Enron's board of directors also formed a special committee to investigate the transactions earlier this week and on Wednesday named William Powers, dean of the University of Texas School of Law in Austin, to its board of directors to lead the special committee. 
The committee will serve as a primary contact between the company and the SEC and will concurrently make its own detailed investigation. 
If needed, the committee has the power to take disciplinary action against any Enron employee, officer or director who it determines "improperly participated in the transactions," Denne said. 
Powers, a career academic, is known for his studies in product liability. He will be joined on the committee by board members Frank Savage, chief executive of Savage Holdings; Paulo Ferraz Pereira, executive vice president of Brazilian-owned investment bank Group Bozano; and Herbert Winokur Jr., chairman and chief executive of Capricorn Holdings. 
The committee has named William McLucas, the former director of the SEC division of enforcement -- the group investigating Enron -- as counsel. 
McLucas' Washington-based law firm, Wilmer, Cutler & Pickering, retained Deloitte & Touche to provide independent accounting advice. 
The SEC inquiry began shortly after Oct. 16, when steep losses in Enron's third-quarter earnings drew renewed attention to a pair of investment partnerships created by then-Chief Financial Officer Andrew Fastow. 
The partnerships, referred to as a form of off-balance sheet financing, were formed using Enron equity and outside capital as a way to hedge against the risks involved in some of the company's new lines of business, such as Internet broadband trading. 
Fastow's dual roles as Enron CFO and managing director of the entities were a cause for concern for Wall Street, which pressured Fastow to cut ties with the outside partnerships in June. The company said it was careful to ensure that the interests of Enron and its shareholders were protected, but when the partnerships accounted for significant losses for Enron and a $1.2 billion loss in equity value, analysts began to demand more details. 
Last week the company replaced Fastow and began providing a few more details about its finances in order to maintain investor and client confidence. The company has declined to give out further information on the partnerships, however, because of the ongoing SEC investigation. 
Enron tapped a $3.3 billion line of revolving credit last week, putting about $1.1 billion in the bank to ensure it has cash on hand and using the balance to repurchase short-term debtinstruments. The company is expected to announce today or Friday that it has lined up another $1 billion to $2 billion in credit from banks. 



Financial
Enron Discloses SEC Probe

11/01/2001
The Washington Post
FINAL
E02
Copyright 2001, The Washington Post Co. All Rights Reserved

Enron said the Securities and Exchange Commission has opened a formal investigation into apparent conflicts of interest in dealings the company had with partnerships led by the company's former chief financial officer. The company also said it created a special committee headed by University of Texas law school dean William Powers to respond to the investigation. The committee has hired as counsel William R. McLucas, a former SEC enforcement chief who is now a partner in the law firm Wilmer, Cutler & Pickering. 
http://www.washingtonpost.com 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	


Enron Corp. Cut to Near-Term `Neutral' at Merrill
2001-11-01 07:43 (New York)

     Princeton, New Jersey, Nov. 1 (Bloomberg Data) -- Enron Corp. (ENE US)
was downgraded to near-term ``neutral'' from near-term ``accumulate'' by
analyst Donato J. Eassey at Merrill Lynch.  The long-term rating was cut to
``neutral'' from ``buy.''

--Michael O. Donohue in Princeton, New Jersey, (+1)609-279-3756.

SEC opens formal investigation into Enron, company says
By JUAN A. LOZANO
Associated Press Writer

11/01/2001
Associated Press Newswires
Copyright 2001. The Associated Press. All Rights Reserved.

HOUSTON (AP) - The financial roller coaster ride for Enron Corp. is gaining speed. 
After dropping to a nine-year low a day before, shares of the nation's largest natural gas and power marketer rose 25 percent on Wednesday to close at $13.90 amid speculation the Houston-based company was a strong takeover candidate.
But shares then fell 5 percent in extended trading after the company's announcement that the Securities and Exchange Commission has opened a formal investigation into apparent conflicts of interest in dealings the company had with partnerships led by its former chief financial officer, Andrew Fastow. 
The company, in a news release late Wednesday, said it created a special committee headed by University of Texas law school dean William Powers to respond to the investigation. Powers also was elected to Enron's board of directors. 
"I have asked the board to take this action to address fully and forthrightly investors' questions and concerns," said Enron chairman and chief executive Kenneth L. Lay. "We will also make every appropriate public disclosure during the course of the SEC's investigation." 
However, Duane Grubert, an analyst with Sanford C. Bernstein and Co. in New York, said Enron still has much to do to restore investor confidence. 
"With (stock) values this low, you've got two camps of investors: guys that hate Enron and guys that want to be cautiously attracted to Enron," Grubert said. "It's lead to the trading range being irrationally low and shares being oversold. It's not something the company wants." 
Enron's stock is off 60 percent since the company reported a $638 million third quarter loss just over two weeks ago, dragged down by a one-time charge of $1.01 billion attributed to various losses. 
Some of these losses have been tied to partnerships managed by Fastow, who was ousted last week. 
Earlier this week, Moody's Investors Service downgraded the company's long-term debt and warned of possible further downgrades. 
Since reporting its disappointing third quarter losses, Enron has been negotiating with banks to establish new credit lines. 
Carol Coale, an analyst with Prudential Securities Inc. in Houston, said Wednesday's stock price surge, after two weeks of selling, was likely a reaction to a The Wall Street Journal report on rumors of a possible takeover of Enron. 
Others may be buying figuring the stock has hit bottom, she said. 
On Tuesday, Enron's stock closed at $11.16, its lowest level since 1992. 
Potential buyers include General Electric's GE Capital unit, Warren Buffett's Berkshire Hathaway and Royal Dutch Shell, the Journal said. 
Grubert said Shell, which has a small presence in energy marketing, would be a good fit. 
"To buy into an established franchise must be attractive to Shell," he said. 
The special committee Enron formed has retained William R. McLucas, a partner in the law firm of Wilmer, Cutler & Pickering, as its counsel. McLucas is a former head of the Division of Enforcement of the SEC. 
While Enron's stock price has made it attractive, Coale said the energy marketer's problems present a substantial drawback. 
"I would fault a company for acquiring Enron with all of this hanging over it," she said. "There are too many uncertainties." 
--- 
On the Net: 
http://www.enron.com

