Here are some samples of the articles I mentioned during our phone call


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



Enron's Bonds Tell the Tale: Stay Away
By Herb Greenberg <<mailto:hgreenberg@thestreet.com>>
Senior Columnist
RealMoney.com
10/24/2001 03:40 PM EDT
URL: <<http://www.thestreet.com/p/rmoney/herbonthestreet-rm/10002953.html>>

Updated from 2:47 p.m. EDT 
If you ever have questions about whether a battered stock is cheap, check out its bonds. Bond analysts almost always know best because they're looking at the guts of a company -- the ability of a company to service its debt. If it can't service the debt, stockholders are at a greater risk of getting pummeled because debtholders always come before stockholders when it comes to getting paid. 
Which brings us to Enron (ENE:NYSE - news - commentary) . The only reason to mention it is that some analysts are really reiterating buys based on its low multiple. (Low, fellas, is relative to reality!) Cramer today talks about his hunch that the stock is vulnerable because, as he says, "accounting irregularities = sell." 
Good point. Now let's back that up with the bond market's view, which can be seen in the so-called "swap spread," which is bond-traderspeak for the spread between the LIBOR interest rate and the interest rate for comparable paper, or swaps. It's a benchmark bond traders use to determine risk. Tuesday, that spread on Enron's five-year notes was 650 basis points, or about 6.5 percentage points. Today, it's 1,000 points, or 10 percentage points. As one bond trader told me today, anybody would be crazy to pay that much. Another bond trader told another friend the same thing. 
Why? As of June 30, Enron had cash of just $847 million and debt of nearly $13 billion. 
And this observation: Those five-year notes currently yield more than 11%. That's a junk-bond yield for what is still rated as an investment-grade debt; anything more than 9% is considered ultra-high risk. So while you can make 11%, that's still not enough "where the accounting is questionable," one bond trader says. "You're not being adequately compensated for the fact that the company could default. You have to worry about your recovery value." 
Not the kind of risk/reward an investor wants to see when the company in question still has a market cap of about $12.5 billion with a capital B. 
Speaking of bonds and stocks: Even with its stock at about $1.16, Global Crossing (GX:NYSE - news - commentary) still has a market cap that exceeds $1 billion. But while its stock has rallied, its bank debt has stayed relatively flat at around 50 cents to 53 cents on the dollar. Similar stories can be told for XO Communications (XOXO:Nasdaq - news - commentary) , with a market cap of about $473 million and bank debt trading at around 52 cents on the dollar; Level 3 Communications (LVLT:Nasdaq - news - commentary) , with a market cap of $1.2 billion and bank debt trading at 66 cents; and McLeodUSA (MCLD:Nasdaq - news - commentary) , with a market cap of $462 million and debt that trades at 53 cents. 
Where are opportunistic bond investors, who should be hopping on such cheap debt -- especially bank debt, which is at the top of the getting-paid-back food chain? They're nowhere to be seen, for the same reasons they're not jumping to buy Enron's bonds: Too much risk, because when companies like those go bad, their assets trade for less than the bonds are currently trading. (Try telling that to "hope-springs-eternal" stock investors!) 
Providian pratfalls: Turns out an item here back in May was more fortuitous than it appeared. The item noted how institutional bond investors, who often pony up a slight premium to LIBOR to buy so-called credit default-protection insurance, couldn't find any at any price for Providian (PVN:NYSE - news - commentary) . The insurance is sold by investment banks such as J.P. Morgan Chase and typically involves a complex hedge of stocks and options that requires an investor to take the other side of the trade. If nobody'll take the other side of the trade -- or will charge a ridiculously high price to do so -- investors should beware. Which brings us back to Enron: It is possible to buy credit insurance, but at more than a whopping 1,000 basis points over LIBOR. Hardly a vote of confidence. 


