Enron Replaces Andrew Fastow as CFO Amid SEC Inquiry (Update1)
Bloomberg- 10/24/01

Enron Shares Drop for Sixth Day on Stock Downgrades (Update5)
Bloomberg- 10/24/01

Enron, Fincl Chief-2:McMahon Replaces Andrew Fastow
Dow Jones News Service- 10/24/01

STOCKWATCH Enron falls 20 pct on worries deals with LJM will impact earnings
AFX News- 10/24/01
USA: Enron shares take midday battering, off over 20 pct.
Reuters English News Service- 10/24/01
USA: RESEARCH ALERT-Enron stock drops on 'sell' rating.
Reuters English News Service- 10/24/01

Analyst Reports on Enron
CNNfn: Market Coverage- 10/24/01
UK: Credit costs surge on embattled Enron - telcos ease.
Reuters English News Service- 10/24/01
Enron may need several hundred mln usd to meet shortfalls at investment units
AFX News- 10/24/01
Enron shares plummet again
Drop comes on heels of five straight losing sessions 
CBS MarketWatch.com- 10/24/01

Enron's Bonds Tell the Tale: Stay Away
RealMoney.com- 10/24/01

Waiting for the Other Shoe to Drop on Enron 
RealMoney.com- 10/24/01

Enron's Excuses Sound Familiar
RealMoney.com- 10/24/01

FOOL ON THE HILL 
Enron's Disdain for Investors 
The Motley Fool.com- 10/24/01

Bonds Of Troubled Enron Quoted In Dollars, Not Spreads
Capital Markets Report- 10/24/01

USA: Group to put corporate directors under microscope.
Reuters English News Service- 10/24/01




Enron Replaces Andrew Fastow as CFO Amid SEC Inquiry (Update1)
2001-10-24 16:43 (New York)

Enron Replaces Andrew Fastow as CFO Amid SEC Inquiry (Update1)

     (Adds statement from Enron's Kenneth Lay in second
paragraph.)

     Houston, Oct. 24 (Bloomberg) -- Enron Corp. ousted Chief
Financial Officer Andrew Fastow amid a Securities and Exchange
Commission inquiry into partnerships he ran that cost the largest
energy trader $35 million.

     Enron named Jeff McMahon, head of its industrial markets
group, as CFO because ``it became clear to me that restoring
investor confidence would require us to replace Andy,'' Chairman
and chief Executive Officer Kenneth Lay said in a statement.
Fastow will take a leave of absence.

     Shares of Enron, based in Houston, fell as much as 22 percent
today after analysts downgraded the stock. The company said on
Monday that the SEC had begun an inquiry into partnerships Fastow
ran.

     Enron fell $3.38, or 17 percent, to $16.41, the sixth
straight day of decline. Earlier, the shares touched $15.51, their
lowest since February 1995. The stock plunged 21 percent on
Monday, after Enron disclosed that the SEC had requested
information on the partnerships.

     The stock fell after Lay failed to ease concerns about the
SEC inquiry or Enron's financial reporting in a conference call
yesterday. Investors have criticized Lay for not disclosing enough
about the workings of investment vehicles such as Fastow's
partnerships. The stock has fallen 57 percent since Oct. 11,
losing more than $15 billion in market value.


Enron Shares Drop for Sixth Day on Stock Downgrades (Update5)
2001-10-24 16:43 (New York)

Enron Shares Drop for Sixth Day on Stock Downgrades (Update5)

      (Updates with closing share price and Fastow on leave of
absence in second paragraph.)

     Houston, Oct. 24 (Bloomberg) -- Shares of Enron Corp. fell 17
percent after several analysts downgraded the stock and the U.S.
Securities and Exchange Commission began an inquiry into
partnerships run by Chief Financial Officer Andrew Fastow.

     Enron fell $3.38 to $17.08, dropping for the sixth day in a
row. It was the biggest percentage decline among stocks in the
Standard & Poor's 500 Index. Earlier, the stock touched $15.51,
the lowest since February 1995. After the close of regular U.S.
trading, Enron said Fastow will take a leave of absence, and Jeff
McMahon was named chief financial officer.

     Chief Executive Officer Kenneth Lay failed to ease concerns
about the SEC inquiry or Enron's financial reporting in a
conference call yesterday. Investors have criticized Lay for not
revealing enough about the workings of investment vehicles such as
Fastow's partnerships. The stock has fallen 57 percent since Oct.
11, losing more than $15 billion in market value.