AP Photo XNYR310 of Oct. 29 
Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	

Business
SEC probe of dealings is official, Enron says
From Tribune news services

11/01/2001
Chicago Tribune
North Sports Final ; N
3
(Copyright 2001 by the Chicago Tribune)

Enron Corp., in a sign of mounting legal problems, said Wednesday that an informal inquiry by the Securities and Exchange Commission had become a full-scale probe of questionable financial dealings that have rocked the company in recent weeks and sent its stock plummeting to a nine-year low. 
The nation's largest energy trader, scrambling to head off another shock to its damaged credibility, said it elected University of Texas law school dean William Powers to its board of directors and that he would head an internal inquiry into transactions that caused Enron to take a $1 billion charge to third-quarter earnings and name a new chief financial officer.
The company said Oct. 22 that the SEC was looking into its finances, but stressed that the agency had only requested information. The disclosure that it was now a full-blown, formal investigation may indicate that regulators did not like what they saw. 
Before the announcement, which came after the stock market closed Wednesday, shares of Enron jumped nearly 25 percent amid speculation the company was ripe for takeover. Enron stock rose $2.74, to $13.90, to end a 10-day tailspin that saw its market value fall by $17 billion. 
Investors had been dumping Enron shares following disclosures that the company did off-the-balance-sheet transactions with two limited partnerships run by former CFO Andrew Fastow, who was replaced last week. 
Concern about possible conflicts of interest arising from the deals and the company's failure to explain them had dropped stock levels to levels not seen since the early 1990s, caused a downgrade in credit status and brought the SEC in. 
An SEC spokesman would not comment on the matter.

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

Exchanges Add OTC Products as Option to Enron.

11/01/2001
The Oil Daily
(c) 2001 Energy Intelligence Group. All rights reserved.

Trading exchanges on both sides of the Atlantic Ocean have added new clearing and trading products and services for the over-the-counter (OTC) natural gas market in the US and both gas and power markets in the UK. 
Though both the New York Mercantile Exchange (Nymex) and OM London Exchange, owner and operator of the UK Power Exchange, said their actions were in response to a market need, the exchanges clearly are stepping up to fill a role US energy trading giant Enron has handled for OTC customers. Enron's liquidity problems and stock-price collapse have prompted other gas and power buyers and sellers to seek an alternative provider.
"Recent events in the natural gas market have served to reinforce the necessity of counterparty credit risk management and have accelerated the exchange's plans to introduce a full array of risk management tools under the umbrella of our clearinghouse," said Nymex President J. Robert Collins Jr. 
OM London will partner with Spectron Group, Europe's largest independent specialist energy broker of physical OTC gas and power contracts, to provide a clearing service for UK customers in the first quarter of 2002. 
The companies also expect to extend the service to include continental European power contracts in the near future. 
The Nymex plan will include introduction of exchange of futures for swap (EFS) transactions and large-order execution, along with the previously announced electronic trading of cleared natural gas swaps and basis contracts. 
EFS transactions will work similarly to exchange of futures for physical transactions. Two parties will be allowed to negotiate privately the execution of an integrated over-the-counter swaps and related futures transaction on pricing terms agreed upon by both. 
The transaction must involve equal but opposite sides of market quantities of futures and swap exposures in the same or related commodities and will be permitted until two hours after trading terminates in the underlying futures contract. 
EFS transactions will be permitted to liquidate, initiate, and transfer futures market positions between the two parties. 
Nymex said it would introduce a cleared Henry Hub natural gas swaps contract early next year. As part of this, the exchange will clear OTC-cleared transactions through its EFS mechanism. 
In other Enron news, company executives on Wednesday continued to negotiate new lines of credit. The gas-and-power-trading giant is looking for another $1 billion-$2 billion to get through a liquidity crunch brought on by the collapse in its market value. 
Industry sources told Oil Daily that Enron is trying to work out a debt-for-equity swap from at least one major investor, possibly General Electric Capital. The goal is to complete the arrangement by the end of the week. 
Continuing speculation of a pending takeover bid - with rumors that Warren Buffet's Berkshire Hathaway and super major Royal Dutch/Shell may be interested at some level - helped push up the company's stock for the first time in more than two weeks. Enron closed at $12.xx, up $1.xx. 
Barbara Shook, Ronan Kavanagh. 
(c) Copyright 2001. The Oil Daily Co. 
For more infomation, call 800-999-2718 (in U.S.) or 
202-662-0700 (outside U.S.).