Waiting for the Other Shoe to Drop on Enron
By James J. Cramer <<mailto:jjcletters@thestreet.com>>

RealMoney.com
10/24/2001 10:33 AM EDT
URL: <<http://www.thestreet.com/p/rmoney/jamesjcramer/10002911.html>>

Accounting irregularities = sell. Those three words and an equals sign have always served me well. They remain squarely posted on the base of my quote machine, always in view. They have never let me down. When I have deviated from them I have had to pay severely, as I did when I ignored the accounting irregularities in Cendant (CD:NYSE - news - commentary) initially or when, because of my four-month holding period, I couldn't sell Qwest (Q:NYSE - news - commentary) . 
Which is why I came in with guns blazing on this Enron (ENE:NYSE - news - commentary) , telling you to sell it. The stock has now lost half its value and all I can say is, I still can't see why you have to tempt fate and own this one. The notion that the businesses are fundamentally sound, that it has a great core business, is just hokum. Who the heck knows? Who has any idea of what this company can really earn? Who knows what it did earn? 
All I know is that soon the drumbeat will be on from the Democrats that the Justice Department is playing political favorites by not pursuing Enron (noted Republican-giving company) for alleged fraud. 
When that happens, when that shoe drops, wherever Enron is, then maybe it is worth some scrutiny. 
But I bet I still won't like it. 


Enron's Excuses Sound Familiar
By James J. Cramer <<mailto:jjcletters@thestreet.com>>

RealMoney.com
10/23/2001 01:43 PM EDT
URL: <<http://www.thestreet.com/p/rmoney/jamesjcramer/10002874.html>>
If you disclose something that is wrong, and you get accountants to check off that wrong deed, and outside lawyers to check off on that wrong deed, is it therefore right? 
That's what Enron (ENE:NYSE - news - commentary) is asking us to believe. By telling us that its ridiculous dealings with the chief financial officer and his private partnership were all sanctioned by outside professionals, they have simply compounded the error. Next they will tell us that Janus, the largest shareholder, knew and wanted those partnerships to generate upside surprises! 
What they are doing at Enron is, well, positively -- here we go -- '80s! In the '80s, you had all of these savings-and-loan jokers pleading that the outside accountants and lawyers checked off on massive chicanery. Somehow it was supposed to make the chicanery kosher. 
Nope. 
What it ended up doing was getting the lawyers and accountants in trouble. The government ended up going after them, too, for abetting the travesties. 
Enron didn't use taxpayers' money, so it is arguably not as clear-cut. But the more we probe this Enron, the more we check it out, the more we know it really stinks and that Jeffrey Skilling didn't leave because the stock got hammered, or some other authentic Wall Street gibberish, but because of this nasty, unseemly situation. 
We don't want an SEC probe here. We want a Justice Department probe. This isn't about unclear disclosure. This could end up being about fraud. 
In the meantime, I wouldn't touch this stock with a 10-foot pole. This one's gonna get real nasty before it gets nice. If it ever does. 

