and the hits just keep on coming!

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Sent:	Wednesday, January 09, 2002 11:50 AM
Subject:	Enron trading unit sale

Creditors Ask Bankruptcy Judge to Delay Sale of Enron's Trading Business      
Updated: Wednesday, January 9, 2002 12:32 PM ET      
Dow Jones Newswires 
NEW YORK -- Even before an auction of bankrupt Enron Corp.'s trading business later this week, creditors are lining up to oppose the sale. 
Creditors are concerned about how Enron (ENE, news, msgs) will allocate money from that auction to its bankrupt units, and are asking federal bankruptcy judge Arthur J. Gonzalez to oppose, or at least delay, an approval of the sale, which was to come as early as Friday.  
More than 15 companies have now filed motions asking the U.S. Bankruptcy Court for the Southern District of New York to delay the approval of any offer for Enron's power-trading business, which was by far the largest and most profitable operation of the vast company. The companies want time to figure out which assets are up for sale, which of the more than 3,000 Enron affiliates and other entities will benefit from the sale and how various creditors will be affected. 
Under a plan to bring back some value to its now moribund trading operations, including EnronOnline -- which until not so long ago accounted for 25% of all wholesale energy trading in the U.S. -- Enron is seeking a 51% joint-venture partner to form a new company dubbed New Energy Trading Company, or NETCO. 
Enron plans to contribute its trading software and hardware, among other things, to the joint venture in exchange for a 49% share. So far, Citigroup Inc. (C, news, msgs) and UBS AG (UBS, news, msgs) have been reported to have made sealed bids. An auction is scheduled for Thursday. 
At stake is how cash that may potentially be generated by the sale will be used. 
In its motion opposing the sale, for instance, the Royal Bank of Scotland Group PLC (RBSB, news, msgs) said, "Absent a disclosure of the intended uses for the proceeds of this sale, the creditors are unable to gauge that the benefits are adequate, appropriate and directed to the proper beneficiaries." 
Further scrutinizing the way Enron has been managing its cash, the Royal Bank of Scotland, one of Enron's large creditors, raises the possibility that Enron may have already consolidated cash between different entities before it filed for bankruptcy on Dec. 2. 
"If this anecdote were to be correct, no disclosure has been made [nor has the time necessary to conduct a review elapsed] to the extent, if any, that any of these businesses stand as a constructive trustee of assets or monies for the benefit of other entities or creditors," the Royal Bank of Scotland stated in a court filing. 
Gas and electricity trading company Aquila Inc. also expressed concerns about the use of the proceeds of the trading-assets sale, saying that proceeds of the sale should be put in escrow until it can be determined which units should get the money. 
It isn't the first time that questions have arisen about how Enron will distribute money coming into the company. 
Last month, Merrill Lynch & Co. (MER, news, msgs) briefly withheld $371 million of the distressed company's funds in a brokerage account until Enron and the bankruptcy court could clarify which of the company's entities was entitled to it. 
The court's verdict: The money will be governed by a centralized cash- management system - put in place shortly after Enron filed for bankruptcy - under which all funds collected by any Enron entity are swept up to the parent and later dispersed accordingly to subsidiaries. 
For now, this means that any cash generated on settlements to Enron's units should be used to pay those units' debtors. 
But that could change, according to bankruptcy experts, if Enron decides in the future to effect a "substantive consolidation" of its assets. This is relatively common in Chapter 11 cases, and in essence, would put all of the company's assets into one pot to be distributed to a larger circle of creditors. 
A substantive consolidation, if it eventually occurs, is likely to simplify Enron's role in dispersing funds, but may benefit some creditors and put others at a disadvantage. 
Given that the Chapter 11 proceedings are still in the early stages, it is difficult to gauge whether this is a viable option, said Joel Kay, an attorney who specializes in bankruptcy cases at Hughes, Watters & Askanase LLP, Houston. 
Enron attorneys didn't immediately return phone calls seeking comment. 
There is also another concern. 
Wiser Oil Co. (WZR, news, msgs), a creditor who is owed about $7 million under oil- and gas-hedging contracts with the Enron North America unit, believes that Enron's $ 1.5 billion debtor-in-possession financing could mean bad news for the beleaguered company's subsidiary. 
"The concern is that Enron North America's assets are being pledged as collateral to secure repayment of the DIP facility even though it's unclear how much, if any, of the DIP borrowing will actually go to this unit," said Deborah A. Reperowitz, of Reed Smith LLP, which represents Wiser. 
So far, Enron hasn't drawn on its DIP facility, which is led by J.P. Morgan and Citigroup. But if the company does, and there are insufficient funds to repay this loan in the future, then Enron North America's assets may be on the hook, according to Ms. Reperowitz. 
Wiser, in a filing late Tuesday, also objected to the court's expected approval of the sale of a portion of Enron's energy-trading unit. Energy trading accounted for about 90% of Enron's $101 billion in revenue last year. 
The sale shouldn't be allowed to go through because the "timing and terms" make it impossible for creditors to determine which assets are to be sold, the value of these assets and where proceeds will be allocated, Wiser said. 
Other entities that have expressed concern about the sale in recent court filings include General Electric Co.'s (GE, news, msgs) General Electric Capital Corp., Pure Resources Inc. (PRS, news, msgs), Tenaska Marketing Ventures, Forest Oil Corp. (FST, news, msgs), Devon Energy Corp. (DVN, news, msgs), Magnum Hunter Production Inc., Petro-Hunt LLC and Spinnaker Exploration Co. (SKE, news, msgs), Exco Resources Inc. (EXCO, news, msgs), Eco-Tankship Inc., Powerex Corp., and El Paso Corp.'s (EPG, news, msgs) El Paso Merchant Energy LP.