Message-ID: <18290891.1075840913303.JavaMail.evans@thyme> Date: Thu, 29 Nov 2001 06:31:23 -0800 (PST) From: m..schmidt@enron.com Subject: Enron Mentions Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: quoted-printable X-From: Schmidt, Ann M. X-To: X-cc: X-bcc: X-Folder: \ExMerge - Kitchen, Louise\'Americas\SEC media X-Origin: KITCHEN-L X-FileName: louise kitchen 2-7-02.pst Fall of a Power Giant: Bailout Is Unlikely if Enron Goes Under, As U.S. Thi= nks Impact Would Be Limited The Wall Street Journal, 11/29/01 Enron's Woes May Ripple Out to Others --- If Energy Company Files For Bankr= uptcy, Results Are Likely to Be Messy The Wall Street Journal, 11/29/01 Fall of a Power Giant: Bailout Is Unlikely if Enron Goes Under, As U.S. Thi= nks Impact Would Be Limited The Wall Street Journal, 11/29/01 Enron's Meltdown May Also Be Felt By Big Mutual Funds The Wall Street Journal, 11/29/01 Why Credit Agencies Didn't Switch Off Enron --- S&P Cries `Junk,' But the W= arning Comes Too Late The Wall Street Journal, 11/29/01 Why Credit Agencies Didn't Switch Off Enron --- Energy Trading Bears the Br= unt Of Enron Woes The Wall Street Journal, 11/29/01 Fall of a Power Giant: Chairman's Deep Political Connections Run Silent The Wall Street Journal, 11/29/01 Dynegy and ChevronTexaco Slide Along With Plunge in Enron Stock The Wall Street Journal, 11/29/01 Dollar Declines Against Yen and Euro Amid Growing Doubts on U.S. Economy The Wall Street Journal, 11/29/01 Dynegy's Move to Disconnect Enron Merger Powers Volatility Spike as Investo= rs Seek Cover The Wall Street Journal, 11/29/01 Enron Asks Staff to Drop 401(k) Suits for Severance The Wall Street Journal, 11/29/01 Nvidia to Replace Enron in S&P The Wall Street Journal, 11/29/01 ENRON COLLAPSES AS SUITOR CANCELS PLANS FOR MERGER The New York Times, 11/29/01 A Bankruptcy Filing Might Be the Best Remaining Choice The New York Times, 11/29/01 An Implosion on Wall Street The New York Times, 11/29/01 Citigroup and J.P. Morgan Are Left With Bruised Egos and Exposure to Loans The New York Times, 11/29/01 In Turbulent Bond Market, Enron's Woes Exacerbate Turmoil The New York Times, 11/29/01 A Big Fall Evoking Nasty Old Memories Of a Run on a Bank The New York Times, 11/29/01 Foundation Gives Way On Chief's Big Dream The New York Times, 11/29/01 Market That Deals in Risks Faces a Novel One The New York Times, 11/29/01 Investors Pull Back as Enron Drags Down Key Indexes The New York Times, 11/29/01 Debt Rankings Finally Fizzle, but the Deal Fizzled First The New York Times, 11/29/01 GLOBAL INVESTING - Bond mutual funds suffer as Enron's troubles deepen. Financial Times, 11/29/01 COMPANIES & FINANCE THE AMERICAS - SEC filing triggered merger crisis. Financial Times, 11/29/01 COMPANIES & FINANCE THE AMERICAS - Financial system braces for a chain reac= tion. Financial Times, 11/29/01 COMPANIES & FINANCE THE AMERICAS - Traders avoid exposure to junk status fa= llout. Financial Times, 11/29/01 COMPANIES & FINANCE THE AMERICAS - Downgrade is the final straw for Enron. Financial Times, 11/29/01 Collapse of Merger Pushes Enron to Brink of Ruin Energy: Bankruptcy filing = is likely as stock value withers and bonds fall to 'junk' status. Los Angeles Times, 11/29/01 Enron Failure's Ripple Effects Analysis: Observers say consequences could b= e severe for energy prices as well as banks and other investors. Firm's tra= ding rivals see opportunities. Los Angeles Times, 11/29/01 Markets Enron Troubles, Uncertainty Send Stocks Tumbling Wall St.: Sellers = gain the upper hand, but many analysts say markets were due for a pullback. Los Angeles Times, 11/29/01 Enron on edge of collapse=20 Houston Chronicle, 11/29/01 Enron trading screens go bland; other firms reasuring investors=20 Houston Chronicle, 11/29/01 Bankruptcy filing by Enron could be largest ever Houston Chronicle, 11/29/01 Ballpark Place project stopped dead in tracks Houston Chronicle, 11/29/01 Fall of a Power Giant: Bailout Is Unlikely if Enron Goes Under, As U.S. Thi= nks Impact Would Be Limited By Greg Ip and Jathon Sapsford Staff Reporters of The Wall Street Journal 11/29/2001 The Wall Street Journal A10 (Copyright (c) 2001, Dow Jones & Company, Inc.) WASHINGTON -- If Enron Corp. goes under, the government is unlikely to thro= w it a lifeline.=20 At its peak, Enron was a major participant in the country's financial and e= nergy markets. But economic and financial policy makers say they aren't wor= ried about any broader blow to markets or business activity. Despite freque= nt comparisons to Long-Term Capital Management, the hedge fund whose 1998 n= ose dive panicked global financial markets and triggered an unusual bailout= brokered by the Federal Reserve, there has been so far no public sign of a= ny attempt by the Fed, the Treasury or energy regulators to take similar ac= tion on behalf of Enron or its creditors. Officials from a range of economic and regulatory agencies have insisted in= recent days that while they have been closely monitoring Enron's situation= , they haven't seen any reason to be concerned about possible ripple effect= s. Enron "is just one piece of a very big market," said John Mielke, chief = of market surveillance at the Commodity Futures Trading Commission. Mr. Mie= lke said he saw no evidence that Enron's problems have disrupted trading on= the futures exchanges monitored by the CFTC.=20 "These are deep and pretty big markets that Enron is in," echoed William Gi= lmer, an economist at the Federal Reserve Bank of Dallas.=20 It is too soon to say exactly what the total damage from Enron's potential = demise will be. One danger is that a blowup in the company's complex, large= ly unregulated portfolio of derivatives could infect financial markets in w= ide and unpredictable ways, just as LTCM's did. Another worry: that the col= lapse of a major middleman in natural-gas and power markets could disrupt s= upplies.=20 Enron does share some characteristics with LTCM, including widespread activ= ities in complicated financial instruments in numerous markets, with little= detailed public explanation of those activities, and little regulatory ove= rsight of those trades.=20 Its public disclosures suggest Enron's exposures are substantial. A quarter= ly filing listed $18.7 billion in assets and an equal amount of liabilities= related to "price risk management activities" as of Sept. 30. The filing g= ives no description or breakdown of those amounts and little detail about t= he derivatives in which Enron transacts as a normal part of business. (A de= rivative is a financial contract whose value is designed to track the retur= n on stocks, bonds, currencies or other benchmark.) An Enron spokeswoman di= dn't return a call seeking comment.=20 As Enron's woes deepened, the government's hands were tied in even assessin= g the situation, in part because the company was part of a coalition of ene= rgy companies and banks that lobbied successfully three years ago against C= FTC efforts to expand regulation of the over-the-counter energy market. Enr= on also worked behind the scene to head off CFTC's direct regulation of the= energy concern's EnronOnline trading operation.=20 There have been some signs in markets of concerns about Enron fallout. Inte= rest rates on bonds of utilities and energy companies rose by one- to two-t= enths of a percentage point relative to Treasurys yesterday. By day's end, = the Dow Jones Industrial Average was off 160.74 points, a decline blamed in= part on the Enron news.=20 Those are relatively small hiccups. The betting is the impact of Enron's tr= oubles on the financial system will be widespread but thin. Enron was a fav= orite borrower among lenders, and its loans were among the most widely synd= icated among the banking system, both at home and abroad. For example, a $2= .25 billion credit facility arranged for Enron in May by Citigroup Inc. and= J.P. Morgan Chase & Co. was distributed to 50 different institutions, acco= rding to Loan Pricing Corp., a credit-market research company. Those syndic= ation members sold off chunks of that debt to other investors, according to= a banker at one of the underwriters.=20 J.P. Morgan Chase said in a statement that it has $500 million of unsecured= exposure to Enron entities, including loans, letters of credit and derivat= ives. It said it also has secured exposures, including $400 million in loan= s secured by Enron pipelines. While this exposure is expected to smart, it = represents a small fraction of J.P. Morgan Chase's total assets of $715 bil= lion. Citigroup declined to comment on its exposure to Enron, but officials= familiar with the matter said the bank's exposure is similar to that of J.= P. Morgan Chase.=20 Beyond financial fallout, a concern is the potential impact on energy marke= ts and what that could do to the economy. Enron's troubles could hamper eff= orts to end the recession if the company's difficulties make it impossible = for it to deliver natural gas or electricity to its customers.=20 Natural-gas prices rose sharply yesterday in the minutes after three major = credit-rating agencies downgraded Enron's rating and Dynegy Inc. said it wa= s calling off its purchase. But the move quickly reversed when traders dige= sted gas-inventory numbers released in the afternoon that showed utilities = have stored enough gas to meet demand ahead of the winter heating season.= =20 "We've seen no interruptions in physical deliveries and no pricing reaction= in the futures markets that you could attribute to Enron," said Scott Mill= er, director of market development for the Federal Energy Regulatory Commis= sion. "Revenues and transactions are occurring normally as far as we can te= ll."=20 ---=20 Michael Schroeder, Chip Cummins and John Fialka contributed to this article= . Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron's Woes May Ripple Out to Others --- If Energy Company Files For Bankr= uptcy, Results Are Likely to Be Messy By Henny Sender and Richard B. Schmitt Staff Reporters of The Wall Street Journal 11/29/2001 The Wall Street Journal A3 (Copyright (c) 2001, Dow Jones & Company, Inc.) The sudden, deep financial troubles of Enron Corp., the once aggressive, ma= ny-tentacled energy conglomerate, could have widespread consequences for sc= ores of companies across the economy.=20 If Enron files for protection under Chapter 11 of the federal Bankruptcy Co= de, as many investors and financial experts now expect, it is likely to be = one of the messiest, most complex bankruptcy cases ever, lawyers say. That is because of the multifaceted nature of Enron's once highflying opera= tions, which combined a global energy business with a massive financial-tra= ding operation involving tens of billions of dollars in complex contracts. = Yesterday, amid the unraveling of a last-ditch merger with Dynegy Inc., the= company's credit was downgraded to "junk" status by rating agency Standard= & Poor's Corp. Enron has about 800 trading partners or creditors.=20 The stock market, signaling that a bankruptcy filing is expected, hammered = Enron stock, which was halted for a time yesterday, and knocked lower some = of its financial backers' shares. Enron shares closed at 4 p.m. in New York= Stock Exchange composite trading at 61 cents, down $3.50, or 85%. Enron bo= nds also fell sharply, dropping to 50 cents on the dollar from around 55 ce= nts, reflecting concerns over how much creditors might receive if the compa= ny does seek bankruptcy-court protection. J.P. Morgan Chase and Citigroup, = which have invested hundreds of millions of dollars in hopes of keeping the= Enron-Dynegy deal alive, also saw their stocks fall. At 4 p.m. in NYSE com= posite trading, J.P. Morgan shares were down $2.30 to $37.50, while Citigro= up shares were down $2.75 to $47.80.=20 J.P. Morgan Chase said in a statement it has about $500 million of unsecure= d exposure to Enron entities, including loans, letters of credit, and deriv= atives. It said it also has secured exposures, including $400 million in lo= ans secured by Enron pipelines.=20 Other companies also disclosed their exposures to Enron. Exelon Corp., an e= nergy concern in Chicago, said its power-trading arm has a direct net expos= ure to Enron of less than $10 million, based on its current book of busines= s and existing market prices. Exelon said its direct gross exposure based o= n sales to Enron is less than $20 million. Exelon said this is partly offse= t by $10 million that it owes to Enron.=20 Still, while the fallout from a potential bankruptcy filing would be widesp= read, federal regulators appear little concerned that it could inflict sign= ificant damage to the U.S. economy. (See related article on page A10.)=20 The scale of the Enron collapse is huge, experts say. "There is nothing to = compare it to," said Edward Tillinghast, a bankruptcy specialist with Coude= rt Brothers in New York. "The business was so large. There were so many dif= ferent kinds of operating entities under the Enron umbrella."=20 In a way, he added, a filing would represent all the challenges of two of t= he biggest bankruptcies in recent years -- this past spring's Chapter 11 fi= ling by PG&E Corp.'s Pacific Gas & Electric utility unit, and the demise of= Drexel Burnham Lambert, the Wall Street securities firm that failed more t= han a decade ago. A filing by Enron, with about $13 billion in debt, would = rank among the largest bankruptcy filings ever.=20 Bankruptcy lawyers and creditors' rights specialists, already swamped with = a wealth of work from a boom in Chapter 11 filings during the last 18 month= s, said they had been contacted by worried banks and other lenders to Enron= , seeking to retain them in the event of a Chapter 11 filing. Enron spokesw= oman Karen Denne said the company is exploring its options and wouldn't com= ment on whether it has retained bankruptcy counsel.=20 But lawyers said the company was already in discussions about retaining its= own counsel. Among the likely advisers is New York law firm Weil Gotshal &= Manges, which has been doing mergers work for Enron but also specializes i= n representing debtors in Chapter 11 proceedings. Lawyers at Weil Gotshal d= idn't return phone calls yesterday.=20 Ironically, Enron's trading arm, which fueled huge profits over the years, = could end up creating some unusual problems in any Chapter 11 case. One of = the messiest aspects of any potential filing would be unwinding the myriad = swaps, repurchase agreements and forward agreements that Enron entered into= with bankers, Wall Street and numerous municipalities and utilities. Such = transactions aren't subject to the automatic freeze that governs most contr= acts when a company files for Chapter 11; the idea is to protect all partie= s from market risk as the value of those contracts can fluctuate from day t= o day, and to avoid a larger financial meltdown.=20 That means Enron's counterparties are free to close out such transactions, = rather than file claims in a bankruptcy proceeding reflecting the total not= ional amount of any trades. In other words, a securities firm that is a cou= nterparty to Enron in many financial contracts would tally up how much it o= wes Enron under such contracts and how much Enron owes it, offsetting the a= mounts against each other. But this process is ripe for conflicts, as dispu= tes easily could arise over the value of the contracts.=20 "It is an incredibly complex piece of financial engineering," Andrew Rahl, = a bankruptcy lawyer at Anderson Kill & Olick in New York, said of the proce= ss.=20 How much collateral those counterparties could seize isn't at all clear, ei= ther. Enron was considered very aggressive in negotiating agreements such a= s swaps, where a party trades an obligation to pay a floating interest rate= for a fixed interest rate on given securities. The speed with which the co= mpany's finances have deteriorated further reduces the odds that its tradin= g partners will be able to get paid anytime soon. Without any security, cou= nterparty claims would go into the probably massive general pool of claims = from unsecured creditors.=20 Besides banks and bondholders, dozens of companies, municipalities and util= ities that had signed multiyear power contracts with Enron may be left in t= he lurch. Over the years, the likes of retailer J.C. Penney Co., and shoppi= ng-mall company Simon Property Group, of Indianapolis, signed on with Enron= , as it undercut local utilities in newly deregulated markets.