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Date: Wed, 28 Nov 2001 15:08:45 -0800 (PST)
From: peggy.mccurley@enron.com
To: louise.kitchen@enron.com
Subject: An article from CBS.MarketWatch.com
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This story was sent to you by Peggy.McCurley@enron.com with these comments:
Thought you'd like to see this since it mentions EOL
From CBS.MarketWatch.com, online at:http://cbs.marketwatch.com/news/story.a=
sp?siteID=3Dmktw&guid=3D%7B94043875%2D56E4%2D4DCD%2D839B%2D6F7D573453B3%7D=
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[IMAGE]=09=09=09=09=09=09  CBS.MarketWatch.com =09[IMAGE]=09[IMAGE]=09=09
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4   NASDAQ   1887.97  -48   SP500   1128.52  -20.98   10Yr   4.946%  -0.004=
 [IMAGE]      [IMAGE] [IMAGE] [IMAGE]  [IMAGE]   [IMAGE]   Front Page News =
 Dynegy walks away from Enron deal  U.S. shares end with bruising losses  A=
lliance rejects outside security; CIA officer killed  New York Times Co. en=
ters bidding for Red Sox  Intel takes tech spotlight   =09=09=09=09[IMAGE]=
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=09=09   Dynegy abandons Enron deal  Shares of energy trader plunge, bankru=
ptcy looms     By Lisa Sanders, CBS.MarketWatch.com   Newswatch  More Headl=
ines        HOUSTON (CBS.MW) -- Dynegy Corp. on Wednesday abandoned its pla=
n to rescue Enron Corp. after Enron's credit ratings were cut to junk-bond =
status, raising the prospects of a bankruptcy filing for what was once the =
largest U.S. energy trader.  Enron shares (ENE ) closed at 61 cents, down $=
3.50, having lost as much as 85 percent of their value on the day and havin=
g collapsed from a 52-week high of almost $85 just 11 months ago. The compa=
ny lost around $2.6 billion worth of market capitalization from Tuesday to =
Wednesday.  Close to 342 million Enron shares had changed hands Wednesday b=
y the close, and the stock broke the all-time volume record of 309 million =
shares set by Intel on Sept. 22, 2000. Dynegy (DYN ) shares lost $4.92, or =
12 percent, to $35.97.  Saying in a conference call that it had to "protect=
" its shareholders, Dynegy announced it had terminated its agreement with E=
nron, citing "Enron's breaches of representations, warranties, covenants an=
d agreements in the merger agreement, including the material adverse change=
 provision."   Company-specific problems?  Dynegy Chairman and Chief Execut=
ive Chuck Watson said: "some of the best deals are the ones that don't get =
done."   "While it is regrettable to see a leading industry player in diffi=
culties, this does not reflect a failure of the energy merchant business," =
he said.   Dynegy President and Chief Operating Officer Steve Bergstrom sai=
d that energy traders have had weeks to prepare for Enron's diminished role=
 in the business and that the industry has suffered "no degradation," as he=
 put it.  "There has been a clear flight to quality, and it's occurring as =
we speak," Bergstrom said. "Dynegydirect is a highly scalable platform."  D=
ynegydirect is a platform much like Enron's flagship EnronOnline, which it =
turned off Wednesday and which just a month ago was the largest online ener=
gy-trading platform, accounting for an average of $3 billion in trades a da=
y.  Dynegy's trading exposure to Enron is $75 million, and the company is n=
o longer trading with its embattled former merger partner and fellow Housto=
n industrial giant, Bergstrom said.  "Dynegy's customer-based, asset-backed=
 energy delivery network has been the driver of our 45 percent compounded a=
nnual growth rate for the past 16 years and will continue to provide us wit=
h earnings sustainability and future growth." Watson said.  As part of the =
deal, Dynegy had the option to keep Northern Natural Gas, Enron's highly va=
lued natural-gas pipeline, even if the agreement were terminated. The compa=
ny said during the call that it would exercise that option.  ChevronTexaco =
(CVX ) , which owns a 27 percent stake in Dynegy, originally gave $1.5 bill=
ion to the company in the transaction. Dynegy used the money to purchase 10=
0 percent of the preferred shares of Northern Natural Gas.  Enron has 180 d=
ays from the date the merger agreement was signed, Nov. 9, to repurchase th=
e pipeline system, Watson said. Enron said in a statement that it was revie=
wing Dynegy's claim of rights to Northern.  Enron representatives did not p=
articipate in the call, and Dynegy executives said they had been advised ag=
ainst the customary practice of taking questions.  Enron said it has tempor=
