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Enron Case Passes Major Hurdle; Most of Nearly $900B in Creditor Claims Likely to Be Disallowed
In record time -- just over five hours -- Enron Corp.'s lawyers managed to complete a list of 51 categories of objections during a key bankruptcy hearing in Manhattan on Tuesday, which ended with the court ruling that will allow the company's disclosure statement to be sent to creditors for a preliminary vote.
Although many of the claims may eventually be dismissed or reduced, the 1,400-page disclosure statement, prepared for Enron's current list of 24,000-plus creditors, notes nearly $900 billion in claims against the former energy trader -- nearly nine times higher than the interim CEO estimated in mid-2002.
The disclosure statement's approval is considered the first major step toward moving Enron out of bankruptcy. With Judge Arthur Gonzalez's approval of the statement on Tuesday, it now may be sent to the creditors for their vote on approval or disapproval. This process could take about three months, and then Enron would return to court for a review of the vote -- and a decision by the court on whether it should move forward in its restructuring. Enron has estimated it could take another one to two years to completely restructure, which would not be completed until creditors' claims are resolved.
In its court filing Tuesday, Enron noted that of the $900 billion in claims, nearly $111 billion already has been disallowed by the court. Another $618 billion in nearly 3,000 in claims also are in dispute. Enron said it would raise additional objections to about $150 million in other claims, bringing its allowed claims to about $67 billion. Of the $67 billion in claims, Enron would use its estimated $12 billion in assets to pay about 20 cents on the dollar.
When Enron filed for bankruptcy in December 2001, it listed $31.2 billion in debts. However, in April 2002, interim Enron CEO Stephen Cooper said the company owed creditors at least $11 billion more than that, and suggested the figure could be even $50 billion more (see Daily GPI, April 15, 2002).
Enron's lawyers presented the disclosure statement before Gonzalez, but even before the hearing began, they already had resolved several major objections. Among them was one by court-appointed examiner Harrison J. Goldin, who had complained that some of Enron North America Corp.'s creditors were not being treated fairly. Goldin now favors the restructuring plan, according to Enron,but other large Enron North America creditors have not voiced their support, according to Gonzalez.
Also in court Tuesday, Enron explained a settlement it had reached with Mission Iowa Wind Co. and Storm Lake Powers Partnerships, which both are backing the restructuring plan. This group had objected to the terms of the sale of Enron's wind power assets to General Electric Co., but in exchange for their backing, Enron agreed to their claims that they are owed $181.6 million.
"I'm pleasantly surprised that we got done so quickly," Gonzalez said following the hearing. He also encouraged both teams of attorneys to remain in court to finalize the wording of any resolutions discussed in court. Among other things, disclosure statements must tell creditors how much they will recover of what they are owed.
Enron, which has to settle all creditor claims before it reorganizes, plans to exit bankruptcy as two companies, CrossCountry Energy Corp. and Prisma Energy International Inc., and would sell its Oregon-based electric utility, Portland General Electric (PGE) (see Daily GPI, July 14, 2003). CrossCountry would hold Enron's North American interests, including Transwestern Pipeline and its 50% interest in Florida Gas Transmission. CrossCountry also would include Northern Plains Natural Gas, which holds a 1.65% out of 2% general partner interest in Northern Border Partners LP, which in turn owns Midwestern Gas Transmission and Viking Gas Transmission. Northern Plains also holds a 70% general partner interest in Northern Border Pipeline and a one-third interest in Guardian Pipeline LLC. Prisma would hold Enron's international holdings.
Under the latest plan, unsecured creditors of the parent company Enron will receive 17.4% of the total amount they are owed. Enron North America creditors are expected to recover 20.1%; Enron Power Marketing creditors would receive 22.9%. Because Enron has agreed to sell PGE, the court documents do not detail how much of the creditors's recoveries now will be in cash and in equity. According to documents, the creditors for Enron's remaining three surviving entities, which include PGE, would receive about two-thirds in cash with the rest in shares of the surviving entities.
Brian Rosen, an Enron lawyer, told the court that at least 13 of the 55 initial objections by creditors to the reorganization plan have been or will be withdrawn and added that the company continues to negotiate settlements on other objections.
The lead plaintiff in the case is the University of California, which indicated to the court that it wants assurance that if the plan is confirmed, it will not block other plaintiffs from adding the company to a list of defendants on other cases. Other creditors criticized the disclosure statement as being too vague in several areas, including how much money may be recovered by creditors and how the value of the assets will be distributed.
Enron also has asked the court to approve $36.2 million in salary and bonus payments over two years to ensure the retention of about 600 workers. A spokeswoman said the payments were for "turn-out-the-lights employees," giving them an incentive to stay until the restructuring is completed and the company is back on its feet. In court filings, Enron indicated it may not emerge from bankruptcy before December 2006, depending on how long it takes to settle claims.
Many of the bonuses would be given to employees who are finishing up certain jobs at Enron and who will not have new positions in the restructured company. Enron now has about 11,000 workers on its payroll, with 1,000 working for the bankrupt parent or its subsidiaries. The rest of the staff work for units not included in the bankruptcy, such as the pipelines, power plants and PGE. Before declaring bankruptcy, the company employed more than 20,000 worldwide.
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