=20 Any bankruptcy also is likely to trigger collateral lawsuits, as aggrieved = parties look for alternative deep pockets. One possible target, analysts sa= id, could be advisers that helped Enron establish off-balance-sheet vehicle= s and other debt related to troubled investment partnerships, which have tr= iggered massive losses in recent weeks. Moreover, Enron directors themselve= s could be vulnerable, too.=20 Yesterday, Enron named Raymond S. Troubh, a New York financial consultant, = to its board as chairman of a newly formed Special Litigation Committee to = evaluate claims in shareholder and other derivative lawsuits.=20 At the same time, any filing would give Enron some advantages, most notably= greater ease in securing financing. This is because once companies file fo= r protection, any new cash infusion from the banks has an overriding claim = on any of the company's assets, at the expense of previous lenders.=20 In addition, potential buyers for Enron businesses may be more likely to em= erge once the company is operating with court protection and the depth of i= ts problems are known.=20 "There is a certain comfort level that buyers have when buying a business i= n a Chapter 11 case that doesn't exist when a company is struggling outside= of bankruptcy," said Keith Shapiro, a bankruptcy lawyer at Greenberg Traur= ig in Chicago. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Fall of a Power Giant: Bailout Is Unlikely if Enron Goes Under, As U.S. Thi= nks Impact Would Be Limited By Greg Ip and Jathon Sapsford Staff Reporters of The Wall Street Journal 11/29/2001 The Wall Street Journal A10 (Copyright (c) 2001, Dow Jones & Company, Inc.) WASHINGTON -- If Enron Corp. goes under, the government is unlikely to thro= w it a lifeline.=20 At its peak, Enron was a major participant in the country's financial and e= nergy markets. But economic and financial policy makers say they aren't wor= ried about any broader blow to markets or business activity. Despite freque= nt comparisons to Long-Term Capital Management, the hedge fund whose 1998 n= ose dive panicked global financial markets and triggered an unusual bailout= brokered by the Federal Reserve, there has been so far no public sign of a= ny attempt by the Fed, the Treasury or energy regulators to take similar ac= tion on behalf of Enron or its creditors. Officials from a range of economic and regulatory agencies have insisted in= recent days that while they have been closely monitoring Enron's situation= , they haven't seen any reason to be concerned about possible ripple effect= s. Enron "is just one piece of a very big market," said John Mielke, chief = of market surveillance at the Commodity Futures Trading Commission. Mr. Mie= lke said he saw no evidence that Enron's problems have disrupted trading on= the futures exchanges monitored by the CFTC.=20 "These are deep and pretty big markets that Enron is in," echoed William Gi= lmer, an economist at the Federal Reserve Bank of Dallas.=20 It is too soon to say exactly what the total damage from Enron's potential = demise will be. One danger is that a blowup in the company's complex, large= ly unregulated portfolio of derivatives could infect financial markets in w= ide and unpredictable ways, just as LTCM's did. Another worry: that the col= lapse of a major middleman in natural-gas and power markets could disrupt s= upplies.=20 Enron does share some characteristics with LTCM, including widespread activ= ities in complicated financial instruments in numerous markets, with little= detailed public explanation of those activities, and little regulatory ove= rsight of those trades.=20 Its public disclosures suggest Enron's exposures are substantial. A quarter= ly filing listed $18.7 billion in assets and an equal amount of liabilities= related to "price risk management activities" as of Sept. 30. The filing g= ives no description or breakdown of those amounts and little detail about t= he derivatives in which Enron transacts as a normal part of business. (A de= rivative is a financial contract whose value is designed to track the retur= n on stocks, bonds, currencies or other benchmark.) An Enron spokeswoman di= dn't return a call seeking comment.=20 As Enron's woes deepened, the government's hands were tied in even assessin= g the situation, in part because the company was part of a coalition of ene= rgy companies and banks that lobbied successfully three years ago against C= FTC efforts to expand regulation of the over-the-counter energy market. Enr= on also worked behind the scene to head off CFTC's direct regulation of the= energy concern's EnronOnline trading operation.=20 There have been some signs in markets of concerns about Enron fallout. Inte= rest rates on bonds of utilities and energy companies rose by one- to two-t= enths of a percentage point relative to Treasurys yesterday. By day's end, = the Dow Jones Industrial Average was off 160.74 points, a decline blamed in= part on the Enron news.=20 Those are relatively small hiccups. The betting is the impact of Enron's tr= oubles on the financial system will be widespread but thin. Enron was a fav= orite borrower among lenders, and its loans were among the most widely synd= icated among the banking system, both at home and abroad. For example, a $2= .25 billion credit facility arranged for Enron in May by Citigroup Inc. and= J.P. Morgan Chase & Co. was distributed to 50 different institutions, acco= rding to Loan Pricing Corp., a credit-market research company. Those syndic= ation members sold off chunks of that debt to other investors, according to= a banker at one of the underwriters.=20 J.P. Morgan Chase said in a statement that it has $500 million of unsecured= exposure to Enron entities, including loans, letters of credit and derivat= ives. It said it also has secured exposures, including $400 million in loan= s secured by Enron pipelines. While this exposure is expected to smart, it = represents a small fraction of J.P. Morgan Chase's total assets of $715 bil= lion. Citigroup declined to comment on its exposure to Enron, but officials= familiar with the matter said the bank's exposure is similar to that of J.= P. Morgan Chase.=20 Beyond financial fallout, a concern is the potential impact on energy marke= ts and what that could do to the economy. Enron's troubles could hamper eff= orts to end the recession if the company's difficulties make it impossible = for it to deliver natural gas or electricity to its customers.=20 Natural-gas prices rose sharply yesterday in the minutes after three major = credit-rating agencies downgraded Enron's rating and Dynegy Inc. said it wa= s calling off its purchase. But the move quickly reversed when traders dige= sted gas-inventory numbers released in the afternoon that showed utilities = have stored enough gas to meet demand ahead of the winter heating season.= =20 "We've seen no interruptions in physical deliveries and no pricing reaction= in the futures markets that you could attribute to Enron," said Scott Mill= er, director of market development for the Federal Energy Regulatory Commis= sion. "Revenues and transactions are occurring normally as far as we can te= ll."=20 ---=20 Michael Schroeder, Chip Cummins and John Fialka contributed to this article= . Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron's Meltdown May Also Be Felt By Big Mutual Funds 11/29/2001 The Wall Street Journal C13 (Copyright (c) 2001, Dow Jones & Company, Inc.) NEW YORK -- Some of the largest mutual funds in the country that jumped on = Enron Corp. shares when they were soaring now may be feeling the pain of th= e stock's meltdown.=20 The energy-trading company's stock was held in funds managed by Fidelity In= vestments, Stilwell Financial Inc.'s Janus Capital Corp., Alliance Capital = Management and Putnam Investments, according to the funds' most recent Secu= rities and Exchange Commission filings. Vanguard Group held the stock in va= rious portfolios, including its giant passively managed index funds, accord= ing to its filings. One of the biggest supporters of the stock has been Alliance Premier Growth= Fund, an $11 billion portfolio that had about 4% of its assets in Enron sh= ares as of Sept. 30, according to fund tracker Morningstar Inc. Based on th= e Sept. 30 filing, the fund's stake had dropped in value by about $445 mill= ion through yesterday.=20 Of course, Alliance Premier and other funds may have sold or bought Enron s= hares since they made their latest government filings. An Alliance spokesma= n declined to comment.=20 Other funds reporting big stakes in Enron recently included Janus Mercury F= und, which had 3.6% of its assets invested in Enron stock on April 30. A Ja= nus spokeswoman said its funds had sold all of their Enron shares by mid-No= vember. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Credit Markets Why Credit Agencies Didn't Switch Off Enron --- S&P Cries `Junk,' But the W= arning Comes Too Late By Gregory Zuckerman and Jathon Sapsford Staff Reporters of The Wall Street Journal 11/29/2001 The Wall Street Journal C1 (Copyright (c) 2001, Dow Jones & Company, Inc.) At 10:57 a.m. EST yesterday, an announcement came out that effectively scut= tled Dynegy Inc.'s proposed takeover of Enron Corp. It was issued not by th= e two companies or their bankers, but by a behind-the-scenes player that wa= s pivotal in the deal from the start.=20 The news came from Standard & Poor's, which lowered Enron's credit rating t= o "junk" status, because of concern about the energy trading company's fina= ncial condition. The move, followed by similar downgrades by Moody's Invest= ors Service Inc. and Fitch Inc. several hours later, prompted Dynegy to ann= ounce that it was walking away from the multibillion dollar deal. The downgrades highlight the key role that credit-rating agencies -- which = are sometimes only bit players -- are having in one of the biggest Wall Str= eet dramas in years. Before they became deal breakers, the ratings agencies= had emerged as unlikely deal makers just a few weeks ago, by leaving Enron= little choice but to seek a merger partner or face a downgrade that would = have made it difficult to keep running its business.=20 Throughout the Enron saga, the rating agencies found themselves the target = of repeated and intense lobbying by Enron, Dynegy and their bankers at J.P.= Morgan Chase & Co. and Citigroup Inc. All tried -- and ultimately failed -= - to come up with assurances that the merger would bolster Enron and thus p= rotect bondholders and lenders from suffering losses.=20 The dramatic downgrades are sure to increase scrutiny over the role of the = rating agencies in the Enron situation. Critics say that, in waiting until = Enron's bonds already had plummeted in value, the ratings agencies failed i= n their job of anticipating a company's financial problems and giving inves= tors an early warning.=20 It now seems clear that the rating agencies, like most securities analysts,= seem to have too easily accepted Enron's murky financial reporting, which = gave the impression that the company's balance sheet was stronger than it w= as. As recently as late October, both Moody's Corp.'s Moody's and McGraw-Hi= ll Cos.' S&P had a solid investment-grade rating on Enron's debt.=20 But since credit-rating agencies often have access to company information t= hat securities analysts often don't have, the rating agencies could take so= me heat for not anticipating the financial difficulties. Bond investors, fo= r instance, say S&P was prematurely upbeat about Enron's outlook earlier th= is month, and long ago should have demanded more information from the compa= ny. "If the rating agencies were privy all along to information that, as ne= ar as I can tell, was nonpublic regarding these off-balance-sheet liabiliti= es, then their judgment looks even more faulty," says Carol Levenson of Gim= me Credit, a Chicago-based analyst.=20 Others wonder whether the ratings executives should have lowered the rating= to junk days ago, when Enron's problems became obvious. While such a move = would have crippled the company's ability to find a suitor, holding off on = the ratings move hurt stock and bond investors left holding the securities.= =20 "I don't think the consequences of a rating action should have anything to = do with whether one takes that rating action or not, if one feels it's warr= anted," Ms. Levenson says. "I don't think there was any doubt Enron was a j= unk credit."=20 The ratings agencies counter that Enron's financial condition, while weaken= ed, became precarious only in the past few days, and given the consequences= of a downgrade they needed to be prudent.=20 Indeed, every party to the deal -- until yesterday -- kept working to provi= de financial infusions to Enron to keep the deal alive. Enron executives we= re particularly desperate to hold off a ratings downgrade. Once the debt wa= s lowered to junk status from investment grade, a whopping $3.9 billion of = debt immediately became due, jeopardizing Enron's ability to stay afloat.= =20 Worries about such a debt downgrade weeks ago pushed Enron into the merger = with Dynegy, despite reservations from some Enron executives about whether = the deal was right. Enron pledged some of its best assets to secure a $500 = million investment from J.P. Morgan Chase and Citigroup's Citibank, and agr= eed to strict terms demanded by banks to get an emergency $1 billion credit= line from various banks. In recent days, the two companies worked to restr= ucture their merger and to raise still more liquidity for Enron.=20 By 4 p.m. Tuesday, the credit agencies agreed to hold off on a downgrade, c= onvinced the two sides were making progress in restructuring the deal and d= rumming up new money for Enron. In a conference call, Ron Barone, a managin= g director at S&P, told Enron executives he was willing to wait on a decisi= on, aware of the serious consequences of a downgrade.=20 "We'll be very patient and diligent" because of the progress being made, he= told them, according to someone familiar with the conversation.=20 As late as 10:30 p.m. Tuesday, a new deal still seemed in sight. But at abo= ut 2 a.m. yesterday, the talks broke down. Instead of being briefed about t= erms of a new merger agreement, the credit-agency executives became doubtfu= l a resolution would ever be reached.=20 In a late morning phone call to Jeff McMahon, Enron's chief financial offic= er, Mr. Barone broke the news that the company's credit would be downgraded= . "We lost confidence the deal would be consummated in a way that would kee= p the rating intact," Mr. Barone says in an interview. "Enron's credibility= and viability continued to diminish. They were aware of our concerns."=20 S&P downgraded Enron's corporate-credit rating two full grades to single-B-= minus, near the lower end of the junk-bond world, from triple-B-minus, the = lowest investment-grade level. Moody's lowered the debt to B2 from Baa3.=20 In a late-afternoon conference call with investors, S&P executives said the= rating could still be lowered further, on the heels of the official announ= cement that the merger with Dynegy was off.=20 Responding to criticism that the credit agencies should have downgraded Enr= on's debt sooner, Mr. Barone of S&P notes that the rating agency wasn't "pr= ivy to everything." Still, he adds, until yesterday "we were confident it w= as an investment-grade company, and that the merger would give it the secur= ity to enable Enron to function at an investment-grade level."=20 On the flip side, of course, if Enron is forced into bankruptcy, the rating= agencies may well catch heat that their impact was too drastic, effectivel= y killing the deal.=20 Treasurys=20 Treasurys ended slightly higher. At 4 p.m., the benchmark 10-year Treasury = note was up 1/32 point, or 31 cents per $1,000 face value, at 100 15/32 to = yield 4.938%. The 30-year Treasury bond's price also was up 1/32 point, at = 100 9/32 to yield 5.355%.=20 The Dow Jones Industrial Average ended with a loss of 160.74 points. Invest= ors often shift funds to the relative safety of the government securities m= arket at times when stocks are weak. A Treasury sale of $21 billion of two-= year notes drew less demand than expected. The bid-to-cover ratio, a gauge = of demand comparing the dollar value of bids received with those awarded, w= as 1.51, well below the 2.53 average of the past 12 auctions.=20 Also somewhat bearish for the bond market was release of the Fed's beige bo= ok report, an assessment of economic conditions around the country in advan= ce of policy meetings. Policy makers are to meet again Dec. 11.