FOOL ON THE HILL 
Enron's Disdain for Investors 
The Motley Fool.com
10/24/01
While recent coverage of Enron centers on the CFO's past partnerships, a smaller -- and more obvious -- omission is what should really make individual investors turn the heat up on this company. Not only does it not release its cash flow statement during each quarter's conference call and press release, something we don't like but is prevalent, it also doesn't release its balance sheet. The company must think we're idiots. They're wrong. 
By Tom Jacobs <<http://www.fool.com/About/staff/tomj.htm>> (TMF Tom9) 
October 24, 2001 
Enron's (NYSE: ENE) <<http://quote.fool.com/uberdata.asp?symbols=ENE>> troubles just don't stop. On Monday, the company announced <<http://www.enron.com/corp/pressroom/releases/2001/ene/70-LJMfinalltr.html>> that the Securities and Exchange Commission (SEC) had requested information on "certain related party transactions <<http://www.fool.com/specials/2001/sp010802e.htm>>." That was a veiled reference to partnerships until recently organized and directed by Enron CFO Andrew Fastow. There has been a flurry -- a hailstorm -- of financial media attention to this. There are only three possibilities, and none is palatable:
The company's board allowed this deal in order to -- using corporate speak -- "incentivize" the CFO, and it was not legal; 
It was legal, but unethical; or 
Enron has been less than forthcoming, perpetuating a pattern of disdain for investors and keeping them in the dark. 
The accounting machinations involve mind-numbing terms and obfuscation, making a simple explanation of what is being alleged above my capacity to provide. The New York Times' Floyd Norris calls them "some of the most opaque transactions with insiders ever seen." That leads me to one conclusion when I think about burying myself with the company's SEC filings, accounting texts, my high-speed Web connection, and some beer: that of Shakespeare's King Lear -- "that way madness lies." 
On the one hand, I know that pulling all this apart might teach me useful things about accounting, reading financial statements, and finding trouble. (To read what this is all about, check the "Certain Transactions" section of the company's latest proxy statement <<http://quote.fool.com/sec/sec.asp?date=03/27/2001&currTicker=ene&symbols=ene&guid=%7B5D0F1D1D%2D5DB7%2D4F4E%2D9BD9%2DFA154603F662%7D>>.) I fully intend to do that -- someday. For now, though, all I need to know about Enron as an investment is that the company has not made these issues transparent.
What's worse, though, is that Enron has made it a habit to keep investors in the dark, and not only about the potentially troublesome CFO issue. The company goes out of its way to hide its true financials. That really cheeses me off.
The quarterly call and press release parade
Most companies hold quarterly conference calls and simultaneously spew press releases (for which the companies pay good money to Business Wire and PR Newswire for dissemination) that allegedly state their latest quarter's numbers and talk about the business. Sometimes, when they have cleaned off their glasses enough for visibility and run it by their lawyers, execs will even venture to speak about the business climate ahead. At least thanks to Regulation Fair Disclosure <<http://www.fool.com/Specials/2001/sp010418.htm>> -- "Reg. FD" -- analysts don't get a secret call with the "real" numbers at another time than the public. We like that.
Perhaps in a world of pro forma numbers <<http://aol.fool.com/portfolios/rulemaker/2001/rulemaker010815.htm>> and EBITDA <<http://aol.fool.com/portfolios/rulemaker/2001/rulemaker010906.htm>> -- both of which Phil Weiss has skewered appropriately in past columns -- the calls and press releases could never be expected to be that substantive. That makes individual investors increasingly correct to greet such information with cries of "bullfeathers!" It only takes a few reviews of earnings press releases to make anyone a skeptic. The PR department carefully dresses them with spin, leaving the details for the fine print. Headline: "Earnings up!" (Revenues down 40%.) Headline: "Revenues up!" (Earnings down 40%.) The skullduggery of spin and pro forma mangles earnings to meaninglessness <<http://www.fool.com/news/foth/2001/foth010504.htm>>.
At least the conference calls themselves allow you a sense of managers as people and potentially some information about the business, but the financials are not helpful. Why? 
Hiding the cash flow statement
Because almost every company gives up only part of the financial picture at call and press release time. If the income statement is increasingly unhelpful, at least the balance sheet tells you whether the company has increased or decreased cash, right? Well, not quite.