     ``Enron's conference call began as a methodical review of
current liquidity and deteriorated into an inadequate defense of
the balance sheet,'' Lehman Brothers analyst Richard Gross wrote
in a report. He left his ``strong buy'' rating unchanged.

     Other analysts lowered their ratings, including Carol Coale
at Prudential Securities who downgraded Enron to ``sell'' from
``hold.'' Anatol Feygin of J.P. Morgan dropped his rating to long-
term ``buy'' from ``buy.'' First Albany Corp.'s Robert Christensen
downgraded the stock to ``buy'' from ``strong buy.''

                        Possible Downgrade

     Moody's Investors Service last week placed all $13 billion of
the company's long-term debt securities on watch for possible
downgrade. A reduction in the rating could cut Houston-based Enron
off from the commercial paper market, raising the costs of short-
term debt.

     Enron said earlier this month that dealings with the Fastow
partnerships contributed to $1.01 billion in third-quarter losses.
Enron has at least 18 such partnerships, which were created to
move debt off its books and lower its tax liabilities as well as
dispose of assets.

     An investor has sued Enron saying that Fastow's leadership of
the partnerships, as well as membership on their boards by other
Enron executives, is a conflict of interest. The company has $3.3
billion in potential liabilities attached to such investment
vehicles, the Wall Street Journal reported today.

     ``I don't know that we were aware of everything going on with
Enron,'' said Jim Walline, manager of the Lutheran Brotherhood
Fund, which owned 93,060 shares on Sept. 1. ``We had a lot of
confidence and clearly that has been busted a little.''


Enron, Fincl Chief-2:McMahon Replaces Andrew Fastow

10/24/2001
Dow Jones News Service
(Copyright (c) 2001, Dow Jones & Company, Inc.)
HOUSTON -(Dow Jones)- Enron Corp. (ENE) named Jeff McMahon chief financial officer, effective immediately. 
In a press release Wednesday, the energy-trading company said McMahon, 40, will replace Andrew Fastow, who will be on a leave of absence.
Enron said McMahon had been serving as chairman and chief executive of its Industrial Markets group. 
Company Web site: http://www.enron.com 
-Beth M. Mantz; Dow Jones Newswires; 201-938-5400

STOCKWATCH Enron falls 20 pct on worries deals with LJM will impact earnings

10/24/2001
AFX News
(c) 2001 by AFP-Extel News Ltd
NEW YORK (AFX) - Shares of Enron Corp were sharply lower in afternoon trade, falling over 20 pct, as investors sold the stock a third day running on concerns that financial transactions made with related party LJM could negatively impact future earnings, dealers said. 
At 2.15 pm, Enron was down 4.06 usd, or 20.52 pct, at 15.73. 
The DJIA was up 9.76 points at 9,349.77, and the S&P 500 composite index was up 0.92 at 1,085.70, while the Nasdaq composite fell 22.42 to 1,726.96.
The company confirmed yesterday that the Securities and Exchange Commission requested the company to provide information on certain related-party transactions. 
Many analysts responded by cutting the shares ratings on concerns that dealings with the related LJM partnership could affect future earnings, after two class actions were filed against the company yesterday. 
The two lawsuits claim that Enron issued statements which failed to disclose that the company was experiencing a declining demand for bandwidth and that its efforts to create a trading market for bandwidth failed because many market participants were not credit worthy. 
The company's operating results were also "materially overstated as result of the company failure to timely write down the value of its investments with certain limited partnerships" managed by the company's CFO. 
The suit additionally alleged that Enron failed to write down impaired assets on a timely basis in accordance with GAAP (generally accepted accounting principles). 
In its third-quarter results last week, Enron announced a charge of 1.01 bln usd, or 1.11 usd per share, and an incremental 1.2 bln usd reduction in stockholders' equity, related to the unwinding of investments with the LJM partnerships. 
JP Morgan analyst Anatol Feygin said he has downgraded the stock to a 'long-term buy' from a 'buy' in "the wake of lingering concerns regarding the company's credit situation and management disclosure of liabilities stemming from off-balance sheet financing vehicles." 
The stock has been removed from JP Morgan's "focus list". 
Feygin also said that "management's conference call yesterday morning was a missed opportunity to disclose the necessary information to assuage investor concerns." 
Goldman Sachs analyst, David Fleischer also agreed that Enron's disclosure was "modest" and "management did not resolve concerns." 
However, credit concerns and questions about potential liabilities are "very much exaggerated," he said 
"The real issue will turn out to be huge debt that Enron was placing in these entities." 
The shares' value have fallen by more than 40 pct since Enron reported charges related to investments with LJM last week, but Fleischer said he sees no recovery until management fully answers investor questions and restores credibility, an outcome he expects in future weeks. 
blms/gc For more information and to contact AFX: www.afxnews.com and www.afxpress.com