=20 Although the report cited weakness in the economy, it didn't encourage peop= le in the bond market to expect further rate cuts by the Fed, analysts said= . "Not everybody is in the camp that the Fed's going to ease again," said K= evin Flanagan, market strategist at Morgan Stanley.=20 TWO-YEAR NOTES Here are results of yesterday's Treasury auction of two-year notes. All bids are awarded at a single price at the market-clearing yield. Rates are determined by the difference between that price and the face=20 value. Applications ........................ $31,761,220,000 Accepted bids ....................... $21,000,020,000 Bids at market-clearing yld accepted 14.96% Accepted noncompetitively ........... $774,120,000 Accepted frgn noncomp ............... $0 Auction price (Rate) ................ 99.985 (3.008%) Interest rate ....................... 3% CUSIP number ........................ 9128277G1 The notes are dated Nov. 30, 2001, and mature Nov. 30, 2003.=20 (See related article: "Commodities: Energy Trading Bears the Brunt Of Enron= Woes" -- WSJ Nov. 29, 2001) Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Commodities Why Credit Agencies Didn't Switch Off Enron --- Energy Trading Bears the Br= unt Of Enron Woes By Peter A. McKay Staff Reporter of The Wall Street Journal 11/29/2001 The Wall Street Journal C1 (Copyright (c) 2001, Dow Jones & Company, Inc.) Less than a month ago, Enron Corp.'s electronic trading system was the larg= est of its kind in the world, accounting for a quarter of all the natural g= as and electricity delivered in the U.S.=20 Yesterday, the system was shut down, a victim of Enron's failed deal with D= ynegy Inc. While the rise and sudden fall of Enron rippled throughout financial market= s yesterday, nowhere was it more immediately evident than in energy trading= , an arena utterly transformed by Enron in recent years.=20 Since the late 1990s, EnronOnline had established itself as the dominant el= ectronic energy marketplace -- and major competitor of the traditional futu= res exchanges -- as it grew to handle an average of 5,400 trades a day, wit= h a value of about $2.8 billion.=20 But a flight away from Enron began weeks ago, as initial news of the compan= y's woes began to spread. Because Enron itself guaranteed trades on its pla= tform, fears grew that the company might not be able to complete many of th= e transactions.=20 The exodus of trading activity from EnronOnline accelerated throughout the = day yesterday, culminating in the system's shutdown around midday, when quo= tes on the system's Internet trading screens simply went blank.=20 By 3:30 p.m. EST, some trading had resumed in natural gas, though spokesman= Eric Thode declined to say whether Enron's markets would be open today. "T= hat's part of an evaluation that's ongoing," he said.=20 On the floor of the New York Mercantile Exchange, a traditional floor-based= futures market, natural-gas trading volume almost doubled yesterday to 116= ,000 contracts. While Enron's woes were the main driver behind the surge, t= he market also reacted to important storage data from the American Gas Asso= ciation.=20 Natural-gas prices jumped about 25 cents yesterday morning on an initial re= action to the Enron news, near $3 per million British thermal units, then s= lipped back as the AGA announced that gas storage had grown by 16 billion c= ubic feet to an all-time high. The nearby December contract fell 29 cents t= o $2.315 per million BTUs.=20 "Anyone who jumped into the gas market on the Enron news is praying right n= ow [that prices recover]," Guy Gleichmann, senior energy trader at Barkely = Financial. "It should only be a short-term factor in the market."=20 He said Enron's collapse has helped gas prices because it is mainly seen as= a threat to the overall gas supply. Traders assume EnronOnline's problems = won't affect actual energy deliveries, because whoever takes over Enron's a= ssets is expected to honor those commitments.=20 Meantime, anticipating potential fallout from the Enron problems, energy fi= rms also have been reducing their financial risk in the energy markets by u= nwinding complex derivatives bets, either by hedging against them or taking= delivery of the physical commodity.=20 In the future, those firms are likely to favor straightforward cash transac= tions for energy as a result of the Enron meltdown. "If anything, the Enron= situation has really simplified this market," Mr. Gleichmann said.=20 Yesterday on the IntercontinentalExchange, Enron's primary electronic rival= , traders waited up to five minutes to log in, said Jeff Sprecher, the onli= ne market's chief executive.=20 He said it seemed most traders were just jockeying for position at first, a= ssessing the newfound risk before actually making any trades. Within the fi= rst 15 minutes after Standard & Poor's initial downgrade of Enron, Mr. Spre= cher said, the number of bids and offers on IntercontinentalExchange droppe= d by almost a third, to 2,200.=20 "By the end of the day, though, we expect this will probably be a record da= y for us," said Mr. Sprecher, who estimated the system's overall volume is = up 45% this month.=20 He expects much of that gain to be permanent on ICE, although he cautioned = that a loss of EnronOnline from the marketplace would have a downside, sinc= e its presence created opportunities to trade spreads between the two platf= orms.=20 Nymex President J. Robert Collins warned it is still too early to declare E= nronOnline dead. But he said its difficulties bode well for his exchange's = Internet-based system, dubbed eNymex, now in development.=20 "Because of credit issues involving Enron, companies might be more hesitant= to trade there," he said. "So we have a better shot with eNymex than we di= d three or four months ago."=20 Ronald J. Barone, managing director for energy research at UBS Warburg, sai= d EnronOnline's value to prospective acquirers will drop quickly in coming = days, if the business continues to decline.=20 "Dynegy really liked EnronOnline, but look at how much business the platfor= m's been losing," said Mr. Barone, who downgraded Enron's stock yesterday t= o a hold. "There's also a question of how many more skeletons there are in = the closet."=20 In commodity trading yesterday:=20 GRAINS: Futures prices on corn, wheat and soybeans all fell again at the Ch= icago Board of Trade as what was described as a technical-based selloff acc= elerated. December-delivery corn futures sank to $1.9850 a bushel late in t= he session, which wiped out the old contract low. The contract ended up set= tling down five cents at $1.9875 a bushel.=20 CRUDE OIL: Crude-oil futures slipped 26 cents to $19.22 a barrel after week= ly inventory data showed a larger-than-expected five-million-barrel build i= n distillates supplies, which include heating oil. High refinery runs and i= mports were behind the build, analysts said. The contract might have fallen= even more, except for a modest drop reported for crude-oil stocks.=20 ---=20 Dyanna DeCola contributed to this article.=20 (See related article: "Credit Markets: S&P Cries `Junk,' But the Warning Co= mes Too Late" -- WSJ Nov. 29, 2001) Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Fall of a Power Giant: Chairman's Deep Political Connections Run Silent By Bob Davis Staff Reporter of The Wall Street Journal 11/29/2001 The Wall Street Journal A10 (Copyright (c) 2001, Dow Jones & Company, Inc.) For years, Enron Corp. Chairman Kenneth Lay has been George W. Bush's best = friend in the board rooms of America's top corporations.=20 Since 1993, Mr. Lay and Enron have donated nearly $2 million to Mr. Bush's = political career, making them Mr. Bush's biggest backers. When Mr. Bush was= Texas governor, Mr. Lay, a Houston resident, helped him win passage of a s= tate education-reform plan that brought Mr. Bush national acclaim. During t= hat fight, Mr. Lay got to know aides who became power players in the Bush W= hite House. Mr. Lay was confident enough of his friendship with Mr. Bush that he even n= eedled him for needing arthroscopic surgery to repair a jogging injury. "I = want you to know that at least one jogger [me] got past 50 without that sur= gery," Mr. Lay scribbled in a note to then governor in 1997.=20 Still, as Enron faces its greatest crisis, Mr. Lay's influence and personal= relationships with the administration have amounted to little. There appea= rs to be no effort by the White House or Congress to bail Enron out of its = difficulties, which are widely seen as self-inflicted. The White House had = no comment on Mr. Lay's predicament, a spokeswoman said. Indeed, short of a= n actual bailout to help Enron meet its obligations -- such as an aid packa= ge approved by Congress or organized by government officials from private s= ources, similar to the rescue of the Long Term Capital Management hedge fun= d -- there is little Washington can do at this stage to help the company. N= or is there likely to be a bailout, since Enron has burned many bridges on = Capitol Hill with its history of strong-arm lobbying tactics, some congress= ional aides say.=20 That may reassure a cynical public, says Robert Mosbacher, Commerce Secreta= ry in the first Bush administration and a longtime friend of the current pr= esident as well as Mr. Lay. "I don't see anybody being let off the hook," h= e said.=20 Mr. Mosbacher says he introduced Mr. Lay to the Bush family around 1987, wh= en he persuaded Mr. Lay to help raise money for George H.W. Bush's successf= ul presidential bid in 1988. Mr. Lay contributed $461,000 to the younger Mr= . Bush's two successful gubernatorial campaigns. He also made Enron's fleet= of corporate jets available to Mr. Bush and won his help in lobbying offic= ials in other states considering Enron projects.=20 His influence with then-Gov. Bush was based on more than money. Mr. Lay was= one of the state's leading business executives and deeply involved in Texa= s politics. Under Mr. Bush's predecessor, Democrat Ann Richards, Mr. Lay he= aded the Governor's Business Council, a state advisory board. Mr. Bush aske= d him to stay on the job to help develop an educational reform plan and sel= l it to the Texas Legislature.=20 In that capacity, Mr. Lay became close to several Bush aides, including pol= itical guru Karl Rove and communications adviser Karen Hughes, who have tak= en positions at the White House. He also got to know another leading Texas = businessman: Dick Cheney, then CEO of Dallas oil concern Halliburton Co., w= ho would become Mr. Bush's pick for vice president.=20 Against this backdrop, Mr. Lay was widely considered a top candidate for Tr= easury Secretary in the younger Bush's administration. Ultimately though, h= e was disqualified, Bush insiders say, as too closely identified with Mr. B= ush, Mr. Cheney and others who worked in the Texas energy business for an a= dministration that wanted to show it wasn't in the pocket of big oil compan= ies.=20 Early on, Mr. Lay had unrivaled access to the administration. When the pres= ident's advisers debated a new energy policy in the spring, Mr. Lay was the= only energy executive to be invited for a one-on-one session with Mr. Chen= ey, who led the effort. Mr. Lay also worked with Mr. Rove and others to suc= cessfully push for appointments to the Federal Energy Regulatory Commission= , which oversees much of Enron's business.=20 As Enron's problems multiplied and its fortunes plummeted, however, the Whi= te House was silent. During a several-hour long interview in the spring, Mr= . Lay mused that his Bush connections could boomerang someday. "It could hu= rt, from the standpoint that, at some point, they lean in the other directi= on to make sure they don't face criticism," he said. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Fall of a Power Giant: Chairman's Deep Political Connections Run Silent By Bob Davis Staff Reporter of The Wall Street Journal 11/29/2001 The Wall Street Journal A10 (Copyright (c) 2001, Dow Jones & Company, Inc.) For years, Enron Corp. Chairman Kenneth Lay has been George W. Bush's best = friend in the board rooms of America's top corporations.=20 Since 1993, Mr. Lay and Enron have donated nearly $2 million to Mr. Bush's = political career, making them Mr. Bush's biggest backers. When Mr. Bush was= Texas governor, Mr. Lay, a Houston resident, helped him win passage of a s= tate education-reform plan that brought Mr. Bush national acclaim. During t= hat fight, Mr. Lay got to know aides who became power players in the Bush W= hite House. Mr. Lay was confident enough of his friendship with Mr. Bush that he even n= eedled him for needing arthroscopic surgery to repair a jogging injury. "I = want you to know that at least one jogger [me] got past 50 without that sur= gery," Mr. Lay scribbled in a note to then governor in 1997.=20 Still, as Enron faces its greatest crisis, Mr. Lay's influence and personal= relationships with the administration have amounted to little. There appea= rs to be no effort by the White House or Congress to bail Enron out of its = difficulties, which are widely seen as self-inflicted. The White House had = no comment on Mr. Lay's predicament, a spokeswoman said. Indeed, short of a= n actual bailout to help Enron meet its obligations -- such as an aid packa= ge approved by Congress or organized by government officials from private s= ources, similar to the rescue of the Long Term Capital Management hedge fun= d -- there is little Washington can do at this stage to help the company. N= or is there likely to be a bailout, since Enron has burned many bridges on = Capitol Hill with its history of strong-arm lobbying tactics, some congress= ional aides say.=20 That may reassure a cynical public, says Robert Mosbacher, Commerce Secreta= ry in the first Bush administration and a longtime friend of the current pr= esident as well as Mr. Lay. "I don't see anybody being let off the hook," h= e said.=20 Mr. Mosbacher says he introduced Mr. Lay to the Bush family around 1987, wh= en he persuaded Mr. Lay to help raise money for George H.W. Bush's successf= ul presidential bid in 1988. Mr. Lay contributed $461,000 to the younger Mr= . Bush's two successful gubernatorial campaigns. He also made Enron's fleet= of corporate jets available to Mr. Bush and won his help in lobbying offic= ials in other states considering Enron projects.=20 His influence with then-Gov. Bush was based on more than money. Mr. Lay was= one of the state's leading business executives and deeply involved in Texa= s politics. Under Mr. Bush's predecessor, Democrat Ann Richards, Mr. Lay he= aded the Governor's Business Council, a state advisory board. Mr. Bush aske= d him to stay on the job to help develop an educational reform plan and sel= l it to the Texas Legislature.=20 In that capacity, Mr. Lay became close to several Bush aides, including pol= itical guru Karl Rove and communications adviser Karen Hughes, who have tak= en positions at the White House. He also got to know another leading Texas = businessman: Dick Cheney, then CEO of Dallas oil concern Halliburton Co., w= ho would become Mr. Bush's pick for vice president.=20 Against this backdrop, Mr. Lay was widely considered a top candidate for Tr= easury Secretary in the younger Bush's administration. Ultimately though, h= e was disqualified, Bush insiders say, as too closely identified with Mr. B= ush, Mr. Cheney and others who worked in the Texas energy business for an a= dministration that wanted to show it wasn't in the pocket of big oil compan= ies.=20 Early on, Mr. Lay had unrivaled access to the administration. When the pres= ident's advisers debated a new energy policy in the spring, Mr. Lay was the= only energy executive to be invited for a one-on-one session with Mr. Chen= ey, who led the effort. Mr. Lay also worked with Mr. Rove and others to suc= cessfully push for appointments to the Federal Energy Regulatory Commission= , which oversees much of Enron's business.=20 As Enron's problems multiplied and its fortunes plummeted, however, the Whi= te House was silent. During a several-hour long interview in the spring, Mr= . Lay mused that his Bush connections could boomerang someday. "It could hu= rt, from the standpoint that, at some point, they lean in the other directi= on to make sure they don't face criticism," he said. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Abreast of the Market Dynegy and ChevronTexaco Slide Along With Plunge in Enron Stock By Robert O'Brien Dow Jones Newswires 11/29/2001 The Wall Street Journal C2 (Copyright (c) 2001, Dow Jones & Company, Inc.) NEW YORK -- The collapse of Enron dominated stock trading yesterday, as a h= ost of the power generators and energy merchants exposed to the firm tumble= d.