You really need the cash flow statement -- the best measure of how the company's business actually performs. Even then, you may need to make further adjustments <<http://aol.fool.com/portfolios/rulemaker/2001/rulemaker010906.htm>>. Yet the overwhelming majority of companies do not provide the cash flow statement at the call and press release time. 
Check the companies you own. If they don't release cash flow statements with their earnings -- or, at least, prior to SEC filings, you should write and otherwise hound investor relations to push management to do so. Encourage your fellow investors to do so too, and tell the company that The Motley Fool sent ya. They will maintain that the numbers aren't ready at earnings time. Tell them to wait until they are. The numbers are certainly ready in time for the SEC deadline, and wouldn't we be happy to wait a week or two for the complete picture? Or, hey, why not do two releases -- one when the earnings are ready and another for the cash flow? 
If not releasing the cash flow statement were Enron's only sin, it wouldn't be that big a deal. It has plenty of company. But this pre-Halloween < <http://www.fool.com/specials/2001/sp011024.htm>> scary tale gets worse. Unfortunately for Enron investors, the company does the hide-the-cash-flow-statement gig one better.
Hiding the balance sheet
For at least the last three quarters that I checked, Enron hides the balance sheet until SEC filing time. That's right: Not just the cash flow statement, but the balance sheet too. All they release is the income statement -- though, in truth, it does provide pages of income statement information for its many businesses. But why fail to release the balance sheet?
The only conclusion can be that management doesn't want to show its cash balances until it can slip them into SEC filings it thinks people won't bother to read. When questioners on a conference call earlier this year urged former Enron CEO Jeffrey Skilling to provide a balance sheet at earnings release, Skilling reportedly "called the questioner a common vulgarity that surprised many listeners."
Off his meds that day? Or a symptom of the company's attitude towards shareholders? Looks like the latter: Skilling's gone, but the practice hasn't changed. 
It's about management
We don't depend on management for the numbers during the quarterly public calls and releases. A publicly traded company's financials will appear a few weeks later through its SEC filings available through our Quotes & Data page <<http://quote.fool.com/>>. No investor should be buying -- or holding -- stock in companies if they don't read their filings carefully. It's hard enough to discern what's going on in a business without doing so, and even in those filings -- such as with options grants to management -- the real meat is buried in footnotes. Not reading 10-Qs and 10-Ks is like getting married without dating, or buying a car by paint color only.
What Enron's failure to release this information says is that its management and corporate governance are sub-par. It says management is willing to hold these events, but it'll be darned if it'll present anything meaningful or make it easy for individual investors to find out anything other than management's spin. In Enron's case, its former CEO heaped abuse on someone who dared ask for a change. Does that make Enron's earnings releases circuses? Draw your own conclusion.
Is management listening? Perhaps. It hastily pulled together a conference call yesterday. TMF community member emschulze took notes <<http://boards.fool.com/Message.asp?mid=15974151>>:
"On call, analyst asks why no balance sheet with recent earnings release given company's previous claim that it will work to offer investors greater transparency in measuring its performance... response was that balance sheet doesn't normally come together until the week after its earnings release and that it will be included in 10-Q to be filed by Nov. 14... CEO indicates that it will do a better job of improving timing of release of earnings and balance sheet in future, implying that investors won't have to wait all the way until 10-Q filing deadlines to see balance sheet."
That's a good sign. But until the company makes an unambiguous commitment to provide the balance sheet at earnings time, Enron should be in the doghouse. 
Good corporate governance means companies release all their quarterly financial statements and discuss them at the same time because today's income statements and pro forma numbers are borderline useless. If it means a delay or a second release to get the numbers together, what's the problem? Shareholders should demand no less. When a company trumpets an income statement, as Enron has, no one should be surprised when smoke appears. And perhaps much more.
Tom Jacobs (TMF Tom9) would like to improve his own cash flow statement. At press time, he owned no shares of Enron. To see his stock holdings, view his profile <<http://boards.fool.com/Profile.asp?uid=633241>>, and check out The Motley Fool's disclosure policy. <<http://www.fool.com/help/disclosure.htm>>