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

USA: Enron shares take midday battering, off over 20 pct.
By Janet McGurty

10/24/2001
Reuters English News Service
(C) Reuters Limited 2001.
NEW YORK, Oct 24 (Reuters) - Shares of Enron Corp. plunged further in midday trade on Wednesday, hugging the top spot on the list of biggest losers on the New York Stock Exchange, on concerns whether financial deals made by North America's largest buyer and seller of electricity and natural gas could negatively affect earnings going ahead. 
Shares were trading down 20.87 percent, or $4.13, to $15.66 in midday trade, capping over a 75 percent decline this year in share price. As of Tuesday, the company has lost more than $10 billion in value in the past week.
Some analysts cut ratings or expressed concerns about the former high flyer's lack of forthrightness in discussing business deals, unimpressed by management's attempts on Tuesday to pacify investor concerns about transactions involving Enron, its chief financial officer, and two limited partnerships - all of which are being looked into by the Securities and Exchange Commission (SEC). 
Enron on Tuesday rejected suggestions the transactions were a conflict of interest, saying the deals were disclosed in SEC filings and approved by its board and internal and external auditors. 
Enron, which reported a loss and a $1.01 billion in charges for bad investments in the third-quarter, failed to mention a $1.2 billion reduction in shareholder value, and was less than forthcoming during a call with analysts and investors the next day.



Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	
USA: RESEARCH ALERT-Enron stock drops on 'sell' rating.

10/24/2001
Reuters English News Service
(C) Reuters Limited 2001.
NEW YORK, Oct 24 (Reuters) - Enron Corp.'s stock slumped further on Wednesday after Prudential Securities cut its rating on the energy trader to "sell" on concern management is not being forthright about the onetime high flyer. 
After an hour of trading, Enron stock was the biggest percentage loser on the New York Stock Exchange. The shares plunged $3.99, or 20.2 percent, to $15.80 - the lowest price paid for the stock since August 1995.
Enron has tumbled since last week it announced it's first quarterly loss in more than four years and said it would take $1.01 billion in charges on ill-fated investments. The stock closed at $33.84 on Oct. 16, when its results were announced. 
Prudential analyst Carol Coale said the rating cut from "hold" was not made "because of things that we know but because of things that we potentially don't know about the company."



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

Business
Analyst Reports on Enron
Christine Romans, Barry Hyman

10/24/2001
CNNfn: Market Coverage - Morning
(c) Copyright Federal Document Clearing House. All Rights Reserved.
CHRISTINE ROMANS, CNNfn ANCHOR, MARKET CALL: Now, joining us by phone to talk about his move on Enron (URL: http://.www.enron.com/) is Anatol Feygin, energy analyst at JP Morgan. Thank you for joining us. 
ANATOL FEYGIN, JP MORGAN: Thanks for having me.
ROMANS: OK. Enron, last week, these shares lost some 28 or 29 percent of their value, continued to fall yesterday, and Monday. What`s going on here why you`re downgrade - how concerned are you about in visibility management in the issues that we`re talking about here? 
FEYGIN: Well, extremely concerned and until Thursday of last week, I felt that a lot the information coming out was old news and was not critical to the fundamentals of the company. On Friday of last week the credit market started to really get jittery and spreads on Enron`s credit started to blow out and that could threaten the fundamental business. Yesterday management had a opportunity to set the record straight on a conference call. I think that was a big opportunity missed. And until management comes out and reassures the credit markets, primarily, and then the equities markets, there is risk to the fundamental business which I still consider to be the premiere energy marketing and trading franchise that`s functioning well today, but it at risk because of credit issues. 
BARRY HYMAN, EHRENKRANTZ KING NUSSBAUM: Anatol, what exactly are these off balance sheets financing vehicle, that is of concern here, that management been reluctant to talk about? 
FEYGIN: There are two transaction still left. One called Marlin and one called White Wing or Osprey. In Marlin, it`s basically a 1/3 ownership of a U.K water utility that Enron acquired in the October of `98. Part of that taken public and `99. That was bought back in by Enron this year. And problem is that entity, the assets of Zurichs, which has this Wessex water business in the U.K., are not enough to payoff the creditors in Marlin. So, Enron is on the hook for a portion of the equity that has back stopped this investment by Marlin. And we estimate that to be in the hundreds of millions not in the billion dollar range, which I think the market fears. 
White Wing is a very similar structure, less transparent because that`s a collection of assets. Things like, roughly half of Enron`s investment in Brazil, its European power plants and et cetera and it`s difficult to reconcile of what value of those asset is. And there is a possibly that Enron have issue up to 2.4 billion in equity to make whole the investors in White Wing. 
ROMANS: OK, Anatol Feygin, JP Morgan, thank you very much. Lots of other analysts saying that the conference call with the company didn`t really clear up some of the questions they had. 