=20 Shares of Dynegy, the suitor for Enron that pulled out of a deal after debt= -rating agencies lowered their ratings on Enron's bonds, fell 4.92, or 12%,= to 35.97. ChevronTexaco, which owns 26% of Dynegy, slid 1.07, or 1.2%, to = 84.55. Shares of Enron itself were ground down more than 85%. The loss of $3.50 br= ought the closing price of each Enron share down to 61 cents. This from a s= tock that, as recently as August 2000, commanded more than $90 a share.=20 A host of other energy merchants, such as El Paso, which lost 3.59, or 7.4%= , to 44.91, Williams, which shed 1.80, or 6.2%, to 27.05, and American Elec= tric Power, which fell 2.03, or 4.8%, to 40.44, all got caught in the backl= ash against the energy market.=20 The Dow Jones Utility Average finished the session down 8.48 points, a drop= of 2.94%, to 279.95, which brought it down to a 52-week low.=20 Shares of two giant financial-services providers also got caught by their e= xposure to Enron, and paid the price. Shares of Citigroup fell 2.75, or 5.4= %, to 47.80, while J.P. Morgan Chase slid 2.30, or 5.8%, to 37.50.=20 With those two components in decline, the Dow Jones Industrial Average fini= shed the session 160.74 points lower, a loss of 1.63%, to 9711.86. The Nasd= aq composite slid 2.48%, or 48 points, to 1887.97.=20 The Dow industrial average's finish at 9711.86 represented the lowest close= the average has posted in more than two weeks, since ending at 9554.37. Tr= aders insisted that the speed and apparent ease with which market averages = have managed to lard on gains over the past several weeks has stretched val= uations, and left equities vulnerable to events, like the Enron sell-off, t= hat a sturdier market might have more handily absorbed.=20 "One of the most important overriding factors has been the performance of t= he market itself," Arthur Hogan, chief market analyst at Jefferies, said. "= The market has moved straight up seven weeks in a row, and when it moves up= in a straight line like that, it doesn't take much in the way of a catalys= t to tip it over."=20 Whether it was excuse-making or profit-taking, the market did have to absor= b some fundamental challenges in the session, including an especially pessi= mistic assessment of economic conditions from the Federal Reserve. The cent= ral bank released its Beige Book report on economic conditions, which showe= d, overall, the economy tilted more toward further slowing than it did towa= rd recovery.=20 That helped further puncture shares of some of the retailers that got wayla= id in Tuesday's trading by a bearish consumer sentiment reading. Shares of = Gap, stung by a reduction in its investment rating by Prudential Securities= , lost 79 cents, or 5.5%, to 13.61. Shares of another apparel retailer, Ame= rican Eagle Outfitters, lost 1.3, or 5.9%, to 24.40, while Talbots dropped = 1.25, or 3.6%, to 33, and discounter Kohl's fell 84 cents, or 1.2%, to 67.8= 6.=20 Meanwhile, some of the classic cyclical stocks that have had good runs over= the past several weeks as investors bet on an eventual economic recovery g= ave ground. Shares of Boeing fell 1.33, or 3.7%, to 34.17, after J.P. Morga= n reduced its earnings forecasts for 2002 and 2003. Whirlpool lost 1.12, or= 1.7%, to 64.98. Auto-parts maker Eaton declined 1, or 1.4%, to 69.60. Gene= ral Electric, also subject to some downbeat comments from J.P. Morgan, fell= 1.72, or 39.35.=20 Continental Airlines lost 2.40, or 10%, to 21.70. The air carrier completed= a public offering of 6.74 million shares of stock priced at $22.50, a disc= ount to Tuesday's closing price of 24.10.=20 Coca-Cola declined 1.06, or 2.2%, to 46.75. J.P. Morgan said it expects slo= wer volume growth ahead for the beverage maker's bottlers. Shares of Coca-C= ola Enterprises, Coke's biggest bottler, eased 40 cents, or 2.3%, to 17.=20 Magna International rose 1.54, or 2.6%, to 61.51. Salomon Smith Barney star= ted coverage of the Canadian auto-components maker with a buy rating.=20 Medtronic gained 1.74, or 4%, to 45.78. The Minneapolis medical-device make= r reported fiscal second-quarter results that matched Wall Street's project= ions, and said it expected to live up to third-quarter forecasts.=20 Foot Locker eased 19 cents, or 1.2%, to 15.70, after mixed views from rival= brokers. RBC Capital Markets started coverage of the stock with a strong b= uy rating, but Jefferies reduced its coverage of the stock to accumulate fr= om buy. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Foreign Exchange Dollar Declines Against Yen and Euro Amid Growing Doubts on U.S. Economy By Grainne McCarthy Dow Jones Newswires 11/29/2001 The Wall Street Journal C14 (Copyright (c) 2001, Dow Jones & Company, Inc.) NEW YORK -- Growing doubts about the U.S. economy's ability to rebound quic= kly from recession weighed heavily on the dollar, pushing the currency down= almost a full yen and helping the euro regain some lost ground.=20 Weakness in U.S. stocks -- due partly to news that Dynegy Inc. decided to w= alk away from its deal to buy Enron Corp. -- also put pressure on the dolla= r, while Enron's debt woes added to general skittishness about the ability = of U.S. business to bounce back quickly. "We know there are companies out there in trouble," said Lara Rhame, econom= ist at Brown Brothers Harriman in New York, who said that while the Enron d= evelopments weren't having a direct impact on foreign-exchange markets, suc= h reports do "limit the kind of superdollar that we saw back in 1999."=20 The dollar selloff kicked off in Asian trading, when dealers used a Standar= d & Poor's downgrade of Japan's sovereign rating as an excuse to buy the ye= n. The downgrade to double-A from double-A-plus was better than the market'= s expectations of a two-notch downgrade, rendering it good news of sorts.= =20 The selling continued in New York trading, as traders continued to price in= the possibility that they may have been far too optimistic about the dolla= r.=20 The two-pronged catalyst for this change of heart was the weak November con= sumer confidence index released Tuesday, and subsequent gloomy comments fro= m Federal Reserve Governor Laurence Meyer pointing to more downside risks t= o the economy. The release of the Federal Reserve's beige book report yeste= rday served only to flame this pessimism.=20 The Fed said that further slowing outweighed signs of recovery for the U.S.= economy this autumn, noting that economic activity generally remained soft= in October and the first half of November.=20 "People wanted greater signs of recovery than they got from the Fed," said = Alan Ruskin, research director at the 4Cast financial consultancy in New Yo= rk.=20 The beige book, a summary of economic activity prepared for use at the cent= ral bank's next Federal Open Market Committee meeting Dec. 11, is widely vi= ewed as an indicator of future monetary policy decisions and the report hel= ped to solidify expectations of a rate cut of at least a quarter percentage= point.=20 Late yesterday in New York, the euro was at 88.84 U.S. cents, its high for = the session and up from 88.34 cents late Tuesday in New York. The dollar wa= s at 123.11 yen -- around its intraday low -- and almost a full yen down fr= om 123.96 yen late Tuesday in New York. The dollar was also at 1.6460 Swiss= francs, down from 1.6484 francs in London and 1.6560 francs Tuesday. Sterl= ing was at $1.4261, up from $1.4185 earlier in London and $1.4153 late Tues= day.=20 Elsewhere, the Canadian dollar climbed to its highest levels in almost a mo= nth, confounding the view that bad news for the U.S. is bad news for Canada= .=20 The Canadian currency has tended to suffer from an association with the U.S= ., given that 85% of Canada's exports head south of the border. However, a = 0.50-percentage-point rate cut by the Bank of Canada on Tuesday was quickly= followed by the gloomy consumer confidence report in the U.S., which under= cut faith in the dollar and appeared to give the Canadian unit just the opp= ortunity it was seeking.=20 Late in the New York day, the U.S. dollar was at C$1.5842, down from C$1.59= 39 late Tuesday. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Options Report Dynegy's Move to Disconnect Enron Merger Powers Volatility Spike as Investo= rs Seek Cover By Kopin Tan Dow Jones Newswires 11/29/2001 The Wall Street Journal C14 (Copyright (c) 2001, Dow Jones & Company, Inc.) NEW YORK -- Anxiety crept back into the options market, as investors watche= d the major stock indexes slip and Enron's already-decimated stock slide be= low $1 in record trading volume.=20 The Chicago Board Options Exchange's market-volatility index, or VIX, rose = 2.54 to 27.75. The 10.1% increase marks the largest one-day percentage jump= for the options fear gauge's since Oct. 12, a long spell during which vola= tility had subsided while stocks rallied. Strike prices on Enron options had tumbled to once-unimaginable levels as t= he energy company's woes mounted and its stock skidded. Yesterday, as Dyneg= y called off its proposed acquisition, volatility of Enron options spiked t= o well over 300%, mirroring the instability of the underlying stock. Many i= nvestors scrambled to sell calls -- either to unwind prior positions or to = pocket any income they could -- while others bought puts for downside prote= ction. Calls and puts are options to buy or sell a security at a specific p= rice, usually within a limited period.=20 Dynegy's implied volatility also jumped, as its stock fell $4.92, or 12%, t= o $35.97. The near-month calls traded more heavily than the puts, likely be= cause the high premiums made it costly for investors looking to buy puts. S= ome investors sold out-of-the-money calls to take advantage of the volatili= ty level. At the CBOE, Dynegy's out-of-the-money December 40 calls fell $2.= 25 to $1.35 on volume of 6,581 contracts, while 3,241 contracts traded at t= he American Stock Exchange.=20 As investors sought downside protection, the ratio of equity puts traded to= calls at the CBOE continued to rise, from 0.53 Monday to 0.66 Tuesday to 0= .7 yesterday, the highest reading this month.=20 In recent months, investors have treated market pullbacks as opportunities = to hunt for bargains; in fact, such "buying on the dip" has helped propel s= tock prices. With stocks up substantially from their September lows, invest= ors still are browsing but are seeking added insurance, with many buying de= fensive puts to lock in a minimum selling price for the stock.=20 Sprint's January 25 puts traded more than 13,000 contracts at the Amex as a= n investor bought stock along with those puts. Specifically, the investor b= ought about 5,000 contracts of the puts, then bought a put spread by buying= 8,000 contracts of January 25 puts that expire 2002 and selling the same n= umber of January 25 puts that expire 2003.=20 Shares of Sprint's PCS unit fell $1.14 to $25.90. At the Amex, the January = 25 puts were at $1.15 on volume of 13,005 contracts, compared with open int= erest of 2,799. The January 25 puts that expire in 2003 were at $4.40 on vo= lume of 8,005 contracts, compared with open interest of 8,826. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Enron Asks Staff to Drop 401(k) Suits for Severance 11/29/2001 The Wall Street Journal C13 (Copyright (c) 2001, Dow Jones & Company, Inc.) HOUSTON -- Enron Corp., the subject of four lawsuits filed over losses in i= ts employees' 401(k) retirement plan, is asking laid-off workers to waive l= egal claims against it in exchange for some of their severance payments.=20 Attorneys for some of the employees sought to block that requirement. Plain= tiffs are seeking an "immediate preliminary injunction prohibiting Enron fr= om soliciting any releases which would affect the participants' rights vis = a vis the plan," according to an amended complaint filed by Seattle firm Ca= mpbell Harrison & Wright. The complaint, filed in federal district court in Houston, asks the court "= to appoint a neutral fiduciary to manage the plan." The suit claims Enron i= s laying off as much as 60% of its staff in some departments.=20 An Enron attorney, in a statement, said laid-off employees aren't required = to sign the waiver to get severance pay, but will get "additional severance= in exchange" for signing. She said Enron hadn't modified the waiver "in re= sponse to the current economic circumstances of the company," but added tha= t Enron "continues to evaluate its options regarding the severance-pay plan= ." Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Nvidia to Replace Enron in S&P 11/29/2001 The Wall Street Journal C13 (Copyright (c) 2001, Dow Jones & Company, Inc.) NEW YORK -- Standard & Poor's said Nvidia Corp., a Santa Clara, Calif., gra= phic-chip maker, will replace Enron Corp. in the S&P 500-Stock Index after = today's regular trading. S&P said Enron, the Houston energy concern whose m= erger with Dynegy Inc. unraveled yesterday, is being removed for lack of re= presentation. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section A ENRON'S COLLAPSE: THE OVERVIEW ENRON COLLAPSES AS SUITOR CANCELS PLANS FOR MERGER By RICHARD A. OPPEL Jr. and ANDREW ROSS SORKIN 11/29/2001 The New York Times Page 1, Column 1 c. 2001 New York Times Company Enron, the champion of energy deregulation that grew into one of the nation= 's 10 largest companies, collapsed yesterday, after a rival backed out of a= deal to buy it and many big trading partners stopped doing business with i= t.=20 Enron, based in Houston, was widely expected to seek bankruptcy protection.= With $62 billion in assets as of Sept. 30, it would be the biggest America= n company ever to go bankrupt, dwarfing the filing by Texaco in 1987. Late = in the day, though, Enron's chief financial officer, Jeff McMahon, said tha= t the company was still talking to banks about a restructuring and consider= ing other options. Talks with its would-be rescuer Dynegy, also of Houston, about salvaging th= e deal ended in acrimony.=20 Dynegy, which had agreed on Nov. 9 to buy Enron but had second thoughts as = Enron disclosed more financial problems and investors pummeled its stock, a= ccused Enron of misrepresenting the health of its business. Enron, meanwhil= e, was weighing whether to sue Dynegy for breaching the terms of the deal, = a person close to Enron said.=20 Enron's swift collapse left the prospects of 21,000 employees in doubt and = wiped out what was left of the holdings of stock investors, including some = big mutual funds, as shares that sold for $90 in August 2000 crashed to clo= se yesterday at 61 cents. It roiled the Treasury market and tarnished the s= tanding of the big New York banks that both advised on the deal and poured = their own cash into the company. And it left in tatters the reputation of E= nron's chief executive, Kenneth L. Lay, a confidant and campaign backer of = President George W. Bush. [Page C1.]=20 The Treasury Department, the Federal Reserve and the Federal Energy Regulat= ory Commission said they had monitored Enron's impact on the financial and = energy markets yesterday; officials who would comment said they saw no dang= erous ripple effect.=20 ''The markets are functioning normally,'' said Peter Bakstansky, a spokesma= n for the Federal Reserve Bank of New York.=20 From a pipeline company in the 1980's, Enron grew into the world's largest = energy trader, using the Internet to buy and sell natural gas and electric = power supplies for utilities and industrial power users and helping them he= dge against fluctuations in power prices.=20 But Enron was undone by shaky accounting, too much borrowed money and an un= willingness to provide information to investors who grew to doubt its finan= cial reports.=20 Five weeks ago, the company disclosed that, to fuel its growth, it had shif= ted billions of dollars in debt off its balance sheet and into an array of = complex partnerships. The Securities and Exchange Commission began an inves= tigation, and Enron restated five years of earnings, wiping out nearly $600= million in profit.=20 Enron was teetering close to insolvency before Dynegy, a smaller cross-town= rival, agreed to acquire it for $9 billion plus the assumption of $13 bill= ion in debt, with additional financing from ChevronTexaco, a major Dynegy s= hareholder.