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


INDIA: Bank meeting on Enron Indian unit postponed-source.

11/01/2001
Reuters English News Service
(C) Reuters Limited 2001.

BOMBAY, Nov 1 (Reuters) - Lenders to an Indian power plant majority owned by U.S. energy giant Enron Corp have postponed a meeting to discuss ways of reviving the $2.9 billion project, a banking source said on Thursday. 
The first phase of the controversial 2,184 MW plant, India's largest foreign direct investment, has been completed, but work on the second phase was abruptly stopped in June following a bitter dispute between Enron and the plant's sole buyer, a loss-making Indian utility.
The source said foreign banks could not attend the meeting, planned for this weekend in London. A new date has not yet been fixed, the source from an Indian lending institution added. 
The meeting of lenders, which includes Citibank (C.and Bank of America Corp, was also called to consider two offers from Indian companies to buy out Enron's 65 percent stake in its Indian subsidiary, Dabhol Power Co. 
The banker added that the lenders were also examining an investigation by the U.S. Securities and Exchange Commission (SEC) into Enron's finances, but declined to comment on what impact it might have on the selling of Enron's stake in Dabhol. 
BSES Ltd and India's largest private utility, Tata Power Ltd, have separately made offers to buy Enron's stake. 
Dabhol's other shareholders are General Electric Co and U.S. contractor Bechtel, which own 10 percent each. The Maharashtra State Electricity Board, a local utility which has been at odds with Dabhol, owns the remaining 15 percent. 
Maharashtra agreed in 1995 to buy the plant's entire output, but later said it could not because Dabhol's power was too costly. 
Dabhol, in turn, accused the utility of defaulting on its monthly payments, and served a preliminary notice to terminate the power purchase contract, which covers the terms of sale. 
Enron, the largest U.S. energy trader, said on Wednesday an informal enquiry by the SEC had become a full-scale investigation of questionable financial dealings that have rocked the company in recent weeks.

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

BG Extends Talks With ONGC, Reliance Over Gas Fields (Update1)
2001-11-01 04:25 (New York)

BG Extends Talks With ONGC, Reliance Over Gas Fields (Update1)

     (Adds background to deal in second, fifth-seventh paragraphs,
analyst comment in third, Enron's financial status in fourth.)

     London, Nov. 1 (Bloomberg) -- BG Group Plc said it has yet to
reach an agreement with Reliance Industries Ltd. and ONGC Ltd. in
their natural gas ventures in India, an accord central to
completing the $388 million bid for Enron Corp.'s stake in the
projects.

     BG has said the offer for Enron's 30 percent of the projects
is contingent on winning the right to oversee the developments.
Reliance, India's biggest private company, on Oct. 10 said it
claimed the right to run the projects. ONGC has also sought to
become operator of the fields.

     ``It's going to take a long time,'' said Jon Rigby, an
analyst at BNP Paribas. ``For BG, it's a deal worth pursuing, but
if the Indian companies are determined to take the operatorship,
then there's not a great deal BG can do about it.''

     Enron, the world's largest energy trader, needs the funds
from the sale of the Indian assets to boost its standing with
investors after Moody's Investors Service on Tuesday placed its
rating for commercial paper on review for downgrade and lowered
its long-term debt to two notches above junk status. Enron shares
fell to a nine-year low.

     The purchase of Enron's assets would gave BG a 30 percent
stake in the Tapti and Panna-Mukta oil and gas fields, as well as
63 percent of an untapped deposit on the west coast of India. The
fields hold more than 170 million barrels of oil and gas,
equivalent to more than two days of global oil demand.

     ``We will continue our discussions over the coming weeks and
make an announcement in due course,'' BG Group spokeswoman Nicole
McMahon said in an interview, without elaborating.

     India's gas production fell 11 percent between 1997 and 1999
because Oil & Natural Gas Corp., the state explorer, made no
significant discoveries in 15 years. Insufficient supplies of gas
have hurt growth in the country's fertilizer and chemicals
industries and hampered upgrading of its power plants, still
mostly coal-fed.

     The government expects a gas deficit to triple in the next
six years unless new wells are drilled or existing fields expand
sales.

--Stuart Wallace in the London newsroom (44-20 7673-2388)

INDIAN FINANCIAL INSTITUTIONS FAIL TO RESOLVE DABHOL POWER ISSUE

11/01/2001
Asia Pulse
(c) Copyright 2001 Asia Pulse PTE Ltd.