Bonds Of Troubled Enron Quoted In Dollars, Not Spreads
By Michael C. Barr

10/24/2001
Capital Markets Report
(Copyright (c) 2001, Dow Jones & Company, Inc.)
Of DOWJONES NEWSWIRES 

NEW YORK -(Dow Jones)- The bonds of embattled Enron Corp. (ENE) are trading on a dollar basis and not on a yield margin or spread to Treasurys - another sign of increasing investor skittishness about the once high flying energy trader.
The bonds, which carry investment-grade ratings, "started trading with a dollar price two days ago," said Gary Brown, managing director and head of corporate trading, Wachovia Securities, Charlotte, N.C. 
Bonds are being offered at dollar prices in the high 80's to low 90's, say traders. 
Investment grade bonds typically trade on a spread margin over comparable Treasury issues. "Credit bonds," which have questions about their quality, are traded in dollar quotes, said one analyst. 
Moody's Investors Service rates the company's senior unsecured debt Baa1, but recently placed the debt on review for downgrade. Both Standard & Poor's Corp. and Fitch rate the debt triple-B-plus. 
But the company "may be going into the double-B (non-investment grade) sector, " said Harold Rivkin, principal of H. Rivkin & Co., a distressed debt brokerage firm, Princeton, N.J. 
"I am starting to get inquiry from investment grade holders about the market for Enron bonds," Rivkin said, noting that some high-grade portfolios can't have paper below investment-grade. 
Houston-based Enron, the nation's biggest energy trader, recently announced a large third-quarter loss and an investigation by the Securities and Exchange Commission into a partnership arrangement that involves the company's chief financial officer, Andrew S. Fastow. 
Enron has approached Citicorp (C) about obtaining a possible $750 million loan, according to a source close to the bank. But the source indicated Tuesday that nothing has proceeded past the preliminary inquiry. 
The company's stock, while once a favorite of the investment community, has taken a pounding. It traded early this year at more than $80 a share. Late Wednesday, it was at $15.70 a share. 
And, in a reflection of current investor sentiment, for the second time this week analyst Carol Coale of Prudential Securities downgraded the company to a sell recommendation from a hold. Her concern is "not because of the things we know but because of the things that we potentially don't know." 

-By Michael C. Barr, Dow Jones Newswires; 201-938-2008; michael.barr@dowjones.com 
(David Feldheim contributed to this article.)



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

USA: Group to put corporate directors under microscope.
By Kevin Drawbaugh

10/24/2001
Reuters English News Service
(C) Reuters Limited 2001.
WASHINGTON, Oct 24 (Reuters) - Directors of corporations will be graded according to their performance by a service expected to be launched soon by business research group The Corporate Library, the group's cofounder said on Wednesday. 
In a move that could cause some sweaty palms in boardrooms across the country, long-time shareholder activist Nell Minow said directors will be awarded grades of A, B, C and lower, based on meeting attendance and other benchmarks.
"It's always been my dream to rate individual directors like bonds. Directors have not had the scrutiny they deserve," said Minow, who said the service will be called Board Analyst. 
Planned as an added feature on an existing Web site, thecorporatelibrary.com, Board Analyst is still in testing stages but is expected to launch next year, she said. 
Only directors of U.S. companies will initially be evaluated. Non-U.S. directors may be added later. 
Minow and partner Robert Monks have written several books on corporate governance and shareholder rights. They formerly managed the Washington-based shareholder activist Lens Fund, which they sold last year to British fund management group Hermes. 
Their latest venture may find a receptive audience on the institutional buy-side, said industry spokespersons. 
"There's been growing interest within our membership in board membership, in general, and individual directors, in particular. I definitely think there would be interest in more information on individual directors," said Ann Yerger, spokeswoman for the Council of Institutional Investors, which represents America's large pension funds. 
The corporate governance movement since its beginnings in the 1970s has focused on making directors more accountable and responsible. Many companies have responded by requiring more outside directors and more meaningful stock ownership among directors. But examples of lax board oversight still abound. 
One example would be Enron Corp. , whose stock has plunged in recent days since the company said the Securities and Exchange Commission was investigating transactions involving certain outside partnerships and the company's chief financial officer, Minow said. 
"Where was the Enron board in all of this?" she asked. "Boards and outside consultants are supposed to vet ideas for partnerships like these. That apparently didn't happen here." 
Taking the corporate governance argument a step further, Minow argued that effective board membership is more than a theoretical question. It should be an issue for investors to evaluate when they consider buying stock in a company. 
"This isn't just a corporate governance thing. This is part of investment analysis," she said. 
Institutional investors routinely examine corporate management when analyzing stocks. Whether they will begin to examine directors, as well, remained an open question. 
"Nell and Bob Monks have been shareholder activists for a long time and have moved corporate governance in a positive direction," said Peter Gleason, vice president of research and development at the National Association of Corporate Directors, which represents more than 3,000 corporate directors. 
Surveys by the association recently showed that corporate directors rank self-evaluation high on their list of concerns. "More and more directors are saying this is something we should be doing," Gleason said.



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