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

UK: Credit costs surge on embattled Enron - telcos ease.
By Tom Burroughes

10/24/2001
Reuters English News Service
(C) Reuters Limited 2001.
LONDON, Oct 24 (Reuters) - The cost of protection surged on the debt of U.S. energy titan Enron Corp on reports of potential shortfalls in some of its investment vehicles, days after it said U.S. regulators were looking at some of its deals. 
"An investigation hanging over you can never be a good thing. The market is very angry with them (Enron) at the moment," a European bank dealer said.
Adding to the pressure, the online edition of the Wall Street Journal on Wednesday cited Enron Treasurer Ben Glisan outlining contingency plans for repaying about $3.3 billion in guaranteed notes falling due during the next 20 months. 
In the credit derivatives market, Enron five-year default swaps were last seen trading on a bid/offer spread of 500/600 basis points (bps), up about 200 bps from late last week, a dealer for a European bank said. 
Default swaps are insurance-type tools giving investors the ability to hedge or gain the risk of an issuer defaulting on a loan or bond. The protection buyer pays the seller an annual premium, measured in a basis points. 
The dealer added that the cost of five-year protection on the debt of Enron traded as low as 150 bps back in August. 
On Monday Enron said it was cooperating with the U.S. Securities Exchange Commission, which was looking into some of its deals. The SEC and Enron have declined to give details, although the Wall Street Journal said the transactions raised "conflict-of-interest" issues. 
Investor confidence in Enron has been hit by recent reports about transactions and two limited partnerships that were run until recently by Enron's chief financial officer, Andrew Fastow. 
The company has been under pressure over the past year. Last week it reported its first quarterly loss in more than four years. 
TELECOMS COME DOWN 
In contrast, five-year credit protection slipped on European telecoms, which benefitted from stronger equity prices and some selling pressure on default swaps connected to portfolio deals, traders said. 
Telecom Italia was cited by traders at 180/220 bps, down about 20 bps from Monday. Five-year protection on Italian telecoms giant Olivetti was shown at 300/400 bps, about 50 bps down on a week ago, another European bank trader said. 
British Telecom was quoted five basis points tighter from Tuesday at 100/110 bps; France Telecom was unchanged from Tuesday at 180/195 bps, and Deutsche Telecom was down about 10 bps at 140/150 bps, traders added. Vodafone was quoted two basis points lower from late Tuesday at 83/93 bps, with Telefonica put at 100/110 bps in five-year default swaps, about five basis points lower. 
Stronger equity prices helped alleviate some concerns about the telecom sector's financial health, although problems remain for many firms labouring under heavy debt burdens, a dealer for a European bank said. 
He added that some default swap selling pressure was coming from players arranging synthetic portfolio products such as collateralised debt obligations (CDOs) before the end of the year. CDOs are portfolios of bonds and other debt obligations. The arranger issues bonds, secured by the underlying assets to fund the deal. In a synthetic CDO, the arranger sells default swaps on groups of debt in one hit to mimic the asset pool. 
Elsewhere, dealers saw small declines in protection costs on the debt of carmakers, with U.S.-German giant DaimlerChrysler trading several times. 
A U.S. bank dealer nonethless saw it little changed on the day in five-year default swaps at 190/200 bps.