NEW DELHI, Nov 1 Asia Pulse - Financial Institutions led by the Industrial Development Bank of India (IDBI) have failed to come up with a solution to the long payment dispute with United States energy company Enron that has forced the closing of the US$2.9 billion Dabhol Power Project. 
Top officials of IDBI and ICICI met officials in the Finance and Power ministries here today but failed to come up with an "optimum" solution.
"We discussed Enron. The discussions are continuing and we are examining various options," IDBI Chairman P P Vora told reporters after meeting Power Secretary A K Basu. 
He said the FIs, which have a total exposure of over Rs 62 billion in the project, wanted to come up with a optimum solution but declined to give a time frame for it. 
Earlier in the day, Vora met Finance Minister Yashwant Sinha to apprise him about the situation. 
FIs had decided to come up with a solution by Oct 31 for the second phase of the 2,184 MW Dabhol Power Company (DPC). 
A settlement of the Enron imbroglio, being played out since early this year, assumes importance in view of Prime Minister Atal Bihari Vajpayee's forthcoming visit to Washington where he is likely to have wide ranging discussions with US President George Bush. 
Enron was the biggest donor to Bush's presidential electoral campaign. 
So far, Tata Power and BSES Ltd. were in the fray for buying Enron's stake in DPC. 
Although the companies showed reluctance to buy Enron's stake at the price spelled out by the US power giant, Vora said the two companies are still in the fray. 
(PTI) 01-11 1900

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

Indian lenders, Enron officials discuss Dabhol crisis
Our Economy Bureau NEW DELHI

11/01/2001
Business Standard
2
Copyright (c) Business Standard

Negotiations are in full swing to resolve the Dabhol tangle. Indian institutions led by IDBI today held hectic parleys with top Enron executives, prospective buyers Tata Power and BSES Ltd, in consultation with senior power ministry officials. Officials told Business Standard that IDBI chairman P P Vora and power secretary A K Basu discussed the proposal chalked out by the Indian lenders. They also held separate closed-door meetings with BSES chairman and managing director R V Shahi and Tata Power vice-president Amulya Charan.
Officials said certain key issues like purchase of power by other states are yet to be resolved. They added that Tata Power and BSES have conveyed their unwillingness to the Indian lenders to negotiate with the state electricity boards on sale of electricity. Vora termed today's meeting "routine". He also met finance minister Yashwant Sinha later in the day. K Wade Cline, CEO, DPC, who was also present in the meeting today, declined to comment on the progress and said negotiations were underway. "We are looking at various options," he said. Meanwhile, sources said that the Indian lenders, after negotiations with Tata Power and BSES, were of the opinion that the value of Enron's equity was $799 million.

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

US Utilities Are Slow To Make Life Harder For Enron
By Anne Brady
Of DOW JONES NEWSWIRES

10/31/2001
Dow Jones News Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

SCOTTSDALE, Ariz. -(Dow Jones)- U.S. utilities are in no hurry to impose strict credit restrictions on future deals with troubled energy trading giant Enron Corp. (ENE), according to utility executives gathered for a national power conference here this week. 
Even as they nervously tracked Enron's stock plunge during coffee breaks Tuesday on their Internet-enabled wireless devices, and lunchtime chat Wednesday turned to the prospects for additional downgrades of the company's debt, executives mostly said they're merely evaluating their relationships with Enron at his point, while hoping for the best.
After losing more than two-thirds of their value over the past two weeks and falling to their lowest level in a decade, Enron shares rose Wednesday for the first time since Oct. 16, gaining $2.74 to $13.90. 
"We're very interested in their recovery," said David Rozier, senior vice president at Mirant Corp.'s (MIR) Mirant Americas Inc., noting that the demise of such a large player could have a ripple effect on markets. "We're looking at that situation very carefully." 
Aquila Inc. (ILA), which does a significant amount of trading with Enron, likewise "would be reluctant to make changes" to that relationship, said Steve Magness, executive vice president in charge of strategic partnerships. "We would not change due to perception, only for financial reasons." 
"We are constantly monitoring and evaluating the creditworthiness of counterparties (in trading)," added Aquila Senior Vice President and General Manager Brad Nordholm. Should Enron lose its investment-grade rating status, that would affect Aquila's continued willingness to trade with Enron, he said. 
Moody's Investors Service Inc. on Monday downgraded its rating on Enron's senior unsecured debt to Baa2 from Baa1, placing its rating two levels above noninvestment grade, and kept the company under review for a possible further downgrade. Moody's said the downgrade was based on deterioration in the company's financial flexibility following an announced large quarterly loss and reduction of shareholder equity. 
Additional unease has been created by reports about a Securities and Exchange Commission inquiry into certain financial transactions involving Enron. 
European trading partners reportedly are taking a harder line with Enron than U.S. companies, which some here said could be due to foreign companies having less interest in the strength of markets here. 
"Still, we want to trade in stable markets. We don't want to see any major long-term problems," said Trevor Pethick, director of trading with Powergen PLC's (PWG) Energy Trading unit. His company, like its U.S. counterparts, is "reviewing our situation with Enron," he said. 
Coral Energy, a unit of Royal Dutch/Shell, continues to trade with Enron, although debt downgrades do lead Coral Energy to make changes to their business relationships with any trading partner, said Jeff Beicker, senior vice president of trading. 
"I'm not seeing people saying, 'Let's save Enron' or 'Let's pounce on Enron.' It's business as usual," said Beicker. "The market capitalization is where they're getting hammered." 
He and Aquila's Magness, answering questions from conference goers following a presentation on risk management, downplayed the possible impact of such a large trading company as Enron going out of business. Both said they would expect more alternative trading platforms to EnronOnline to emerge quickly and fill any trading voids. 
Beicker further predicted that should Enron go under, trading margins would grow and companies would have to pay more going forward "for warehousing their risk." 
The Worldwide Business Research Power 2001 conference continues Thursday at the Camelback Inn resort in Scottsdale, Ariz. 
-Anne Brady; Dow Jones Newswires; 602-258-2003; anne.brady@dowjones.com

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

Enron Says SEC Inquiry Now a Formal Investigation (Update4)
2001-10-31 21:18 (New York)

Enron Says SEC Inquiry Now a Formal Investigation (Update4)

     (Updates with more on McLucas in last paragraph.)