=20 But Enron subsequently disclosed even more debts, and its financial plight = continued to worsen. Energy-trading companies reduced dealings with the fir= m; doubting its creditworthiness, some forced Enron to pay higher prices fo= r natural gas and other products or required it to post large cash deposits= to back trades.=20 For four days, Enron and Dynegy worked to salvage the deal. But yesterday m= orning, Dynegy pulled out. ''We knew when to say no, and this morning, we s= aid no,'' said Chuck Watson, Dynegy's chairman.=20 In an interview, Mr. Watson said Enron's energy-trading business had deteri= orated. He also cited ''surprises'' in the quarterly report to the S.E.C. t= hat Enron filed on Nov. 19, including the disclosures that a credit downgra= de meant Enron had to pay or refinance a $690 million obligation and that E= nron had less cash on hand than Dynegy had expected. ''Confidence and credi= bility, which is what this business is all about, deteriorated after that,'= ' he said.=20 Mr. Watson said he called Mr. Lay yesterday after a meeting of Dynegy's boa= rd to call off the deal. By then, S.& P. had downgraded Enron's debt to jun= k status, accelerating up to $3.9 billion in debt payments.=20 But last night, Mr. McMahon, Enron's chief financial officer, took strong i= ssue with the notion that Dynegy could have been surprised by Enron's finan= cial report.=20 ''I believe Dynegy was aware of everything that was encapsulated in that,''= Mr. McMahon said, explaining that Dynegy had been given advance copies of = the filing.=20 The companies even disagreed about whether they had reached agreement on a = renegotiated deal that would have cut Dynegy's purchase price and pumped hu= ndreds of millions dollars more into Enron.=20 ''There was never a global settlement that all parties agreed to,'' Mr. Wat= son said.=20 Mr. McMahon had a very different view. ''It's fair to say that we thought w= e had a deal several times,'' he said, ''and the goal posts definitely kept= moving on us.''=20 As for Enron's future, Mr. McMahon said: ''We are looking at every option u= nder the sun, as you can imagine.'' Those options include the Chapter 11 fi= ling for bankruptcy reorganization that analysts and competitors widely exp= ected. He said that a Chapter 7 filing -- in short, the liquidation of the = company -- ''is not an option we are pursuing.''=20 An executive close to Enron said it had not yet done the advance work neede= d to seek protection in bankruptcy court. ''It's a last resort, but not a l= ast-minute kind of thing,'' this executive said. ''If you go in and file fo= r Chapter 11 like this without having everything done, it's like walking in= a bank lobby and throwing a dozen eggs on the floor.''=20 A bankruptcy filing would give the company some breathing room to deal with= creditors' claims, but it would be complicated, and many creditors -- incl= uding stockholders -- would be likely to come away empty handed. Enron has = relatively few hard assets, and those it has -- including an extensive netw= ork of natural gas pipelines -- are already pledged to lenders.=20 In any case, by the end of the day Enron was a shadow of the colossus that = politicians blamed for California's energy crisis and analysts promoted as = an innovator that epitomized the free-market swashbuckling that the Interne= t could unleash.=20 Yesterday morning, Enron shut down its Internet-based trading platform, Enr= onOnline, its screens going blank. Other major energy traders announced tha= t they would trade with Enron only in cash -- effectively meaning that virt= ually all trading with the company had stopped, they said.=20 Late yesterday, Mr. McMahon said that Enron was doing some trading by phone= , but he declined to say how much or whether EnronOnline would be reopened = today.=20 Yesterday, shares of Enron, which peaked last summer at $90, fell to 61 cen= ts, down 85 percent for the day; Dynegy shares fell $4.08, or 10 percent, t= o close at $36.81.=20 Other big energy traders, like the El Paso Corporation, Reliant Energy, Mir= ant and Aquila, also fell. But Enron's gradual decline over the last month = gave many energy companies time to reduce their exposure to Enron, and many= operate rival trading operations that would benefit from its collapse.=20 Yesterday morning, as news leaked out of Dynegy's plans to cancel the deal = and S.& P. announced its downgrade of Enron's credit, prices for natural ga= s futures traded on the New York Mercantile Exchange soared more than 10 pe= rcent. But they quickly reversed, plunging about 15 percent from the highs = reached before noon. Traders said volume fell off sharply as word of Enron'= s problems spread.=20 Mr. McMahon said Enron was working with J. P. Morgan Chase and Citigroup, i= ts lead banks, to restructure the company's debts. ''We are optimistic we c= an get a restructuring,'' he said. Earlier in the day, Enron said that it h= ad begun a ''temporary suspension of all payments other than those necessar= y to maintain core operations,'' but Mr. McMahon declined to comment on wha= t bills Enron was paying.=20 The two banks had hoped that by helping arrange Enron's rescue they could p= rove the merits of their strategy of providing both loans and advice in the= merger business. Now, not only have the banks lost bragging rights for pul= ling off a difficult deal, as well as millions in fees, they are also left = holding hundreds of millions in loans to Enron, analysts said.=20 Dynegy may come out better. Under terms of the initial merger deal, the $1.= 5 billion it injected into Enron earlier in the month gave it preferred sto= ck in Enron's Northern Natural Gas pipeline that can be converted into owne= rship of the pipeline. Dynegy said yesterday that it would exercise its opt= ion to acquire the pipeline. Enron said it was reviewing the ''assertion'' = by Dynegy that it could claim the pipeline.=20 The person close to Enron said that Dynegy might have been seeking control = of the pipeline all along. ''You've got to wonder if they ever wanted to go= through with this agreement from the get-go,'' he said of Dynegy. ''Certai= nly, this was a way to take probably the world's largest energy player out = of the market.''=20 Mr. Watson said that Enron had never leveled that charge at Dynegy in the c= ourse of their talks.=20 Enron executives believed they had successfully revised the deal with Dyneg= y on Monday afternoon.=20 Mr. Lay was in a private plane preparing to fly out of Teterboro Airport in= suburban New Jersey. He had just signed new merger documents and was hopin= g to announce a deal on Tuesday in Houston, executives close to the talks s= aid.=20 But Mr. Watson, who had just returned from a trip, had become deeply involv= ed in the talks earlier that day and kept raising the ante, one executive c= lose to Enron said. ''All the parties were flipping out because Chuck was c= hanging the terms by the hour,'' this executive said.=20 As Mr. Lay's plane was taxiing for takeoff, the executives said, a call cam= e in from Mr. Watson asking to change the terms once again. That, they said= , was when it became clear that the deal might unravel.=20 In the end, Enron's uncertain finances and evidence that its customers were= fleeing sealed Dynegy's decision. ''Sometimes,'' Mr. Watson said, ''a comp= any's best deals are the very ones they did not do.'' Photo: The rise of Enron was almost as swift as its downfall. From a pipeli= ne company based in Houston in the 1980's, it grew into the world's largest= energy trader. Business is monitored at the Enron trading room. (Frontline= /WGBH)(pg. C6) Chart: ''The Rise and Fall of Enron'' Taking advantage of de= regulation of the power industry, Enron quickly built itself into the leadi= ng energy trading company in the country. But it turned out that some of it= s growth was not real, and things quickly unraveled over the last two month= s. JUNE 24, 1997: Enron agrees to buy Portland General Electric, the utilit= y serving Portland, Ore. AUGUST 1997: Enron does its first commodity trade = using weather derivatives. APRIL 1998: California deregulates its power mar= ket. JULY 24, 1998: Enron buys Wessex Water of Britain. It becomes the buil= ding block of a water subsidiary called Azurix. JUNE 10, 1999: Enron sells = one-third of Azurix to the public. NOVEMBER 1999: Enron starts EnronOnline,= its Web-based commodity trading site. AUGUST 2000: California energy short= age causes sporadic blackouts; prices soar. DEC. 15 2000: Four months after= the chief executive of Azurix resigns, Enron takes the company private aga= in. AUG. 14, 2001: Only six months after becoming chief executive, Jeffrey = K. Skilling resigns. He is succeeded by Kenneth L. Lay. OCT. 8: Four years = after buying Portland General Electric, Enron agrees to sell it to Northwes= t Natural Gas OCT. 16: Enron reports a third-quarter loss of $618 million. = OCT. 24: Two days after Enron discloses that the Securities and Exchange Co= mmission is looking into complicated transactions involving Enron and partn= erships set up by Andrew S. Fastow, the company's chief financial officer, = Mr. Fastow is forced out. OCT. 31: The S.E.C. upgrades its inquiry to a for= mal investigation. NOV. 8: Enron discloses that it overstated profits for t= he previous five years by $586 million. NOV. 9: Dynegy agrees to buy Enron = for about $9 billion. YESTERDAY: The merger collapses. Enron's stock falls = $3.50 to 61 cents. (Source: Bloomberg Financial Markets)(pg. C6)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S COLLAPSE: THE LAST RESORT A Bankruptcy Filing Might Be the Best Remaining Choice By JONATHAN D. GLATER 11/29/2001 The New York Times Page 6, Column 1 c. 2001 New York Times Company Enron, facing the collapse of a deal with Dynegy that might have rescued it= from disaster and a tidal wave of debts suddenly coming due, may now have = little choice but to enter bankruptcy, lawyers and analysts said yesterday.= =20 Filing for protection under Chapter 11 of the Federal Bankruptcy Code would= give the company some much-needed breathing room to deal with creditors' c= laims, as well as afford any eventual buyer the advantage of a court's appr= oval. But bankruptcy would also be complicated by the fact that some of Enron's m= ost valuable assets, including its Transwestern Pipeline linking Texas natu= ral gas fields with California energy markets, are already pledged to lende= rs. The value of other assets available to satisfy unsecured creditors is u= nclear.=20 Still, Enron's creditors will not necessarily lose everything, said Robert = J. Rosenberg, a lawyer at Latham & Watkins, which is expected to represent = some of the creditors in any Enron bankruptcy. ''It depends on whether ther= e is a good ongoing business'' that could make payments in the future, he s= aid.=20 Once they decide bankruptcy is unavoidable, lawyers said, one of the first = critical issues Enron executives face will be where to file for Chapter 11 = protection. Enron has its headquarters in Houston and receives significant = attention from news media in Texas, but it is incorporated in Oregon and fi= ling there might lead some creditors to decide that participating in bankru= ptcy proceedings there would be too costly.=20 Delaware might be a preferred location. The courts there are very experienc= ed in handling large bankruptcies and are known to be relatively friendly t= o debtors, said Jay Westbrook, a professor at the University of Texas Schoo= l of Law in Austin. ''On the other hand,'' he said, ''I am told that recent= ly Delaware has gotten so busy that they have been sending cases back where= they should be.''=20 Enron could file in Delaware if a subsidiary were incorporated there, he sa= id.=20 Secured creditors would be paid first. If the assets backing the loan have = been valued accurately, those creditors would be paid in full. Unsecured cr= editors are likely to receive only a fraction of the value of their outstan= ding loans. If anything is left, it would go to stockholders, lawyers said.= =20 Enron would have to line up lenders fairly quickly to pay for its continuin= g operations, several lawyers said. One lawyer who has worked with the comp= any in the past estimates that it would need a $1 billion credit line to co= ntinue to operate its energy-trading business.=20 Continuing to operate would be important if the goal is to sell the busines= s as a whole -- perhaps to Dynegy -- in a court-supervised auction. The alt= ernative would be to sell the company's various assets and operations in pi= eces, Professor Westbrook said.=20 Entering bankruptcy would be bad news for shareholders who have filed lawsu= its accusing Enron of violating securities laws; any awards would not be pa= id until after creditors were satisfied. And like Enron's other shareholder= s, they might end up with nothing, said Robert D. Albergotti, a partner at = Haynes & Boone, a Dallas law firm.=20 If Enron files for bankruptcy, this is not likely to prevent litigation aga= inst Arthur Andersen, the company's outside auditor, said Jeffrey N. Gordon= of Columbia University Law School. Indeed, bankruptcy proceedings could gi= ve both the company and investors an opportunity to figure out exactly how = its profits came to be overstated and to look for potential fraud.=20 A special committee of Enron's board has already retained Deloitte & Touche= , another big accounting firm, to help.=20 ''It's going to be a while before they figure it all out,'' Professor Gordo= n said. Chart: ''Big Losers'' As of Sept. 30, Enron's top 10 shareholders were all = big money managers. Alliance Capital SHARES HELD (IN MILLIONS): 43.0 PERCEN= TAGE OF OUTSTANDING SHARES: 5.78% Janus Capital SHARES HELD (IN MILLIONS): = 41.4 PERCENTAGE OF OUTSTANDING SHARES: 5.56 Putnam Investment SHARES HELD (= IN MILLIONS): 23.1 PERCENTAGE OF OUTSTANDING SHARES: 3.11 Barclays Bank SHA= RES HELD (IN MILLIONS): 23.0 PERCENTAGE OF OUTSTANDING SHARES: 3.10 Fidelit= y Investments SHARES HELD (IN MILLIONS): 20.8 PERCENTAGE OF OUTSTANDING SHA= RES: 2.80 Citigroup SHARES HELD (IN MILLIONS): 20.8 PERCENTAGE OF OUTSTANDI= NG SHARES: 2.79 State Street SHARES HELD (IN MILLIONS): 16.1 PERCENTAGE OF = OUTSTANDING SHARES: 2.17 AIM Management SHARES HELD (IN MILLIONS): 14.0 PER= CENTAGE OF OUTSTANDING SHARES: 1.88 Taunus SHARES HELD (IN MILLIONS): 12.5 = PERCENTAGE OF OUTSTANDING SHARES: 1.68 Vanguard SHARES HELD (IN MILLIONS): = 11.4 PERCENTAGE OF OUTSTANDING SHARES: 1.54 (Source: Bloomberg Financial Ma= rkets)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Editorial Desk; Section A An Implosion on Wall Street 11/29/2001 The New York Times Page 34, Column 1 c. 2001 New York Times Company Enron, the energy-trading company, may be on the verge of extinction with t= he collapse yesterday of its proposed acquisition by Dynegy, a smaller comp= etitor, and the downgrading of its debt to junk status. But its name has at= tained immortality on Wall Street.=20 Enron is now shorthand for the perfect financial storm. Take a high-flying = company terribly impressed with its sense of unique mission and ingenuity, = and correspondingly contemptuous of its obligations to fully comply with th= e spirit of accounting rules. Then add fawning investors, Wall Street analy= sts, journalists and accountants unwilling to allow a company's lack of tra= nsparency about its business to get in the way of a dizzying ride, until th= ey realize the destination is the top of a steep cliff. What you have then = is an Enron. There have been plenty of other once-unfathomable implosions on Wall Street= , but perhaps none so sudden or of such magnitude. Jittery financial market= s now have to contend with the possibility that an Enron bankruptcy could u= ndermine the financial health of banks and other energy companies. Enron ra= nked seventh on the list of Fortune 500 companies last year, and remained o= ne of the most hyped stories on Wall Street well into this year. A pioneer = in creating private marketplaces for newly deregulated commodities, Enron w= as touted as a revolutionary force, bridging the dot-com world and stodgy e= nergy markets.=20 Now Enron may become one of the largest bankruptcy cases in history. Its st= ock closed yesterday at 61 cents, as investors rushed for the exits in reac= tion to the fatal news that, without a bailout from Dynegy, Enron is unlike= ly to be able to meet its crushing debt obligations.