As Enron Corp.’s woes pulled other energy companies into the maelstrom last week, the company saw its problems escalate, learning that among other things, due diligence issues from the bankruptcy may complicate its anticipated sale of $800 million in assets that were already on the books. Enron began shedding other assets as well and also began to work with its creditors on a plan that Chairman Kenneth Lay hopes will put the company back on its feet within a year.

The asset sales that may be held up, which were already on the books and slated to be completed by the end of this month, include oil and natural gas fields in India, Brazilian gas utilities and its stake in a Puerto Rican power plant and liquefied natural gas terminal. Enron remains optimistic, however, that the sales will close, according to a spokesman.

In a November regulatory filing, Enron had indicated it planned to use $250 million of the $800 million to repay some of its debt that is expected to come due because of credit rating downgrades. Last week, Enron indicated it had $500 million in cash and was working with the investment community on another $1 billion loan to pump up its trading and marketing unit.

Overall, Enron has said it would shed as much as $8 billion of its non-core assets, including its broadband unit, a power plant in India and a water treatment unit located in the United Kingdom. Also scheduled for sale next year is its Portland General subsidiary to Northwest Natural, which was not scheduled to close before the third quarter of 2002.

Enron CFO Jeffrey McMahon, appointed in October after embattled CFO Andrew Fastow was fired, told a group of Enron creditors meeting in New York that the company expects to emerge from bankruptcy within a year. He announced the company plans to sell its energy trading unit and other assets to raise up to $6 billion. The creditors’ committee was appointed by the U.S. bankruptcy court in Manhattan with decisions approved by presiding Judge Arthur Gonzalez.

Lay, who attended the New York meeting with McMahon, said he had instructed his advisers to complete the bankruptcy within a year’s time. “I regret that we’re all here today for the purpose of what we’re here for, but we are,” he said. According to Enron’s legal team, the bankrupt company currently has $15 billion in bank debt, with only $2 billion of it secured. It also has $15 billion of bond debt and another $13 billion in trade debt, of which $8 billion is for derivatives and $5 billion is to banks and for bonds; and surety debt related to contract delivery of $2.5 billion.

Enron did announce another asset sale last week, this one to Kinder Morgan Energy Partners LP, which will pay $68 million for Enron’s one-third ownership in Trailblazer Pipeline. The buy gives Kinder Morgan 100% ownership in the pipe. McMcMahon also told creditors that Enron plans to shed several other assets, including its troubled water unit, Azurix Corp., Enron Wind and its emerging markets businesses. It plans to retain its exploration and production unit, wholesale and retail services and regulated businesses.

Two separate bids also emerged last week for Enron’s trading unit, according to a report in the Wall Street Journal. The newspaper reported that Citigroup Inc.’s Salomon Smith Barney arm and UBS AG were finalizing bids and at least one bid was expected to be offered soon.

According to reports, a company or consortium of companies would take controlling interests in a new trading company, but the amount of money proposed has not been disclosed. One source indicated that Enron would receive a “large cash payment” for its trading unit and a minority stake in a new company, “which could become valuable if the operation, known as EnronOnline, is revived.”

“The whole key is to light EnronOnline back up,” the source said. EnronOnline, which was unveiled in November 2000, had been the market leader for gas and electricity trading until the company began to fall apart in late October, and had been considered Enron’s most valuable asset. Enron’s advisers believe that a transaction struck with a large investment company would “reverse any ill will generated by its rapid decline.” However, many of Enron’s trading and marketing rivals have indicated in recent days that their business has soared since Enron’s falter, and expect the marketplace to take up the slack caused with Enron’s bankruptcy.

If a bid is made, the top bidder would become the “stalking horse,” considered the bid to beat under Enron’s bankruptcy, said the Journal. The New York court currently handling the bankruptcy case would decide whether a bid could be approved and would set up a procedure for competing bids to be considered.

J.P. Morgan Chase & Co., one of Enron’s biggest creditors and apparently also in the hunt to grab some of Enron’s assets, last Tuesday sued its former business partner for more than $2.1 billion. The lawsuit was filed on behalf of itself and related parties, claiming it has rights to some of Enron’s assets, including accounts receivable, commercial paper, cash and other property not protected in the Chapter 11 reorganization.

According to the lawsuit, J.P. Morgan claims that Enron holds certain assets only as a servicer for the alleged owners, under two accounts receivables transactions. The lawsuit claims the assets are not Enron’s property because they were sold before Enron filed for bankruptcy protection on Dec. 2. The lawsuit further claims that J.P. Morgan was an agent for two credit facilities for Enron to help fund transactions between Enron and Sequoia Financial Assets, a special purpose, bankruptcy-related entity. J.P. Morgan claims that Sequoia bought the Enron receivables and then reinvested the money collected in short-term paper that was issued by Enron and its Enron North America unit.

