Enron's Reorganization Extended Again; Merrill Lynch Agrees to $80M Fine for Questionable Deals
The U.S. Bankruptcy Court handling Enron Corp.'s case has given the company another three months to file an overall reorganization plan to help the company emerge from Chapter 11 or liquidate. Meanwhile, Merrill Lynch offered Thursday to pay $80 million to settle a Securities and Exchange Commission (SEC) investigation concerning two questionable transactions with Enron in 1999.
Judge Arthur Gonzalez of the U.S. Bankruptcy Court for the Southern District of New York ruled on Thursday that Enron could have until April 30 to file its reorganization plan. He had given them until January 2003, but the company requested its third extension at that time. Gonzalez noted that a final deadline to file the reorganization plan may be necessary at some point, but he said he would not yet impose one. He ruled that Enron may ask for more extensions, but if Enron's examiner remains dissatisfied, the judge may consider allowing separate reorganization plans among the 84 bankrupt Enron entities.
The latest extension allows Enron management time to decide whether to liquidate its assets or eventually emerge from bankruptcy. Enron said it was reviewing bids on 12 of its remaining assets, including Portland General Electric. The court was told that Enron needs more time than expected to decide whether to sell the assets or liquidate, which would affect the overall reorganization plan. If Enron were to reject the bids, it could give its creditors equity in a new company with a different name.
"While we are disappointed that no deadline was set, we are optimistic that Enron has now gotten the message that a reorganization plan needs to be filed as quickly as possible," said Texas Attorney General Greg Abbott. The State of Texas is one of the creditors in the bankruptcy case, and had opposed the extension. Abbott had argued that Enron has accrued nearly $300 million in legal and professional expenses since it declared bankruptcy, and further delays would only siphon more money from the estate.
Karen Denne, an Enron spokeswoman, said the company was making "significant progress toward maximizing value for our creditors, distributing it as quickly as possible and preserving jobs."
Since filing for bankruptcy in December 2001, Enron has raised $1.7 billion by selling off several of its smaller assets. It also has raised several hundred million dollars by selling off many of its long-term energy delivery contracts. Enron expects to have $12 billion to $15 billion to divide among creditors, whose claims number 23,000 with a face value of $400 billion.
Within Enron, 84 units are in bankruptcy at various levels of solvency and with various sets of creditors. Among the units, there are 13,000 loans between them and other units that have not filed for bankruptcy. Many of those loans are carried within Enron's questionable special purpose entities. With the time extensions, Enron is attempting to avoid "substantial consolidation" of all the creditors, which would give all creditors the same return on their debt regardless of the amount involved.
"It's the deck of cards we were dealt," said Martin Bienenstock, Enron's chief bankruptcy lawyer. "We're dealing with it, but we have obstacles to get to the finish line."
In other news, Merrill Lynch's settlement offer still has to be approved by SEC commissioners, but the company did not admit wrongdoing in its deals with Enron. Under the terms of the settlement, it also agrees to not break federal securities laws. A spokesman said the company entered into the agreement in principle to "put this matter behind us."
The settlement concerns two sets of transactions between Enron and Merrill Lynch in 1999. In the first transaction, Enron approached Merrill Lynch to buy a $28 million interest in three generating barges that were anchored off the coast of Nigeria. Enron wanted to sell the barges to an Asian-headquartered company; however, it wanted to record earnings from the transaction before the end of 1999. Merrill Lynch invested $7 million into the project and accepted an interest-free loan from Enron for the remainder of the deal.
The government alleges that former Enron CFO Andrew Fastow, now under indictment, promised Merrill Lynch it would not lose money on the transaction and would have its interest in the barges bought out within six months. In 2000, Fastow directed an outside partnership he controlled called LJM2 to buy Merrill Lynch's share.
The second transaction concerns a set of 1999 gas and power trades between Enron and Merrill Lynch that former Enron employees allege were attempts to pad Enron's books by $60 million. The former employees have claimed that Enron and Merrill Lynch agreed to cancel the transaction after Enron booked the profits. However, Merrill Lynch officials claimed the cancellation wasn't preplanned.
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