Enron Corp. won approval last week from the bankruptcy court overseeing its case for a new credit line from J.P. Morgan Chase & Co. and Citigroup Inc., which is dramatically smaller than an earlier requested loan. The $250 million loan will be limited to backing letters of credit for the former energy merchant that will allow it to continue its remaining pipeline and merchant energy activities. These types of loans are required to be backed 110% by cash deposits.

Judge Arthur Gonzalez of the Bankruptcy Court for the Southern District of New York approved the new debtor-in-possession, or DIP, credit line. The amended funding represents a significantly smaller line than the $1.5 billion Enron had proposed borrowing from J.P. Morgan and Citigroup after it filed for bankruptcy last December. J.P. Morgan and Citigroup were two of the company’s largest creditors.

Enron CFO Ray Bowen said at the hearing that Enron has not borrowed any money under the $1.5 billion facility or the $250 million facility because asset sales, including selling its trading business to UBS Warburg, has provided the company with enough liquidity to remain operating. Asset sales have also reduced the company’s cash needs, he said. However, Bowen told Gonzalez that the company still needs financing to assure its business partners that they can do business with the company and expect to be paid.

In related news, J.P. Morgan, which had been accused in June by a group of insurers of plotting with Enron to deceive them (see NGI, July 1), in turn charged the insurers with fraud last week. In an amended complaint, J.P. Morgan argued that the insurers fully understood a complex series of transactions when they issued surety bonds to guarantee the financial value of gas trades involving Enron, J.P. Morgan Chase and an offshore entity called Mahonia Ltd. After Enron filed for bankruptcy, J.P. Morgan requested payment for the bonds, but insurers have so far refused to pay the claim, arguing that they had questioned the legality of the bonds.

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