     Houston, Oct. 31 (Bloomberg) -- Enron Corp., the largest
energy trader, said the Securities and Exchange Commission opened
a formal investigation into dealings with partnerships run by its
former chief financial officer.

     The company's board appointed William Powers Jr., dean of the
University of Texas law school, to chair a committee that will
work with the SEC during the investigation, which began as an
informal inquiry last week. Powers was also appointed to Enron's
board. William McLucas, former head of the SEC's enforcement
division, was hired as the committee's lawyer.

     The SEC is investigating partnerships run by former CFO
Andrew Fastow that bought and sold Enron shares and assets. The
company's shares plunged 49 percent in October, in part because
Chief Executive Officer Kenneth Lay said earlier this month that
buying back 62 million shares from a Fastow partnership cost Enron
shareholders $1.2 billion in lost equity.

     The formation of a special committee is a ``reflection that
they recognize something has to be done,'' said A.G. Edwards
analyst Mike Heim, who rates Enron ``hold'' and owns no shares.
     Enron's suspect finances prevent it from borrowing in the
commercial paper market, where most large corporations go to find
low-interest, short-term debt.

     Enron wants to borrow $1 billion to $2 billion in loans from
Citigroup Inc., J.P. Morgan Chase & Co. and other banks to calm
investors, the Wall Street Journal reported earlier this week. The
company still is negotiating the loans, spokeswoman Karen Denne
said tonight.

                             Fired CFO

     The SEC began an informal inquiry from its Fort Worth, Texas
office last week and moved it to the commission's Washington
headquarters yesterday.

     ``We haven't seen the formal order yet, but it's my
understanding that the issues which were the subjects of the
informal inquiry are the issues that are part of this formal
investigation,'' Denne said.

     SEC regulators called Enron yesterday to say they were going
to start a formal investigation, Denne said. Enron delayed
announcing the move until Powers confirmed he would become
chairman of the special committee, she said. The announcement came
after the close of stock trading today.

     The company's share rose $2.74, or 25 percent, to $13.90
during regular trading on television reports that the company was
near to getting a new series of bank loans. The company's shares
fell as low as $13 in after-hours trading tonight.

                     Authorized to Discipline

     The special committee has the authority to discipline
directors or employees, Denne said, and will be reviewing
transactions like the Fastow partnerships.

     Lay removed Fastow as CFO and put him on leave of absence on
Oct. 24, the day after the company said the SEC was asking
questions about the partnerships.

     A company is more likely to be charged with wrongdoing by the
SEC after a formal investigation than after an informal inquiry,
former SEC Enforcement Director Richard H. Walker said. The agency
can subpoena bank, telephone and corporate records, as well as
compel witnesses to testify.

     Walker, who left the SEC in August, said the swiftness with
which the SEC upgraded it to a formal investigation is striking.

     ``It sends a signal that this is a high-priority,'' said
Walker, who starts tomorrow as legal counsel to Deutsche Bank AG.

      The SEC's decision follows months of investor demands that
Enron provide clearer financial reporting. Lay promised more
information about Enron's complex transactions and earnings when
he took over for Jeff Skilling, who resigned unexpectedly as chief
executive officer in August after seven months on the job.

                        Failed Investments

     After Lay's promises, investors and analysts said they were
caught off guard when Enron reported a third-quarter loss of $618
million after writing off $1.01 billion in failed investments.

     Of that, the company had $35 million in losses from dealings
with LJM Cayman and LJM2 Co-Investment, two Fastow-run
partnerships.

    Securing new bank loans became necessary after credit-rating
companies said that Enron was not providing enough detail about
potential liabilities.

     Moody's Investors Service downgraded Enron's long-term debt
this week, though it kept the company above investment grade.
Fitch has Enron on watch for possible downgrade, and Standard &
Poor's lowered Enron's long-term credit outlook to negative.

     Falling below investment grade would trigger agreements that
would force Enron to repay bonds sold by affiliated companies such
as the ones created by Fastow. Enron has estimated its potential
liability from such partnerships at about $3 billion.

     A lower credit rating also reduces the amount of cash that
Enron can raise to back its electricity, natural-gas and
commodities trading operations.

     American Electric Power Co. and Exelon Corp. officials said
they lowered trading limits with the Houston-based company or
restricted their commerce to short-term deals concluding in
November or December.

                           Off the Books

     Enron set up the Fastow partnerships and other affiliated
companies to buy Enron power plants and other assets. By selling
to the partnerships, which issued their own bonds, Enron was able
to get immediate cash rather than wait for an outside buyer, as
well as move debt off its books.

     If affiliates can't generate enough money from the sale of
assets, Enron has agreed to make up the difference. Enron also
must buy out some investors if its stock and credit rating fall
too low.

