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Yahoo - ChevronTexaco faces tough choices on Dynegy stake
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CVX <http://rd.yahoo.com/finance/news/article/related/quote/*http://finance.yahoo.com/q?s=CVX&d=t>
DYN <http://rd.yahoo.com/finance/news/article/related/quote/*http://finance.yahoo.com/q?s=DYN&d=t>
ENRNQ.PK <http://rd.yahoo.com/finance/news/article/related/quote/*http://finance.yahoo.com/q?s=ENRNQ.PK&d=t>	 90.00
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Monday May 13, 5:04 pm Eastern Time 

Reuters Company News
ChevronTexaco faces tough choices on Dynegy stake 

By Carolyn Koo 

NEW YORK, May 13 (Reuters) - ChevronTexaco Corp. (NYSE: CVX <http://finance.yahoo.com/q?s=cvx&d=t> - News <http://biz.yahoo.com/n/c/cvx.html>) faces nothing but unsavory options over its downtrodden investment in Dynegy Inc. (NYSE: DNY <http://finance.yahoo.com/q?s=dny&d=t> - News <http://biz.yahoo.com/n/d/dny.html>), such as swallowing a huge loss and walking away, or increasing its entanglement with the troubled energy trader. 

	

The deep pockets of the second-largest U.S. oil company could ensure the survival of Dynegy, the Houston-based power trading company reeling from regulatory probes, fears of possible credit rating downgrades and a stock in free-fall. 

But ChevronTexaco might cut its losses, or it may sit tight and hope Dynegy can recover from a spiral that eerily resembles the demise of bankrupt energy trader Enron Corp. (Other OTC: ENRNQ.PK <http://finance.yahoo.com/q?s=enrnq.pk&d=t> - News <http://biz.yahoo.com/n/e/enrnq.pk.html>) 

"ChevronTexaco is between a rock and a hard place," said Fadel Gheit, an oil analyst at Fahnestock & Co. "After all this, are they just going to put in additional money to bail out Dynegy?" 

San Francisco-based ChevronTexaco said it has a "vested interest" in Dynegy's success, but declined to comment on any possible actions it might take. The company owns 26.5 percent of Dynegy, a stake that has lost nearly three-quarters of its value since Dynegy offered to take over Enron in November. 

Speculation that ChevronTexaco may have to pump more money into the company comes as Dynegy has been forced to put up as much as $300 million in collateral for energy transactions over the past week, even as U.S. and European energy traders have scaled back business with the company. 

Already, Dynegy's credit rating is in danger of falling to "junk" levels. Credit rating agency Moody's Investors Service has put Dynegy's credit rating in on review, while rival credit agency Standard & Poor's has placed Dynegy's short- and long-term credit ratings on CreditWatch. 

"If Dynegy is downgraded to junk, they'll have to raise considerable equity and my guess is the only source of that equity is ChevronTexaco," said Gene Gillespie, an analyst with Howard, Weil, Labouisse. 

Dynegy shares fell 57 cents, or 5.8 percent, to an almost three-year low of $9.31. ChevronTexaco's stock has not been rocked by the power trading sector's woes. Its shares rose $2.15, or 2.4 percent, to $90.10. 

BOARD'S ROLE 

Dynegy is also the subject of several probes, including one by the SEC into a natural gas deal, "Project Alpha," that cut the company's tax bill by $80 million. Another probe is looking into "wash trades" intended solely to boost trading volumes. 

ChevronTexaco's silence since Dynegy's troubles have come to light has worried analysts. 

When credit rating agency Standard & Poor's placed Dynegy's short- and long-term credit ratings on CreditWatch last week, it said it was "concerned about the lack of any public statement of support" from ChevronTexaco "in this period of market tumult" for Dynegy. 

"If the situation deteriorates, I would not be surprised if ChevronTexaco might have to take over Dynegy," said James Elliot, a portfolio manager with Dominick & Dominick Advisors. 

Also at issue is how much ChevronTexaco might have known about the various trades under investigation. Three ChevronTexaco executives sit on Dynegy's board, including Chief Financial Officer John Watson. 

"It would be more of a disaster if an investigation revealed that the board was aware of what Dynegy was doing," said Gheit. "I hope not, because that would reflect very poorly on ChevronTexaco." 

He added that bailing out Dynegy "would be the biggest disaster because now ChevronTexaco would inherit all the potential liabilities of Dynegy. The creditors and government agencies that saw Enron slip out of their fingers will go after ChevronTexaco ." 

Chevron acquired the stake in 1996, before its merger with Texaco, when Dynegy precursor NGC Corp. bought Chevron's natural gas business. 

ChevronTexaco has the option to increase its stake in Dynegy to 36 percent by redeeming $1.5 billion in convertible preferred shares in the company. It acquired those shares last year to facilitate Dynegy's planned purchase of Enron. 

(Additional reporting by Janet McGurty and Paul Thomasch in New York) 

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ChevronTexaco Corp (NYSE: CVX <http://rd.yahoo.com/finance/news/article/more/quote/*http://finance.yahoo.com/q?s=cvx&d=t> - News <http://rd.yahoo.com/finance/news/article/more/news/*http://biz.yahoo.com/n/c/cvx.html>) 
Dynegy Inc (NYSE: DYN <http://rd.yahoo.com/finance/news/article/more/quote/*http://finance.yahoo.com/q?s=dyn&d=t> - News <http://rd.yahoo.com/finance/news/article/more/news/*http://biz.yahoo.com/n/d/dyn.html>) 
Enron Corp (Other OTC: ENRNQ.PK <http://rd.yahoo.com/finance/news/article/more/quote/*http://finance.yahoo.com/q?s=enrnq.pk&d=t> - News <http://rd.yahoo.com/finance/news/article/more/news/*http://biz.yahoo.com!/n/e/enrnq.pk.html>)

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