=20 The company's autopsy will be a complicated affair, entailing numerous laws= uits. What is already clear, and will come as a shock to millions of trusti= ng individual investors across America, is that the financials of a Fortune= 500 company were essentially a mystery. Enron's death watch began last mon= th when it grudgingly disclosed that $1.2 billion of its market value had v= anished as a result of ''related-party'' transactions with private partners= hips that enriched company insiders. Then Enron admitted that it had overst= ated its profits over the last five years by $600 million. Dynegy cited Enr= on's lack of forthrightness as a reason to walk away from the merger agreem= ent.=20 Not very long ago, competitors and Democrats in Washington were worrying wh= ether the close ties between Enron's chairman, Kenneth Lay, and George W. B= ush would give the company too much influence. Enron has aggressively lobbi= ed, with some success in recent years, to limit regulation and disclosure o= f its trading operations.=20 Now Enron is the best argument for the need for stronger supervision of pub= lic companies' financial data. The Securities and Exchange Commission shoul= d make sure that the energy trader's saga puts an end to any talk of lessen= ing disclosure requirements faced by public companies. Moreover, Arthur And= ersen's failure to uncover flawed accounting by Enron, or to forcefully que= stion some of the company's shadier transactions, raises serious concerns a= bout auditors' commitment to be sufficiently diligent in reviewing the acti= ons of major companies.=20 There is a certain irony that Enron, a champion of deregulation, now become= s a poster child for the need for strong regulation on Wall Street. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S COLLAPSE: THE LENDERS Citigroup and J.P. Morgan Are Left With Bruised Egos and Exposure to Loans By RIVA D. ATLAS 11/29/2001 The New York Times Page 6, Column 2 c. 2001 New York Times Company Dynegy's decision to walk away from Enron leaves Citigroup and J. P. Morgan= Chase licking their wounds after an effort to burnish their reputations as= deal makers.=20 As lead advisers and lead bankers for Enron, the banks had the chance to bu= ild influence in the merger business. Unlike other Wall Street firms, Citig= roup and J. P. Morgan have large balance sheets and have boasted of their a= bility to provide both loans and advice. J. P. Morgan, in particular, ''has= been saying that providing financing is an advantage they have in terms of= building their investment banking franchise,'' said Richard Strauss, a Gol= dman, Sachs analyst following brokerage firms. Now, not only have the banks lost bragging rights for pulling off a difficu= lt deal, as well as millions in fees, they are also left holding hundreds o= f millions in loans to Enron, which is trying to stave off bankruptcy. Enro= n owes the two banks anywhere from $800 million to $900 million each, altho= ugh some of it may be hedged through derivatives contracts, analysts estima= ted.=20 In bankruptcy, of course, creditors come well ahead of shareholders, who ha= ve now been virtually wiped out. Janus Capital was the biggest shareholder = for most of the year, but Alliance Capital surpassed it as of Sept. 30, acc= ording to the latest regulatory filing available. Enron's stock plunged to = 61 cents yesterday.=20 Worries about the money Enron owes the banks punished their stocks yesterda= y. Citigroup's shares closed at $47.80 each, down $2.75, while J. P. Morgan= fell $2.30, to $37.50.=20 Even if Enron files for bankruptcy, neither J. P. Morgan nor Citigroup is t= hought to have enough exposure to be at serious risk. Executives of the ban= ks declined to comment on the estimates of their exposure. While the banks = had each promised to make equity investments in the companies of $250 milli= on each, those investments have been canceled along with the Dynegy deal.= =20 About half of the money owed to J. P. Morgan and Citigroup consists of a $1= billion loan the banks made earlier this month that is secured by one of E= nron's pipelines. Citigroup lent $600 million, and J. P. Morgan provided th= e rest, according to an executive close to the Enron negotiations. The rema= inder owed to the banks is in various loans, trading positions and other in= vestments not secured by Enron assets.=20 Given that there are assets backing much of the banks' loans, some analysts= said the stock market had overreacted. ''The net exposure could be very sm= all,'' said Andrew Collins, who covers bank stocks at U.S. Bancorp Piper Ja= ffray and is recommending Citigroup and J. P. Morgan.=20 Jeffrey McMahon, Enron's chief financial officer, said the company was stil= l working with J. P. Morgan Chase and Citigroup to restructure Enron's debt= s.=20 Several other banks may own large amounts of Enron debt. Bank of America ha= s $200 million to $300 million, according to estimates by Lori Appelbaum, w= ho follows bank stocks for Goldman, Sachs, and Ruchi Madan, a stock analyst= at Salomon Smith Barney. Other banks identified by the analysts as owed mo= ney are the Bank of New York, Bank One, FleetBoston Financial, SunTrust and= the Wachovia Corporation. A spokesman for SunTrust did not return calls; e= xecutives at the other banks declined to comment.=20 In what appears to have been bad timing, Alliance Capital Management, a sub= sidiary of AXA, increased its stake in Enron late this summer. Janus, a uni= t of Stilwell Financial, had been the biggest shareholder, but was pruning = its stake. Alliance's position grew 71 percent in the report filed in Septe= mber, to 5.8 percent of Enron's outstanding. Jane Ingalls, a spokeswoman fo= r Janus, said last night that Janus had since sold all its shares, but did = not say when or at what price. A spokesman for Alliance would not comment a= bout its stake in Enron. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S COLLAPSE: THE MARKET In Turbulent Bond Market, Enron's Woes Exacerbate Turmoil By GRETCHEN MORGENSON 11/29/2001 The New York Times Page 1, Column 2 c. 2001 New York Times Company The swift downfall of Enron has contributed to extreme turbulence in the Un= ited States Treasury market in recent weeks, causing violent swings in inte= rest rates not seen since Russia defaulted on its debt and the Long-Term Ca= pital Management hedge fund nearly collapsed in late 1998.=20 Even though the exact makeup of Enron's large trading portfolio remains a m= ystery, traders said that the energy company had bet that interest rates wo= uld continue to decline because of continuing weakness in the economy. Then two weeks ago, the economy began to show signs of revival. As investor= s decided that the days of Federal Reserve rate cuts were over, rates began= to rise and prices on Treasury securities fell. The move out of Treasuries= crushed traders who still expected the weak economy to push interest rates= lower. Scrambling to cut their losses, those traders sold even more, depre= ssing prices and pushing up rates further.=20 The sense among many market participants is that Enron's woes made a bad ma= rket excruciating. ''I think the Street in general lost half of its year or= more in the last week or two,'' said Stan Jonas, managing director at Fima= t USA, a broker dealer. ''Everyone was long the bond market, thinking the e= conomy was going to be bad. Then everything shifted, and Enron drove it to = extremes.''=20 How extreme? In the two weeks beginning Nov. 12, two-year Treasury notes pl= ummeted in price, pushing their yields up to 3.18 percent, from 2.41 percen= t. In the same period, yields on Treasuries with five-year maturities went = to 4.4 percent, from 3.62 percent.=20 The trade that appears to have gone awry for Enron, market participants say= , involved the sale of hundreds of thousands of Eurodollar futures, some of= which matured in two or three years. Such contracts are frequently used to= bet on the direction of interest rates. Enron could also have used the Eur= odollar contracts to hedge against fluctuations in oil prices. In a weak ec= onomy, oil prices usually fall. But so do interest rates, so a bet on lower= rates would produce gains to help offset the decline in oil prices. When d= ata showed signs of life in the economy, traders surmised that Enron began = to sell its Eurodollars and started an avalanche of selling among other tra= ders.=20 There were huge Eurodollar positions being liquidated, said Gemma Wright, d= irector of market strategy at Barclays Capital. ''We don't know for certain= who it was, but the amount of the loss was high.''=20 One reason that traders suspect Enron may have been forced out of such a po= sition was that the company had neither the cash flow nor the bank credit t= o meet calls for additional cash from traders at other firms. Typically, co= mpanies have cash reserves to meet such calls or have access to temporary l= ines of credit to cover shortfalls. Enron appears to have neither. Yesterda= y, the company said it was suspending all payments except for those ''neces= sary to maintain core operations.''=20 In addition to the recent interest rate spike, Enron has had to contend wit= h falling oil prices. The price of crude oil has dropped 28 percent since t= he end of October.=20 Caught in a vise, Enron has almost certainly been selling securities to rai= se cash. Treasury securities and Eurodollar contracts, because their market= s are large, are among the easiest to sell. In both cases, Enron was probab= ly selling into a falling market.=20 Adding to the turmoil in the bond market, traders said, was less participat= ion by Wall Street firms, which were unwilling to take on big new trading p= ositions near the end of their fiscal year. Several firms end their years o= n Nov. 30.=20 Some traders say Enron's problems started with comments on Tuesday by Laure= nce H. Meyer, a governor of the Federal Reserve. Mr. Meyer suggested that a= dditional rate cuts might be coming, and that remark helped stabilize price= s of Treasury securities. ''It's my view that there are no coincidences,'' = Mr. Jonas said. ''Laurence Meyer is a big hawk on interest rates, and he ba= sically talked a 180. That was their big gun. The only bigger gun would hav= e been Greenspan.'' Graph: ''Market Catalyst'' The swift demise of Enron and the company's inve= stment strategies in the bond market may have contributed to the sharp rise= in the yields on Treasury notes in the last few weeks. Graph tracks daily = yields on 2 year Treasury notes in November. (Source: Bloomberg Financial M= arkets)(pg. C7)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section A ENRON'S COLLAPSE: MARKET PLACE A Big Fall Evoking Nasty Old Memories Of a Run on a Bank By FLOYD NORRIS 11/29/2001 The New York Times Page 1, Column 1 c. 2001 New York Times Company The final collapse of Enron amounted to something that few living Americans= have ever seen: a bank run like those in the days before deposit insurance= .=20 Enron appeared to become a wildly successful company by creating a new, lar= gely unregulated financial business, that of energy trading. That business = ran on credit, and required suppliers and users of energy to sign contracts= that called on Enron to meet obligations months or years later. Enron became something like a bank, which takes depositors' money and promi= ses to pay it back later. But unlike banks in the current era, this institu= tion had no federal deposit insurance to reassure customers when rumors beg= an to spread that it was in trouble. That proved to be its Achilles' heel. = Enron's collapse is a reminder for big players in unregulated markets that = their financial health must be beyond doubt.=20 Before the advent of deposit insurance, bankers knew what was needed to hea= d off a bank run. It was cash, so much cash that it would be clear that pan= ic was unwarranted. Nearly a century ago, J. P. Morgan took the lead as he = and fellow banking tycoons put up the millions needed to keep the Trust Com= pany of America open. Thus was halted the Panic of 1907.=20 As it happened, corporate descendants of two major institutions involved in= that rescue -- J. P. Morgan Chase and Citigroup -- were major players in t= he Enron debacle. But they did not try the strategy this time.=20 Instead, Enron kept arranging an additional billion or two in loans, clearl= y struggling to find the money. Morgan and Citigroup allowed the word to sp= read that they were ready to put in more money on their own, but the amount= s were relatively small, and somehow the money was never invested.=20 When Dynegy agreed to buy Enron, it put up $1.5 billion in cash only after = it was assured that it would get control of the company's crown jewel, the = Northern Natural Gas pipeline system, or its money back, if the deal collap= sed.=20 The final straw came on Tuesday, when negotiations on a revised Dynegy take= over deal came down to efforts to find $250 million or $500 million of Enro= n assets that could serve as collateral for a new Dynegy cash advance. The = message to companies that traded with Enron was clear: even its rescuer is = demanding collateral, and is having trouble finding it.=20 Given that, Enron's financial business could not continue. Public haggling = over the terms of the rescue assured that no rescue was possible, something= that would have been obvious to the original J. P. Morgan but that seemed = to escape his corporate heirs. As Walter Bagehot, the British financial jou= rnalist and historian, wrote in 1873, ''Every banker knows that if he has t= o prove that he is worthy of credit, however good may be his arguments, in = fact his credit is gone.''=20 The markets Enron helped to create will endure, but probably without Enron.= It will be interesting to see whether participants in them continue to res= ist regulation as much as they have in the past. Unregulated markets, espec= ially when they are relatively new, can be very profitable for those with s= uperior market knowledge, as Enron seemed to have. But when prices are visi= ble to all, the value of that knowledge plummets. Regulation could bring mo= re openness, but it could also bring structures, like clearing systems, tha= t reassure traders they need not worry about the credit of those with whom = they trade.=20 If the markets continue to be unregulated, Enron's collapse makes it more l= ikely that the big players in those markets will be companies that are alre= ady regulated enough to assure customers that they are secure -- companies = like major banks and brokerage houses. That would be bad news for Dynegy, w= hich was Enron's major competitor before it tried to become its acquirer.= =20 The crisis at Enron may have exposed a ''flaw in the business model'' of en= ergy trading companies, said John Diaz, a managing director at Moody's, in = an interview yesterday. ''Companies in this industry need to think carefull= y about their liquidity management,'' he said. ''We're going to be looking = very hard at this.''=20 The litigation over Enron seems likely to be prolonged and expensive, but i= t may boil down to Senator Howard H. Baker Jr.'s famous Watergate-era quest= ion about President Richard M. Nixon: What did he know and when did he know= it?=20 That question will be asked about Arthur Andersen, Enron's auditor, and abo= ut its corporate officials, past and present. But it will be asked most par= ticularly about the banks and investment banks that served Enron and its af= filiated off-balance- sheet entities in recent years.=20 Enron's disclosures last week showed it needed to pay far more in debts ove= r the next year than most people had understood to be the case. But the new= ly discovered loans did not materialize out of thin air. The money was lent= by banks and bond buyers to the off-balance-sheet entities. Those who were= stuck with losses on the known Enron debt may claim the financiers who syn= dicated the loans should have told them of all the other debt.=20 Among those who do not come out of this looking very good are the bond rati= ng agencies. Just six weeks ago, after Enron put out an earnings release sh= owing strong pro-forma profits, as it defined them, two of the agencies, Fi= tch and Standard & Poor's, reaffirmed Enron's rating of triple-B plus. Mood= y's, the agency that was the most skeptical about Enron, put the rating und= er review and hinted it would, at worst, cut it one notch.=20 None of the rating agencies seemed overly concerned about a detail disclose= d by Enron at the time: a $1.2 billion reduction in shareholder equity rela= ted to what it later said were accounting mistakes involving a partnership = run by Enron's chief financial officer. But that disclosure set off a casca= de of questions that Enron could not answer in a reassuring way. It ran thr= ough billions as companies demanded more protection to keep trading with it= .