     Three partnerships -- Whitewing, Osprey and Marlin -- have
about $3.3 billion in debt they plan to repay by selling power
plants and related assets.

     McLucas is a partner in the law firm Wilmer, Cutler &
Pickering. He was director of the SEC's division of enforcement
for eight years, and he oversaw the $600 million fraud settlement
with former junk-bond trader Michael Milken in 1990.

     Powers, 55, became dean of the University of Texas School of
Law in Austin last year. American Lawyer reported in May 2000 that
Powers had friends in Texas politics that included then-Lieutenant
Governor Rick Perry, who became governor when George W. Bush
became president, and Texas Supreme Court Chief Justice Tom
Phillips.


--Russell Hubbard in the Princeton newsroom at (609) 750-4651

SMARTMONEY.COM: The Data Mine: Come Sales Away
By Christopher O'Connor

10/31/2001
Dow Jones News Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)

Of SMARTMONEY.COM 

WE HEAR A LOT about the importance of reliable earnings numbers, especially when the stock market is rocky. But earnings aren't always the best gauge of a company's performance.
How's that? When business is sagging, some companies are tempted to massage their earnings-per-share numbers to make it look as if things are better than they really are. Usually, cost-cutting is the favorite technique - and there's certainly nothing wrong with that. But sometimes, desperate companies shunt unpleasant items aside under the rubric of special one-time charges, or point to murky "pro forma" results that don't include major liabilities. For proof of the potential unreliability of earnings numbers, take a look at what's going on at Enron (ENE) these days. In cases like this, the vaunted price/earnings ratio isn't always the best way to evaluate a stock. 
Sales, on the other hand, rarely lie. Companies can't do much tinkering with their revenue figures without raising eyebrows over at the Securities and Exchange Commission. (It is, after all, the top line on the earnings statement.) If you want the straight scoop on a company's performance, revenues can sometimes be the best place to look. 
With that in mind, we turned to the price/sales ratio for this week's Data Mine. Our basic premise was simple: A stock that trades at, say, 0.5 times revenues is cheaper than a stock that trades at 17 times revenues - and is thus more worthy of your attention. We also looked for companies whose P/S ratios are in the bottom half of their industry, where the real undervalued gems usually reside. And to make sure we didn't uncover total dogs, we insisted that our companies actually have earnings (most dot-coms need not apply), that those earnings have grown over the past three years and that their stock prices have increased during the last year. (You can access this recipe using our new screening tool.) 
After all that, our universe of 7,498 stocks was winnowed down to just 38. Texaco also appeared, but since it recently merged with Chevron to form ChevronTexaco (CHV), we removed it. Of these, 10 were electric and/or natural-gas utilities. In general, the outlook for that sector is wobbly. Industrial demand for wholesale power remains weak, thanks to the slumping economy - meaning prices continue to slip from their recent highs. But the companies in the screen that have reported third-quarter earnings have shown steady revenue growth and solid earnings performance during this nasty economic slide. 
The utility with the smallest P/S ratio here (0.3) is WPS Resources (WPS), which serves customers in Wisconsin and Michigan. It reported third-quarter earnings of 76 cents a share on Oct. 18, beating the Street by 14 cents. 
Other notable utilities here include Sempra Energy (SRE) and TXU (TXU), two huge energy providers (Sempra primarily in Southern California, TXU mainly in Texas) that analysts believe may benefit from Enron's recent problems. Each has extended its presence in the energy-trading field Enron pioneered and could pick up business in the U.S. and Europe as a result. 
For more information and analysis of companies and mutual funds, visit SmartMoney.com at http://www.smartmoney.com/.

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

USA: Enron trusts may prove troublesome if ratings cut.
By Dan Wilchins

10/31/2001
Reuters English News Service
(C) Reuters Limited 2001.