Lawsuits also emerged from more shareholders and employees, and former merger partner Dynegy Inc. also amended its lawsuit. In the amended lawsuit filed in the 333rd Judicial District of Harris County Court in Houston, Dynegy claimed that Northern Natural defaulted under a credit agreement with two New York banks and other lenders. As part of its merger agreement, Dynegy invested $1.5 billion into Enron in exchange for becoming a preferred Northern Natural Gas shareholder. Following the bankruptcy filing, Enron claimed that Dynegy had no right to the pipeline company.

The amended lawsuit claims that on Dec. 5, Enron’s bank consortium, composed of Citicorp North America and J.P. Morgan, notified Dynegy that an Event of Default had occurred under a credit agreement executed by Northern Natural. The default, claims Dynegy, is a “trigger event” for the original agreement that involved Dynegy, the banks and CGNN Holding and MCTJ Holding, the two holding companies that control Northern Natural. Earlier this week, Dynegy notified CGNN that it would elect to exercise its rights to acquire the pipeline.

In other legal action, a decision is expected soon by U.S. District Judge Lee Rosenthal in Houston regarding a request to freeze the assets of current and some former Enron executives and directors who sold millions of shares before the company declared bankruptcy. Amalgamated Bank, which claims to have lost more than $10 million from Enron’s fall, sued 29 current and former executives and board members last week, including Chairman Kenneth Lay and former CEO Jeffrey Skilling.

The lawsuit, one of about 60 facing Enron, was filed in a Houston federal court and alleges that the defendants engaged in a three-year pattern of fraud and deception that caused Enron’s share price to plummet. The lawsuit, which seeks $25 billion in damages, claims that the defendants sold $1.1 billion in stock while hiding the company’s true financial condition. Amalgamated’s lawsuit is different from the countless others because it names individual executives and board members as defendants, not the company.

More layoffs and news affecting shareholders also made the news last week. Enron announced Tuesday that previously declared dividends would not be paid on its common stock, the Cumulative Second Preferred Convertible Stock, the Enron Capital LLC 8% Cumulative Guaranteed Monthly Income Preferred Shares, and the Enron Capital Resources LP 9% Cumulative Preferred Securities, Series A. The company also is facing more criticism for doling out retention bonuses to key employees, as thousands of the newly unemployed try to find jobs.

In a written statement, Enron said that “until further notice,” no dividends will be declared on its common and preferred stock, as well as other securities listed on the New York Stock Exchange, which include Enron Capital Trust I 8.30% Trust Originated Preferred Securities or the Enron Capital Trust II 8.125% Trust Originated Preferred Securities. The company also will make no quarterly interest payments on its 7% Exchangeable Notes.

The dividend news followed revelations last week that Enron’s wholesale trading and marketing unit was being streamlined even more, this time affecting gas and power traders. About 200 more employees were laid off from the Houston headquarters, bringing the total number of workers lost there close to 5,000 — more than 4,300 were let go following Enron’s filing for Chapter 11 protection Dec. 2. More cuts are expected. At least three job fairs have been held in support of Enron employees, including a massive one at Enron Field, the baseball stadium in downtown Houston, last Friday. Nearly 50 employers were signed up to participate.

The layoffs, which apparently are taking place on an almost daily basis, come as Enron takes the heat for paying out millions in retention bonuses to keep key employees through its reorganization. Although a common practice, some have criticized the amount of the bonuses revealed as the company filed for bankruptcy. Leading the bonus list were Enron Americas CEO John Lavorato, who apparently received $5 million, while COO Louise Kitchens was given $2 million. Kitchens is credited with starting up the once unstoppable EnronOnline trading platform. Enron’s retention plan was filed as part of its bankruptcy proceeding. Employees accepting bonuses are required to remain with the bankrupt company for at least 90 days or they must repay the bonus and a penalty.

Before Enron filed for bankruptcy, it also paid out almost $55 million to about 75 employees to encourage them to remain as the company prepared for its merger offer from Dynegy, which was withdrawn in late November.

Bankruptcies also continue. Enron Japan Corp., a wholly owned subsidiary of Enron, said Tuesday that it and three Japanese affiliates, E Power Co., Enron Japan Marketing Corp. and Enron Japan Funding Corp., have filed for bankruptcy. Enron Japan Corp. was established in April 2000 to do business in the country’s power industry, estimated to be $120 billion annually. The plans included construction of a power plant in northern Japan and three others in southern Japan.

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