The latest question revolving around Houston and the energy trading community as the week begins is how low can Enron Corp.’s stock go? On Monday, the stock dropped to a low not seen since 1994, failing to boost investor confidence as it lobbied banks for a new credit line. As investors bailed, Moody’s Investor Service cut the energy trader’s long-term debt ratings, and by the time the New York Stock Exchange had closed, Enron had fallen another 10.9%, losing $1.60 to stand at $13.95.

There has been no good news for the energy trader that just weeks ago was still considered a hot stock, even though it had lost some of its value since beginning the year above $80. At first attributed to the slowing economy, problems in California and the sudden departure of CEO Jeffrey Skilling in August, Enron began its stock plunge the day after third quarter earnings were released Oct. 16, when the company announced it would take writedowns of about $1 billion in poor investments (see Daily GPI, Oct. 17). In less than two weeks, Enron has lost about 85% of the value it held on January 1, 2001 — and now faces scrutiny by the U.S. Securities and Exchange Commission, numerous investor lawsuits and criticism from analysts and ratings services that had only recently given the once blue chip company their strong support.

On Monday, the Houston-based company confirmed it was seeking additional credit lines, but did not disclose how much it wanted the banks to extend. “We want to restore investor confidence and nothing instills confidence like cash,” Enron spokesman Mark Palmer said, but concerns are rising about Enron’s liquidity. Last week, it drew down its credit lines to provide “in excess of $1 billion” in cash liquidity, but the move, designed to bolster confidence, appears to have had an opposite effect.

Along with the confirmation that it wanted other credit lines, Moody’s Investor Service followed the earlier credit ratings announcements by Standard & Poors and Fitch last week, and lowered the senior unsecured long-term debt ratings of Enron from Baa1 to Baa2 “where they will remain for downgrade.” Moody’s also placed Enron’s Prime-2 rating for commercial paper on review for downgrade. Approximately $13 billion of Enron’s securities are affected. The credit ratings service had initially placed Enron’s long-term debt ratings on review following the Houston company’s third quarter earnings announcement. Last Thursday, Fitch placed Enron’s securities on a negative rating watch for a potential downgrade while Standard & Poors affirmed Enron’s ratings, but revised its long-term outlook to negative (see Daily GPI, Oct. 29).

Moody’s said its actions Monday were “prompted by the deterioration in Enron’s financial flexibility, since the company announced significant write-downs as well as equity charges in previously undisclosed partnership investments. This led to a substantial loss in investor confidence that has led to a more than halving of Enron’s share price and difficulties in rolling over commercial paper.”

Following the swoon in stock prices in the past two weeks, Enron last Thursday “shored up its near-term liquidity position by drawing down on all of its committed revolving credit facilities and buying back its outstanding commercial paper.” Moody’s said “this would leave the company with a net cash position of approximately $1.2 billion. In addition, Enron is in the process of arranging additional bank financing to support its core wholesale trading operations.”

The ratings agency’s “analysis of the developing situation will focus on management’s success in lining up further liquidity support and on their ability to retain credit availability from their major counter parties. This will be critical to enable Enron’s wholesale business to sustain its earnings and cash flow generation in order to support significant balance sheet obligations.” Moody’s said it also will review “management’s asset sale plan and valuations.”

Enron expects to receive $1.8 billion from the sale of Portland General Electric Co., and Moody’s plans to “focus on the timing and risks to the consummation of those transactions.” Furthermore, Moody’s said it will review Enron’s “off-balance sheet transactions to ascertain the extent to which the company will be able to meet any shortfalls with equity or with additional debt.”

Debt securities under review include the following: guaranteed senior notes A3; senior unsecured Baa1; senior secured and conventional/exchanged senior securities shelf (P) A3/(P) Baa1/(P) Baa3; senior subordinated Baa2; guaranteed cumulative trust preferred Baa2; guaranteed trust preferred Baa2; senior subordinated shelf (P) Baa2; cumulative guaranteed preferred stock Baa3; cumulative guaranteed preferred stock shelf (P) Baa3; and commercial paper P-2. Also impacted by the review will be Marlin Water Trust (Backed senior securities) Baa1; Osprey Trust (Backed senior securities) Baa2; and European Power Ltd. Co. (senior securities) Ba2.

©Copyright 2001 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.