NEW YORK, Oct 31 (Reuters) - Enron Corp. thought it was making the right move in 1998 when it started yanking billions of dollars in assets off its balance sheet, but the transactions may come back to haunt the energy trading giant. 
If Enron's credit rating falls to below investment grade, it could be forced to sell more stock. But paradoxically, one of the most likely reasons it would be downgraded is because of a long-term inability to sell stock in any form at a viable price.
That would mean the largest trader of gas and power in North America could face a severe cash crunch when it would be least able to meet the crisis. While investors say the near-term outlook is not as bleak as a recent plunge in the company's share and bond prices suggests, default could occur if Enron's credit-worthiness is cut to junk bond grade. 
With Enron reportedly securing a roughly $1.2 billion credit facility and potentially a private equity investment recently, the chances of its being downgraded soon look more remote, said an industry analyst. 
However, "if Enron gets downgraded, there could be serious trouble with the stock and these bonds," noted an analyst. 
The potential avalanche of new shares would come from special financing vehicles the company used beginning in 1998 when it decided to focus on trading energy and de-emphasize businesses that require heavy capital spending, such as water utilities and power plant development. 
The company took several billion dollars worth of assets that it wanted to take off its balance sheet, and shoved them into several share trust structures, which sold debt and equity. The trusts, called Marlin Water Trust II, Marlin Water Capital Corp. II, Osprey Trust and Osprey I, Inc., issued about $3.4 billion in notes. 
INTRICATE TRUST STRUCTURES 
The trusts assured rating agencies the assets were at arm's length from the rest of the company, and would not drag down the rest of Enron if they underperformed, said Todd Shipman, the lead ratings analyst on the credit at Standard & Poor's. 
But the intricate trust structures are hard for analysts to understand, and investor perceptions that Enron has been less than forthright about its complex dealings contributed to the plunge in the company's securities. A Securities and Exchange Commission probe into two Enron partnerships with a former chief financial officer and an equity write-down also pushed securities lower. 
In the Marlin and Osprey trusts, Enron essentially set up special companies that held physical and financial assets and then issued bonds backed by those assets. But in a sign of the difficulty in understanding their structure, one analyst said Enron threw in preferred stock convertible into 50 million shares of common stock, while another analyst said the stock was 100 million shares. 
The structures, which also include about 40 million shares convertible into unregistered common stock, have a proviso to assure investors: the equity would be sold only if certain doomsday scenarios came to pass, and noteholders had legitimate reason to be concerned about getting paid back. 
One of the bleak scenarios included both Enron's shares plummeting, and the company being downgraded to junk bond status by at least one rating agency. 
Enron shares rebounded on Wednesday after a 10-day slide in which they lost more than 60 percent, meeting the stock plunge scenario. Shares closed at $13.90, recouping some of the lost ground over the past 10 days, when it traded at $33.84. 
JUNK BOND BOUND? 
The scenarios seemed unlikely when the debt and equity was issued. 
"People thought the notes would be rolled over, or the assets in the trust would be sold, when the notes were originally issued," said Jim McAuliffe, a fixed-income analyst covering energy at Morgan Stanley in New York. 
On Monday, Moody's Investors Service cut Enron's senior unsecured rating to two notches above junk bond grade, and put them on review for further downgrade. 
Fitch said the company is on "rating watch negative," and Standard & Poor's, which has Enron a notch higher, has it on a negative outlook. 
"I don't consider a probability," said S&P's Shipman. For that to happen, Enron would have to be frozen out of equity financing in any form for the long term, leaving it able to raise more capital only through debt. 
A downgrade to below investment grade would require that Enron redeem the notes in short order, said an analyst familiar with them. 
Analysts disagreed whether the convertible preferred stock would have to be sold in this case, but they agreed that it likely would be sold. 
"These structures did not anticipate that scenario," said an industry analyst familiar with the structures. 
In addition to the possibility of default on these notes, Enron's core business, energy trading and marketing would likely be hampered by a sub-investment grade rating, said Shipman. Counterparties would cut credit lines, demand more collateral be posted, and would likely demand more favorable prices. 
Enron, however, appears to be sanguine about the trusts. Although a spokesman from the company did not return calls for this story, Enron told The Wall Street Journal last week the company believes it can repay the principal on the notes without having to issue more stock.

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

USA: UPDATE 3-Enron says SEC inquiry now full-scale probe.

10/31/2001
Reuters English News Service
(C) Reuters Limited 2001.

(Adds Powers details paragraph 11, minor changes throughout) 
By Jeff Franks
HOUSTON, Oct 31 (Reuters) - Enron Corp., swept up in a deepening crisis, said on Wednesday an informal inquiry by the U.S. Securities and Exchange Commission had become a full-scale investigation of questionable financial dealings that have rocked the company in recent weeks and sent its stock plummeting. 
The nation's largest energy trader, scrambling to head off another shock to its already-shattered credibility, elected University of Texas law school dean William Powers to its board of directors, where he was to lead an internal inquiry into transactions that caused Enron to take a $1 billion charge to third quarter earnings and name a new chief financial officer. 
The company said on Oct. 22 the SEC was looking into its finances, but stressed that the agency had only requested information. The disclosure that it was now a full-blown, formal investigation may indicate regulators did not like what they saw. 
Before the announcement, which came after the stock market closed on Wednesday, Enron stock rose $2.74 to $13.90 to end a 10-day tailspin that saw its price drop to nine-year lows while losing $17 billion in market value. Analysts said bottom-fishing investors, along with speculation talk that Enron may become a takeover target, had boosted shares. 
Investors had been dumping Enron shares following disclosures that the company did off-the-balance sheet transactions with two limited partnerships run by former CFO Andrew Fastow, who was replaced last week by another Enron executive, Jeff McMahon. 
Concern about possible conflicts of interest arising from the deals and the company's failure to explain them had dropped the stock to levels not seen since the early 1990s, caused a downgrade in credit status, and brought the SEC in. 
Enron Chairman and Chief Executive officer Ken Lay said the company was trying to shore up its credibility with the appointment of Powers and the launching of an internal inquiry. 
"I have asked the Board to take this action to address fully and forthrightly investors' questions and concerns," he said in a statement. 
"Responding to the SEC offers us an additional opportunity to achieve this same goal for investors and we will cooperate fully," he said. 
The company said a committee led by Powers would include several Enron directors who do not work at the company and that it would have the power to "examine and take any appropriate actions with respect to transactions between Enron and entities connected to related parties." 
Powers, a 1973 graduate of Harvard Law School, has been at the University of Texas law school in Austin since 1978 and was named dean in May 2000. He is an expert in torts law and has written extensively on products liability. 
Enron also said the committee hired William McLucas, a former head of the SEC's Division of Enforcement, as its attorney. His firm, Wilmer, Cutler & Pickering, has retained Deloitte & Touche to provide independent accounting advice, the company said. 
An SEC spokesman would not comment on any aspect of the matter. 
Enron was once a Wall Street darling touted by analysts and investors alike as one of the world's most innovative firms. A year ago, its profits and stock price were soaring as it transformed itself from a regulated natural gas pipeline company into a high tech wonder creating new Internet-based markets in an assortment of commodities. 
But setbacks in broadband trading, overseas investments and the California power crisis took some of the shine off Enron's star. In August, the financial world was stunned when chief executive Jeff Skilling resigned after just six months on the job, saying he wanted a lifestyle change. 
Investors who thought Enron could do no wrong turned on the company, complaining that its financial statements were incomprehensible and its management unresponsive. 
The capper came two weeks ago when Enron said that, along with the $1 billion charge against its earnings, it also had cut shareholder equity by $1.2 billion because of the curious transactions with the Fastow-led entities. 
Fastow has denied any wrongdoing, but has been unable to say much because of the SEC probe and a growing number of shareholder lawsuits against Enron. 
To assure the financial world that it had plenty of cash, Enron tapped into a $3.3 billion credit line last week. 
But on Monday, Moody's Investors Service dealt the company a blow by cutting its credit rating to two notches above junk bond status. It warned further cuts were possible. 
Analysts said it was imperative that Enron fully explain the transactions that led to its fall from grace and disclose whatever liabilities they may have caused. 
"Enron needs to substantially improve the level of disclosures," said Nitin Khandkar, a portfolio manager with Dubai-based Al Majid Investment Co., which owns Enron stock. "The accounting policies it follows should not be merely legal but should also reflect the company's true profitability." 
"People are still struggling with trying to quantify what the worst-case scenario could be," said Mike Heim, an analyst with A.G. Edwards & Sons.

