In a 10-Q filing made after the close of the stock market on Monday, Enron Corp. revealed it will have to find some collateral to guarantee some of its debts, or it could be forced to pay off a $690 million note by next week, and a total of almost $3.9 billion more if its credit ratings drop another notch.

The filing also said that fourth quarter “profitability” will be negatively affected by the “recent deterioration in Enron’s credit rating…This is primarily the result of a reduced level of transaction activity by Enron’s trading counterparties, particularly longer-term transactions.”

The debt repayment by Nov. 27 was revealed as required by the Securities and Exchange Commission (SEC), after Enron’s credit rating on its senior unsecured debt fell on Nov. 13 — lowered by Standard & Poors to BBB-. Enron said it is working with lenders on an acceptable agreement to solve the problem, but without the collateral equal to the note, the Houston-based company must repay it for a Limited Partnership that owns Brazilian natural gas assets. Without the collateral, the partners could immediately begin to liquidate the assets of the partnership, according to Enron.

Enron has other debt repayment problems looming as well, according to the SEC filing. With another drop in its debt rating, which would put it below investment grade, the company would be required to repay another $3.9 billion in debt for two affiliated companies. With another credit rating drop, the Osprey Trust debt, amounting to $2.4 billion, and a Marlin Water Trust debt, totaling $915 million, also would have to be repaid, Enron said in the 10-Q.

Both the Marlin Water Trust and the Osprey Trust are said to be part of SEC’s investigation of Enron’s related-party transactions that led to the loss in investor confidence in mid-October. In a month’s time, the company’s stock lost about 85% of its value, and it has now agreed to merge with Dynegy Inc for $24 billion in cash, stock and debt. Last week, Dynegy and Dynegy shareholder ChevronTexaco provided Enron with $1.5 billion in exchange for preferred stock in Enron’s Northern Natural Gas Pipeline.

Enron, whose executive team warned the investment community of further earnings erosion during a conference call last week, said it is too early to determine the exact impact the reduced trading activity will have on Enron’s fourth quarter 2001 operating results. Additionally, the fourth quarter of 2001 will likely be negatively impacted by severance, restructuring and other charges resulting from the repositioning of many of Enron’s businesses consistent with the restructuring plan, as well as potential writedowns.

Detailing the equity it has already received, including the infusion from Dynegy, Enron disclosed that it has already obtained $550 million in a new secured line of credit from JP Morgan Chase Bank and Citicorp North America Inc., secured by Enron’s Transwestern Pipeline Co. assets. “Enron anticipates obtaining $450 million in a new secured line of credit on or about November 20, 2001, from Chase and Citicorp secured by Northern’s assets. These proceeds will be used to further supplement short-term liquidity and to retire maturing obligations.”

As it has already stated, Enron also expects to close about $800 million in asset sales by the end of this year, “however, the closings of these sale transactions are pending certain regulatory and other approvals that will impact whether such transactions close and the ultimate timing of the closings. Of the net proceeds, $250 million, or a portion thereof, may be required to repay an obligation that may become a demand obligation due to a recent credit rating downgrade.”

According to the 10-Q, “Enron is engaged in discussions with various institutions about investing in Enron equity. Enron is diligently pursuing a program to raise an incremental $500 million to $1 billion of private equity from these sources in the near future. There can be no assurance, however, that such program will be successful. Depending on the terms and amounts of such investments, Enron may be required to increase its authorized capital, which would require the approval of its shareholders.”

If the merger falls through, Dynegy would basically be able to buy Northern Natural for the equity stake. The merger also could be called off by Dynegy if shareholder lawsuits against the company total more than $2 billion.

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