=20 Enron could have been saved, if an institution that was trusted -- whether = that was Chevron Texaco, which put up the $1.5 billion cash that Dynegy inv= ested, or J. P. Morgan Chase or Citigroup -- had made it clear that it was = willing to stand behind Enron. A credible backer would have ended the run.= =20 But no one was willing to do that, and their hesitance as they learned more= only accelerated the run. Whether they were wise to avoid that exposure ma= y become clear as it emerges how much creditors will eventually get.=20 Finally, the rating agencies yesterday downgraded Enron to relatively low l= evels of junk. They knew that was likely to force Enron into bankruptcy in = the near future, but they also knew that no one was willing to rescue a com= pany that the agencies had viewed as solid only weeks before.=20 Yesterday, as Dynegy walked away from the merger, it said that it was no lo= nger willing to trade with Enron -- unless Enron put up ''sufficient credit= support.'' It knew that support was nowhere to be found. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S COLLAPSE: THE CHIEF EXECUTIVE Foundation Gives Way On Chief's Big Dream By JOHN SCHWARTZ and RICHARD A. OPPEL Jr. 11/29/2001 The New York Times Page 1, Column 5 c. 2001 New York Times Company Well before anyone could imagine that Enron might collapse, Kenneth L. Lay = was stumped. In an interview in August, he dismissed questions about a vagu= e clause in the energy company's annual report that hinted at bigger proble= ms if its stock price or credit rating fell below certain levels.=20 ''I just can't help you on that,'' he said. Pressed further on questions ab= out a bewildering constellation of business partnerships that involved Enro= n's former chief financial officer, he said, ''You're getting way over my h= ead.'' At the least, Mr. Lay -- a man of big ideas, a crusader for free markets, a= risk taker in the Texas wildcatter tradition -- had taken his eye off the = ball. While he was busy befriending the nation's most powerful politicians,= erecting one of the tallest buildings in Houston and pasting Enron's logo = on the city's new ballpark, the little things were turning out to be Mr. La= y's big problems.=20 One after another, disclosures spilled out of his company over the last mon= th: the partnerships had hidden billions in debt; years of Enron's reported= profits had been exaggerated; the government was investigating. Rivals wer= e shunning Enron's energy trading desks, which Mr. Lay had built into the w= orld's leaders. And sure enough, the stock price tumbled day after day, and= credit agencies lowered Enron's ratings once and then yesterday again, tur= ning the company's debt to junk and its shares into a penny stock.=20 Three weeks ago, Mr. Lay tried to salvage his creation by selling it to Dyn= egy, his Houston rival. Yesterday, Dynegy pulled out of the deal. Deprived = of enough information, and then repelled by what they learned, the free mar= kets in which Mr. Lay had put so much faith all but destroyed, in a matter = of weeks, everything he had built.=20 ''If they had been going a slower speed, the results would not have been di= sastrous,'' said Bob McNair, a Houston energy entrepreneur who sold the bul= k of his own company to Enron three years ago. But Enron, he said in an int= erview this month, was like a race car, and the markets like an unforgiving= track. ''It's a lot harder to keep it on the track at 200 miles per hour,'= ' he said. ''You hit a bump and you're off the track.''=20 From his youth, Mr. Lay, 59, had nurtured an abiding faith in the markets' = wisdom. He studied economics at the University of Missouri, living at home = to save on room and board, and eventually earned a Ph.D. in the subject. As= a naval officer serving in the Pentagon, he worked to develop more efficie= nt accounting systems. Later, he served as an aide to a federal government = regulator for the natural gas industry -- a market that Enron would come to= dominate.=20 Moving into the private sector, he worked his way up the ranks of the natur= al gas industry, becoming chief executive in 1984 of the Houston Natural Ga= s Corporation, a big regional pipeline operator. He engineered its merger w= ith Internorth, an Omaha pipeline company, and then became chief executive = of the combined company and changed its name to Enron.=20 Mr. Lay saw Enron's mission as far more than being a conduit for fuel. At t= he time, gas prices were regulated and pipelines played a relatively passiv= e role; buyers and sellers could not cut deals on the fly. But as oil price= s plunged in the mid-80's and gas users began switching to cheaper fuel oil= , Mr. Lay returned to Washington to argue, successfully, for rules changes = that he said would save the pipeline business by allowing operators to shop= for the best deals from both gas producers and utilities.=20 The new flexibility brought the threat of chaos, however, as natural gas pr= ices began fluctuating wildly. That is when the new Enron was truly born. T= o help customers shield themselves from risk, Mr. Lay's Enron developed hed= ging contracts for gas like those traded in the markets for corn and copper= and winter wheat. Its innovative ''gas bank'' let utilities lock up the lo= ng-term prices that they craved; Enron lined up the gas supplies from produ= cers, arranged for delivery -- and took a cut of every deal.=20 That business became the forerunner of Enron's entry into hundreds of other= markets, helping customers obtain supplies and manage risks in products ra= nging from electric power to pulp and paper and, most recently, fast broadb= and access to the Internet. Trading soon provided more of the company's pro= fits than the traditional natural gas business.=20 While other companies, including Dynegy, focused on accumulating hard asset= s like pipelines, turbines and gas fields, Enron increasingly saw itself as= a pure trading company with an almost limitless future.=20 ''There is a very reasonable chance that we will become the biggest corpora= tion in the world,'' Mr. Lay's handpicked successor as Enron's chief execut= ive, Jeffrey K. Skilling, told the authors of a book, just published, about= business on the Internet. Even the book's title, ''Radical E: From GE to E= nron -- Lessons on How to Rule the Web'' (PricewaterhouseCoopers), showed t= he cachet the company had attained. Enron, the authors wrote, was ''creatin= g a culture in which radical and creative thinking is encouraged and reward= ed.''=20 Mr. Skilling abruptly resigned in August, after just six months on the job,= propelling Mr. Lay back into the gritty details of Enron's businesses that= he had sought to leave to others.=20 As the company grew, he had become increasingly involved in public affairs,= serving as host when a global economic conference was held in Houston in 1= 990 and when the Republican National Convention came to the city in 1992.= =20 Like the leaders of many big Texas businesses -- the construction colossus = Brown & Root after World War II or Ross Perot's Electronic Data Systems in = the 1960's -- Mr. Lay knew the value of courting politicians and policy mak= ers.=20 He played golf with President Bill Clinton; became good friends with the Te= xas governor, Ann Richards; and supported Senator Phil Gramm of Texas, whos= e wife, Wendy, a former chairwoman of the Commodities Futures Trading Commi= ssion, joined Enron's board.=20 ''He's a stand-up guy,'' said Ms. Richards, now a business consultant in Ne= w York. Asked to be more specific, she said, ''He's at the meeting'' -- mea= ning she could count on Mr. Lay to become directly involved with whatever s= he asked him to do, and not just sign onto a project for show.=20 Mr. Lay's deepest political ties were with the Bush family. In the 1980's, = he became a major fund-raiser for George H. W. Bush. When Mr. Bush lost his= 1992 campaign for re-election as president, Mr. Lay brought a number of se= nior Bush aides to Enron as directors or consultants, including James A. Ba= ker III, the former secretary of state, and Robert A. Mosbacher, the former= secretary of commerce.=20 Mr. Lay also cultivated Mr. Bush's son George W. long before he was conside= red a serious national candidate. After the younger Mr. Bush's election as = Texas governor in 1994, Mr. Lay became head of the Governor's Business Coun= cil, an important advisory post.=20 The bond with President Bush is personal. As governor, Mr. Bush sent Mr. La= y a kidding note in 1997. ''One of the sad things about old friends is that= they seem to be getting older -- just like you!'' he wrote. ''55 years old= . Wow! That is really old. Thank goodness you have such a young, beautiful = wife,'' he added, a reference to Mr. Lay's wife, Linda.=20 In 1999, Mr. Lay sent a handwritten Christmas note to Mr. Bush and his wife= , Laura. ''Linda and I are so proud of both of you and look forward to seei= ng both of you in the White House,'' he wrote.=20 Yesterday, the White House press secretary, Ari Fleischer, said the Treasur= y Department was monitoring Enron's downfall for its effect on the market. = Asked if the president himself had any reaction, Mr. Fleisher said, ''The p= resident's reaction is that it should be monitored.''=20 In some ways, Enron's collapse was one more example of the bursting of the = Internet bubble. But Mr. Lay was not some stylish dot-com brat; by all acco= unts, he is an immensely likable product of Middle America. Growing up in t= iny Rush Hill, Mo., he was driving a tractor by age 12 and salting away sav= ings. By 16, his sister Sharon recalled this week, ''he was bucking bales''= -- that is, loading hay -- ''and had two jobs in the summer, painting hous= es.''=20 ''I don't think you could ever say that he did something the easy way,'' sh= e said.=20 That work ethic ran in the family. Mr. Lay's father was a minister who also= sold farm equipment. The family's finances were spotty, ''at times no mone= y, at times some money,'' Ms. Lay recalled. Still, the Lays took in people = from their church who were in need.=20 Over the last decade or so, Mr. Lay earned some $300 million from Enron, mo= stly by exercising stock options. Earlier this month, when employees grew i= ncensed at the prospect of his collecting a big severance package with the = company's sale to Dynegy, he volunteered to walk away from $60 million in p= ayments.=20 Mr. McNair, the Houston entrepreneur, who has known Mr. Lay for years, sugg= ested that perhaps everything had not been disclosed to him. ''Maybe the pe= ople who reported to him told him what they wanted him to hear, but they we= ren't telling him everything,'' he said.=20 Mr. McNair said he spoke to Mr. Lay recently and found him ''somewhat in a = state of shock.'' Mr. McNair added, ''He's devastated.''=20 In the end, it seems, the man whose company did so much to help others mana= ge their risk could not manage his own. Photos: A portrait of the chairman from Enron corporate report for 1999. (E= nron)(pg. C7); (pg. C1) Graphs: ''Enron's Collapsing House of Cards'' Kenne= th L. Lay, starting with an ordinary pipeline business, turned Enron into o= ne of the fastest growing companies of the 1990's. But it has swiftly colla= psed since revealing huge hidden debts, causing its stock to plunge and req= uiring it to restate earnings. Graphs track Enron's stock price and sensor = debt rating since Sept. and Enron's earnings since 1997. (Sources: Bloomber= g Financial Markets; Moody's; Enron)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S COLLAPSE: THE DERIVATIVES Market That Deals in Risks Faces a Novel One By DIANA B. HENRIQUES 11/29/2001 The New York Times Page 7, Column 1 c. 2001 New York Times Company When members of the International Swaps and Derivatives Association gathere= d in Washington last April, the man they all wanted to hear was Jeffrey K. = Skilling, then the president and chief executive of Enron.=20 Enron had helped create the global market for energy-based derivatives -- c= ustomized risk-swapping contracts that enable companies to hedge their expo= sure to changing energy prices and supply fluctuations. Even among traders = more familiar with interest-rate swaps or currency hedges than energy contr= acts, Mr. Skilling's presentation did not disappoint. ''He dazzled everybody -- it seemed he could figure out a way to trade the = minutes on this phone call,'' one industry executive said.=20 But yesterday, many of those same executives were crossing their fingers an= d hoping that Enron's crisis would not spread into the energy swaps market = that the company had done so much to enliven.=20 As the day ended with fairly stable trading, there were a few cautious sigh= s of relief. But nobody is quite sure just how much money the energy-relate= d derivatives markets will have at risk if Enron fails.=20 According to Swaps Monitor Publications, which collects data for the deriva= tives markets, Enron ranks among the top energy-swaps traders in the world,= on a par with financial giants like Bank of America and Barclay's.=20 At the end of September, Enron's gross derivatives trading liabilities -- t= he amount of money it would owe to other market players if it filed for ban= kruptcy -- stood at $18.7 billion, up slightly from June levels but about $= 1.3 billion less than at the end of last year.=20 But that level may overstate the risk to other companies. ''These numbers d= o not take into account the unknown amount of collateral that Enron may hav= e posted,'' said Paul Spraos, Swaps Monitor's president. Such collateral sh= ould, in principle, diminish Enron's actual liabilities to the derivatives = market, he said.=20 In a typical energy swap, a company will enter into a contract to lock in a= fixed price of a certain commodity, like natural gas or electricity. The o= ther company, the counterparty, in the deal assumes the risk of future pric= e changes and quotes a fixed price that includes its own profit. The effici= ent trading and pricing of these contracts requires a marketplace with larg= e, active traders.=20 As of last night, there were no signs of a major panic that would drive maj= or participants to the sidelines, industry executives said.=20 ''It's not likely that Enron's problems will cause serious difficulty for a= ny other sizable counterparty,'' said Mark C. Brickell, a veteran swaps-mar= ket executive and the chief executive of Blackbird, a technology firm that = operates an electronic swaps-trading system. ''While there may be some smal= ler firm that didn't manage its exposure as well as it might, that won't ca= use any major problems for the system as a whole.''=20 Michael Williams, managing director of TradeSpark, a rival to Enron's onlin= e energy-trading system, agreed that there was ''no sign of shrinkage'' in = the marketplace yesterday. ''So far, we've seen no complaints about a lack = of liquidity,'' he added.=20 Most participants in the energy derivatives market rely on a standard contr= act that was developed by the International Swaps and Derivatives Associati= on and is recognized in the courts. The contract clearly specifies the righ= ts each party has in the event of a default, said Robert Pickel, the associ= ation's chief executive. As of late yesterday, he added, the markets appear= ed ''to be fairly resilient in the face of extremely negative developments = regarding such a major player.''=20 But at least one lawyer who specializes in swaps contracts indicated that i= t might be too soon to assess the full impact. That lawyer, Ann O'Hara, in = Lincoln, Neb., said that her clients' anxiety about Enron had escalated sha= rply only in the last few days. ''No one believed it would really happen,''= she said. ''It is not a surprise, but it is a shock.''=20 ''We don't really know who is out there exposed to Enron's credit,'' she ad= ded. ''I'm telling my clients to prepare for the worst.'' Chart: ''Big Bets On Derivatives'' Enron's derivatives-trading activity is = substantial when measured by the total gross amount of money it owes to der= ivatives-trading partners. Dec. 31 2000: $20.0 bil. Mar. 31 2001: $21.3 bil= . June 30: $17.5 bil. Sept. 30: $18.7 bil. (Source: Swaps Monitor)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C THE MARKETS: STOCKS & BONDS Investors Pull Back as Enron Drags Down Key Indexes By Reuters 11/29/2001 The New York Times Page 10, Column 1 c. 2001 New York Times Company Stocks sank yesterday as Enron teetered on the brink of one of the biggest = corporate implosions in United States history and added to the debate swirl= ing around the market's powerful run-up.