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

USA: Funds still shying away from former darling Enron.
By Judith Crosson

10/31/2001
Reuters English News Service
(C) Reuters Limited 2001.

DENVER, Oct 31 (Reuters) - Despite bargain prices, mutual fund managers are not rushing to buy shares in Enron Corp. , the once high-flying energy stock struggling under a blizzard of bad news including a formal SEC probe into some of its deals. 
Fears of a credit crunch, murky business dealings and the SEC probe are keeping potential buyers wary, although the stock rose 24.5 percent or $2.74 on Wednesday to close at $13.90, its first rise after 10 straight days of losses.
"The book value is around $11.40 a share. That's why you're seeing buying today," said Rahim Kassim-Lakha, portfolio manager of US Global Investors' Global Resources Fund . On Tuesday Enron shares fell 19 percent to their lowest level in nine years. 
Kassim-Lakha's fund has only a small holding in Enron. "We actually have been selling the stock. We've sold as high as $60. We've kept a very, very small position to maintain an interest in the company," he said. "We are not in any way overexposed to this stock," he added. 
But the big question is what other problems are on the horizon for Enron, once the darling of Wall Street. The stock has been widely held by institutions, teachers' retirement funds and mutual funds. At the end of June nearly 70 percent of its shares were in the hands of 1,175 institutions, according to data compiled by Thomson Financial's ShareWatch.FirstCall. 
Enron said Wednesday that it has appointed a special committee to examine its finances and communicate with the Securities and Exchange Commission, which upgraded its informal inquiry into the company's finances to a formal investigation. 
The SEC is investigating "certain of the matters that were the subject of recent press reports," the company said in a statement. That was a reference to reports of murky off-balance-sheet deals with partnerships run by the company's former chief financial officer, Andrew Fastow. 
QUESTIONS PERSIST 
Portfolio manager Kassim-Lakha said he still wants to know more about why Chief Executive Officer Jeff Skilling abruptly left in August, more details about why Fastow had to vacate his duties and what the company plans to do to rekindle investor confidence. 
"Maybe they need extra help or a team to come in and tell them what's best to do," he added. 
The company said about two weeks ago there were off-balance-sheet deals with partnerships run by Fastow, prompting the SEC to launch a conflict-of-interest inquiry. Skilling left in August after six months on the job, saying he wanted a change in lifestyle. 
A company spokesman on Tuesday said Enron has pledged to restore investor confidence. 
Rick Giesen, who managers the Munder Power Plus fund and who shed his Enron position at the low $30, also said he felt there were too many uncertainties to warrant a buy yet. 
"We still can't quantify the maximum exposure here from a market standpoint," he said. At one point Giesen thought the stock might be a good buy around $25, but was dissuaded by all the unanswered questions surrounding the company. 
"A lot of things need to run their course before you can make a reasonable assessment of the upside potential against the downside risk," he said. 
Giesen said Enron could be hit by shareholder lawsuits and the company, the biggest energy trader in North America, could see its volume decline. "People might not want to be the counter-party to Enron's trades," he said. 
Market watchers are keeping an eye on some big funds like Janus Corp., the biggest holder of Enron with 42.8 million shares in its stable, according to data reported at the end of June. 
A Janus Capitol Corp. spokesman said the Denver-based fund does not comment specifically on holdings, but spokeswoman Shelly Peterson added: "By simply looking at our June 30th filing it would be inappropriate to assume that that's our position today."

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