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

Enron may need several hundred mln usd to meet shortfalls at investment units

10/24/2001
AFX News
(c) 2001 by AFP-Extel News Ltd
LONDON (AFX) - Enron Corp might have to come up with several hundred million dollars or more in the next 20 months to cover potential shortfalls in investment vehicles it created, the Wall Street Journal reported, citing an interview with Enron Treasurer Ben Glisan. 
Covering such shortfalls could involve issuing additional Enron shares, diluting the position of current shareholders, the paper said.
However, Glisan said the company believes it can repay about 3.3 bln usd in notes that were sold by those investment vehicles without having to resort to issuing more stock. 
The notes were sold to investors during recent years by several entities -- known as the Marlin Water Trust II, the Marlin Water Capital Corp II, the Osprey Trust and Osprey I Inc. The notes are coming due during the next 20 months. 
Glisan said assets from the entities could be sold to pay off some of the notes. Also, Enron is selling other assets. Proceeds from those transactions also could go toward repaying the notes, which ultimately are guaranteed by Enron. 
He said it appears that asset sales will raise at least 2.2 bln usd by the end of next year. This amount includes cash proceeds of 1.55 bln usd from the previously announced sale of Enron's Portland General Electric utility unit. 
"There are a number of other assets we believe will raise sufficient proceeds" to repay the notes, Glisan was quoted as saying. "But if we are wrong, we will issue equity." 
Glisan said a worst-case scenario would involve issuing as much as 1 bln usd in stock. Enron said it has about 850 mln shares outstanding. 
Making up any shortfall with equity has become more expensive because of the drop in Enron's share price. During the past week, shares of the energy-trading giant have dropped more than 40 pct. 
shw/jlw For more information and to contact AFX: www.afxnews.com and www.afxpress.com



Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. 	
Enron shares plummet again
Drop comes on heels of five straight losing sessions 
CBS MarketWatch.com
Lisa Sanders
10/24/01
NEW YORK (CBS.MW) -- Enron shares plunged Wednesday, one day after the energy merchant attempted to restore investor confidence following a series of negative developments at the company.
Shares of Enron fell to an intraday low of $15.51, eclipsing a low of $15.81 set in March and August of 1995. Enron stock was last at $15.69, down $4.10, or 20.7 percent. Volume was extremely heavy at 49 million shares.
Several Wall Street firms cut their ratings on Enron shares Wednesday, including Prudential Securities. The firm advised clients to sell the stock, a rare recommendation. Prudential had rated the company's shares a "hold."
"After much consideration, we are lowering our rating ... not because of things we know but because of things we potentially don't know about the company," wrote Prudential analyst Carol Coale in a note.
Enron has been under fire since last week as questions have surfaced about its accounting practices, especially in regard to two limited partnerships created by the company in 1999 and since dissolved. 
On Monday, Enron announced that related-party transactions within the limited partnerships are under review by the Securities and Exchange Commission. Several shareholder lawsuits have been filed as a result.
"Management used the SEC inquiry as a shield to avoid elaboration on the issue at hand, the LJM transactions," Coale said in reference to Tuesday's conference call with the investment community.
J.P. Morgan's Anatol Feygin downgraded his rating to "long-term buy" from "buy," saying an upgrade is precluded until the company provides more information about its liabilities.
"Management's conference call yesterday was a missed opportunity to disclose the necessary information to assuage investor concerns," Feygin wrote.
The Wall Street Journal reported Tuesday that Enron might have to issue stock to cover notes coming due on various investment vehicles created by the company. Currently, Enron expects to use proceeds from asset sales to meet the obligations.
Merrill Lynch analyst Donato Eassey noted Wednesday that if Enron isn't able to maintain its investment-grade ratings -- the company's debt is on watch for a potential downgrade by Moody's Investors Service -- issuing new equity would be one course of action, though with the potential to reduce earnings-per-share. Enron on Tuesday held with its forecast of $1.80 a share for 2001.
"New equity would potentially dilute our EPS estimates 5 to 10 percent," Eassey wrote in a follow-up to the conference call.
But Eassey believes that cash flow from operations -- expected to exceed $3 billion in 2002 -- along with asset sales, should be enough to "insulate" the company's credit ratings.
Lisa Sanders is a Dallas-based reporter for CBS.MarketWatch.com.


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.