arily suspended payments "other than those necessary to maintain" its core =
energy businesses and added that it is exploring options to keep those oper=
ations alive. "To do this, we will work to retain the employees necessary t=
o the continuing operations of our trading and other core energy businesses=
," said Enron Chairman and CEO Ken Lay.  Enron told employees their questio=
ns would be answered in due course and they would receive their paychecks o=
n Friday.  Analysts said the next step for Enron would likely be a bankrupt=
cy filing.  "Chapter 11 is not the worst of all worlds by any means," said =
John Olson, a Houston-based energy analyst. "The key to salvaging the busin=
ess is the level of debtor-in-possession financing they can get to allow th=
em to trade in some realistic fashion."  DIP financing takes precedence ove=
r all other claims, he said.  "The equity people are now at the very bottom=
 of the barrel, and the only people lower than them are [the people who fil=
ed] the stockholder suits," Olson said.  In a note to clients, analyst Mich=
ael Heim of A.G. Edwards said that Enron, without Dynegy, has "no value."  =
"Enron ... will most likely be declared bankrupt shortly," Heim said. "Unli=
ke other bankruptcies in which a stock continues to trade at a low price, t=
here are no hard assets to salvage."  Ahead of this news, S&P cut Enron's r=
ating to B-minus, or junk status, from BBB-minus, which is the lowest inves=
tment-grade rating. The rating agency said that the move reflects "concerns=
 about the viability of the merger agreement with Dynegy and liquidity impl=
ications of the possible failure of that transaction. The ratings are place=
d on CreditWatch with developing implications."  Moody's made its announcem=
ent of a rating cut to B2 from Baa3 and said that Enron's debt remains unde=
r review for additional downgrade.  In its report, Moody's cited the likeli=
hood of a Dynegy-Enron breakup, fueled by Enron's declining financial perfo=
rmance, as the reason for the downgrade.  "Moody's ... Baa3 rating was pred=
icated on good prospects for completion of the merger with Dynegy and reaso=
nable prospects for marginally investment-grade characteristics of the merg=
ed entity," Moody's wrote. "Furthermore, lack of confidence in Enron by its=
 trading counterparties appears to be adversely affecting Enron's core trad=
ing operations."  For Enron to survive, the credit agency said, it's impera=
tive that the volumes from the trading business remain profitable.     Fitc=
h, which had rated Enron BBB-minus, lowered the rating to CC, which "indica=
tes that default of some kind appears probable."  The U.S. Treasury is keep=
ing an eye on the impact the Enron fallout is having on the credit markets,=
 spokeswoman Michele Davis said Wednesday.   "We are monitoring credit mark=
ets as we do every day," Davis said. "Markets always fluctuate and we haven=
't seen anything extraordinary." Treasury said that outside its surveillanc=
e of credit markets, it would refer any inquiries on energy trading to the =
Federal Energy Regulatory Commission or the Commodity Futures Trading Commi=
ssion.  Earlier in the day   [IMAGE]    Dynegy, which had originally offere=
d to buy Enron for $9 billion in stock, confirmed Tuesday that the two comp=
anies were discussing a new deal structure, and it said ahead of the credit=
-ratings and eventual termination news Wednesday that discussions were cont=
inuing.  "I'm not aware of any changes in any status of the merger," Dynegy=
 spokesman John Sousa said before the S&P announcement. The merger agreemen=
t contained a material adverse-affect clause that, if triggered, allowed Dy=
negy to walk away from the deal.  The decline in Enron's stock price and in=
formation contained in the company's 10-Q filing of Nov. 19 could had activ=
ated the clause, but Olson said the S&P downgrade clearly fit the descripti=
on of a material adverse affect.   Also Wednesday, UBS Warburg and RBC Capi=
tal cut their ratings on Enron, to "hold" from "strong buy" and from "stron=
g buy" to "buy-speculative," respectively.  Lisa Sanders is a Dallas-based =
reporter for CBS.MarketWatch.com.       =09=09=09[IMAGE]=09=09=09=09=09
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[IMAGE]=09[IMAGE]=09=09=09=09Intraday data provided by S&P Comstock  and su=
bject to terms of use.  Historical and current end-of-day data provided by =
FT Interactive Data.  .=09[IMAGE]=09=09[IMAGE]=09=09
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