=20 ''The market has come awfully far, awfully fast,'' said Jon Brorson, direct= or of equities for Northern Trust, which manages more than $300 billion. ''= Enron is weighing on it, too. I think people are a little squeamish as to t= he reverberations, and it's a great excuse to take some profits.'' Enron fell $3.50, or more than 85 percent, to 61 cents, in frenzied trading= after Dynegy pulled out of its $9 billion takeover. Shares of Dynegy were = off sharply as well, dropping $4.08, nearly 10 percent, to $36.81.=20 Credit rating agencies sharply cut Enron's bonds, to junk status, pushing t= he company, a once mighty energy trader, another step toward bankruptcy.=20 Enron squeezed other energy traders and financial giants, including Citigro= up and J. P. Morgan Chase, which might suffer losses of more than $400 mill= ion combined on the loans that they made Enron, an analyst said. Citigroup = was off $2.75, to $47.80; J. P. Morgan fell $2.30, to $37.50.=20 The blue-chip Dow Jones industrial average surrendered 160.74 points, or 1.= 6 percent, to 9,711.86, the largest drop in about a month and the lowest cl= ose since Nov. 12. The Standard & Poor's 500-stock index slid 20.98 points,= or 1.8 percent, to 1,128.52. The technology-laden Nasdaq composite index d= ropped 48 points, or 2.5 percent, to 1,887.97.=20 Enron dragged on the market as Wall Street questioned the rally that had li= fted stocks well off the Sept. 21 lows. Investors, still expecting an econo= mic recovery in 2002, pocketed profits on worries that share prices were ge= tting too far ahead of prospects for corporate earnings.=20 Milton Ezrati, a senior strategist at Lord Abbett & Company, which oversees= $40 billion, said, ''The market felt it was getting a little too optimisti= c a little too quickly and there's recognition of the many, many risks in t= his environment.''=20 Economic conditions were still sluggish in late October and early November = after the Sept. 11 attacks, according to a Federal Reserve beige book repor= t, which is an anecdotal snapshot of the economy based on reports from the = 12 regional banks of the Fed.=20 --------------------=20 Treasury Prices Fall=20 By Bloomberg News)=20 Treasury bond prices fell yesterday, after the government's biggest sale ev= er of two-year notes flooded the market with debt.=20 The Treasury sold $21 billion of the two-year notes, up from $19 billion in= October's auction, part of an effort by officials to finance a spending in= crease with the sale of short-dated debt.=20 It was the biggest monthly auction of two-year notes since the Treasury beg= an selling the securities in 1972, swelling supply and driving down prices.= =20 The 10-year Treasury note fell 3/32, to a price of 100 17/32. The note's yi= eld, which moves in the opposite direction from the price, rose to 4.93 per= cent from 4.92 percent on Tuesday.=20 The price of the 30-year Treasury bond fell 10/32, to 100 11/32. The bond's= yield rose to 5.35 percent from 5.33 percent on Tuesday.=20 Results of yesterday's Treasury auction of two-year notes:=20 (000 omitted in dollar figures)=20 High Price: 99.985=20 High Yield: 3.008%=20 Low Yield: 2.900%=20 Median Yield: 2.960%=20 Accepted at low price: 15%=20 Total applied for: $36,928,640=20 Accepted: $26,167,440=20 Noncompetitive: $774,120=20 Interest set at: 3=20 The two-year notes mature Nov. 30, 2003. Graph tracks the Dow Jones industrial average over the past year. (Sources:= Associated Press; Bloomberg Financial Markets) Tables: ''Hot & Cold'' prov= ides a look at stocks with large percentage gains and losses; ''The Favorit= es'' lists stocks held by largest number of accounts at Merrill Lynch. (Com= piled from staff reports, The Associated Press, Bloomberg News, Bridge News= , Dow Jones, Reuters) Graph ''Freddie Mac Yields'' tracks 15 and 30-year fe= deral home loans since August. (Source: F.H.L.M.C.) Graph ''2-Year Treasury= Notes'' tracks high yields in percent since 2000. (Source: Treasury Depart= ment)=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business/Financial Desk; Section C ENRON'S COLLAPSE: THE RATING AGENCIES Debt Rankings Finally Fizzle, but the Deal Fizzled First By ALEX BERENSON 11/29/2001 The New York Times Page 7, Column 1 c. 2001 New York Times Company In the end, the rating agencies hardly mattered.=20 For weeks, Wall Street wondered whether Moody's Investors Service, Standard= & Poor's and Fitch's, the three major agencies rating corporate debt, woul= d drop Enron's rating below investment grade. Enron and Dynegy warned that cutting the rating might jeopardize Dynegy's a= cquisition of Enron. Executives at big securities firms that stood to profi= t from the deal pressed Moody's to keep ratings at investment grade, even a= s Enron bonds fell to levels indicating that the debt was highly risky.=20 But even an investment-grade rating could not save Enron's business from co= llapse over the last month. After a series of damaging revelations about En= ron's finances, the company's partners demanded extra capital for its trade= s or stopped trading with it. By the time the rating agencies decided yeste= rday that Enron might well default on its debt, Dynegy had decided on its o= wn to walk away.=20 ''It wasn't really the reason that Dynegy backed out of the deal,'' said To= dd Shipman, the Standard & Poor's analyst who was the first to cut Enron's = rating yesterday.=20 The cuts dim the hopes Enron had of avoiding bankruptcy. All three agencies= slashed Enron's debt far below investment grade. Moody's cut Enron's ratin= g 5 notches, Standard & Poor's lowered it 6, and Fitch slashed it 10, to CC= , its third-lowest grade.=20 ''Default is a probability,'' said Glen Grabelsky, the senior director of c= redit policy for Fitch. Enron has $13 billion in debt outstanding and about= $10 billion more in loans, made by partnerships, that the company has guar= anteed.=20 The aggressive rating cuts may not mollify the investors who have sharply c= riticized the agencies for being slow to act in recent weeks. Officials at = all three agencies defended themselves yesterday, saying they had acted pru= dently.=20 After Dynegy agreed to buy Enron, Moody's tried to calculate the chances th= at the deal would go through, that Enron would remain strong until it was c= ompleted and that the combined company would carry a strong rating, said Jo= hn Diaz, managing director for Moody's power and energy group.=20 At first, those questions seemed to have reassuring answers, Mr. Diaz said,= so Moody's kept Enron's investment-grade rating.=20 But in recent days, other companies have shied away from doing business wit= h Enron, and its losses have soared. ''Basic cash flow was slowing down at = the same time that the cost structure of the company was the same,'' Mr. Di= az said. Enron's mounting losses discouraged Dynegy, he said.=20 ''Over the last 24 hours, the probability that we've assigned to these thre= e key issues was looking to be a lot smaller,'' Mr. Diaz said.=20 Mr. Grabelsky said the acquisition uncertainty presented the agencies with = a situation where Enron's debt could be very strong, if the deal worked, or= highly risky.=20 ''There is no middle ground,'' he said. ''It's one or the other.'' Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 GLOBAL INVESTING - Bond mutual funds suffer as Enron's troubles deepen. By ELIZABETH WINE. 11/29/2001 Financial Times (c) 2001 Financial Times Limited . All Rights Reserved According to the mostrecent filings, about 125 investment-grade bond mutual= funds - or about 12 per cent of US bond funds - held the debt of Enron, th= e troubled energy trader whose bonds were downgraded to junk status yesterd= ay.=20 The company was abandoned yesterday by its takeover partner Dynegy, the com= bined blows sending Enron's bonds to 15 to 25 cents in the dollar, down fro= m 53 cents before the news broke. According to fund tracker Morningstar, three bond funds held 4 per cent or = more of their portfolios in Enron debt, as of the most recent regulatory fi= lings. They are the $162m-asset WesMark Bond Fund, which allocated 4.1 per = cent of its portfolio, or $6.6m, to Enron bonds as of September 30; the $76= m ARK Short Term Bond Fund, which had a 4.05 per cent position, or $3.4m as= of September 30; and the $50m First Focus Short/Intermediate Bond Fund, wh= ich had a 4.15 per cent slice of its portfolio in the bonds, worth $2.07m a= s of September 30.=20 Although these are just single-digit positions, a loss from par value to 20= cents on the dollar in a 4 per cent holding could trim off half of a fund'= s return, said Scott Berry, Morningstar bond fund analyst.=20 The average intermediate bond fund has returned 7.3 per cent so far this ye= ar, according to Morningstar. A loss from par value to 20 cents on the doll= ar in a 4 per cent stake could reduce a 7.3 per cent return to roughly 3.3 = per cent, Mr Berry said.=20 "With bonds, there's much more downside than upside. Typically, the downsid= e is never realised because these investment-grade bonds are strong enough = to weather the storm, but Enron just caught everybody by surprise over the = last couple of months," he said.=20 Other large investment-grade bond funds that held Enron's debt as of their = most recent filings include the $13.6bn Fidelity Short Term Bond fund, whic= h held 0.77 per cent, worth $27.7m as of April 30, and two of the Strong Fu= nds - the $1.36m Strong Corporate Bond fund, which held 0.77 per cent as of= September 30, or $10.5m, and the $1.43bn Strong Short Term Bond fund, with= a 0.63 per cent holding, also as of September 30, worth $9m.=20 Mr Berry said managers of investment-grade bond funds that still held the d= ebt were probably selling it, although most had the latitude to hold a bond= once it lost its investment-grade status. However, they also said junk-bon= d fund managers were unlikely to buy it, because other "fallen angel" bonds= such as Xerox had not performed well.=20 (c) Copyright Financial Times Ltd. All rights reserved.=20 http://www.ft.com. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 COMPANIES & FINANCE THE AMERICAS - SEC filing triggered merger crisis. By SHEILA MCNULTY. 11/29/2001 Financial Times (c) 2001 Financial Times Limited . All Rights Reserved Dynegy's rescue bid for Enron went into "crisis mode" 10 days ago, said Chu= ck Watson, Dynegy's chairman and chief executive.=20 In a filing to the SEC, Enron revealed a previously undisclosed $690m note = payment due this week, as well as that it had $9.15bn in debt due by the en= d of next year. The news provoked another round of selling in Enron's alrea= dy plunging share price, forcing Dynegy into 18-hour a day talks that ran t= hrough the Thanksgiving weekend and up to midnight on Tuesday.. "That may have been the last straw to some shareholders," Mr Watson said ju= st hours after withdrawing from Dynegy's $9bn merger with Enron. Enron had = been the biggest energy trader in the US until a crisis of confidence, begi= nning in October, that pushed it to the brink of bankruptcy.=20 "Every time we thought we had the pieces," he said. "Every time we put the = puzzle together it wasn't a clear strategy to go forward."=20 He said the talks resumed yesterday at 7am, but when the rating agencies be= gan downgrading Enron to junk status, Mr Watson called Ken Lay, Enron's cha= irman and chief executive, to say "it wasn't going to work".=20 "Once they downgraded the company, we thought, what was already an uphill b= attle, was too difficult," he said. Mr Watson said he offered to help any w= ay he could and the two men - who have long been friendly, cross-town rival= s - parted amicably.=20 Mr Watson has received several calls from other counter-parties in the busi= ness, thanking him for saving them from a meltdown by giving them the time = to limit their exposure to Enron. "I don't feel like a saviour, I feel tire= d," he said. But he acknowledged he provided a vast number of Enron's count= erparties, partners and customers a chance to better protect themselves aga= inst Enron's demise.=20 "There was a really strong effort to make it happen," he said. "In the end,= we couldn't find a solution that didn't risk Dynegy's responsibility to it= s shareholders and to its employees."=20 He says the merger agreement allows it to walk away with Enron's most valua= ble asset, the Northern Natural Gas pipeline, though if Enron disputes that= , at worst, it would leave with money invested in saving Enron. "We are as = solid as we were going into (the merger) and, maybe, better for the experie= nce," he said.=20 (c) Copyright Financial Times Ltd. All rights reserved.=20 http://www.ft.com. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 COMPANIES & FINANCE THE AMERICAS - Financial system braces for a chain reac= tion. 11/29/2001 Financial Times (c) 2001 Financial Times Limited . All Rights Reserved GARY SILVERMAN.=20 Enron's woes are raising risks for the financial system, threatening to set= off a chain reaction in the markets that could damage any number of partic= ipants in unforeseen ways. Individual banks could lose hundreds of millions of dollars apiece on loans= to Enron, but regulators are confident the lenders have sufficient capital= to weather such a storm.=20 The bigger worry is that Enron's difficulties could trigger ripple effects = in much the same way as Russia's default in 1998 destabilised the Long-Term= Capital Management hedge fund.=20 Prices for banking stocks tumbled yesterday in New York and London, in larg= e part because no one really knows what would happen if Enron were removed = from the financial scene.=20 Enron sat on a massive trading book, made up of complex derivatives transac= tions, some meant to stay in place for decades. On the other side were a ho= st of counterparties, many of them energy companies that are not supervised= by banking regulators.=20 The counterparties, in turn, have their own set of borrowing and trading re= lationships with banks that may be completely unaware of their customers' t= ies to Enron. Bankers also fear that because so many of these counterpartie= s were new to sophisticated trading, they may have been lax in collateralis= ing their deals.=20 For leading banks, Enron's woes could result in big hits to profits. Just a= bout every big lending bank has exposure to Enron, according to members of = the bank group.=20 At a meeting of Enron's creditors last week, one banker estimated there cou= ld have been 500 bankers representing 20 or more banks.=20 JP Morgan Chase and Citigroup are the most prominent members of the bank gr= oup, but Barclays, Credit Lyonnais, Credit Suisse First Boston, Deutsche Ba= nk and many others are exposed.=20 It was understood that JP Morgan Chase's direct exposure to Enron approache= s $900m, about $500m of it unsecured by the energy company's assets. Citigr= oup's direct exposure could reach $800m, about half unsecured.=20 European banks also could take hits. According to data from Loanware, for e= xample, WestLB, the German state-owned bank, has a $580m bridge facility ou= tstanding. This was extended as trade financing last year and does not appe= ar to have been syndicated.=20 However, analysts caution that determining the exposure of a particular ban= k to Enron is virtually impossible for outsiders. Many loans are syndicated= or sold, and bankers are also making increasing use of credit derivatives = that enable them to buy insurance against default from counterparties.=20 Barclays, for example, is one of the most active arrangers of finance for E= nron but it has syndicated most of its initial exposure. Its exposure is es= timated at less than #250m ( $356m). On the other hand, banks could be expo= sed to firms that dealt with Enron, which sold credit default insurance to = its trading partners, according to market participants.=20 Investors rerated banking stocks yesterday to account for expected exposure= s. Citigroup was down $2.75, or 5.4 per cent, to $47.80, while JP Morgan wa= s down $2.30, or 5.78 per cent, to $37.50. In London, shares in Barclays fe= ll 4 per cent, or 86p, to 2093p. Additional reporting by Joshua Chaffin in = New York and Rebecca Bream in London.=20 (c) Copyright Financial Times Ltd. All rights reserved.=20 http://www.ft.com. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 COMPANIES & FINANCE THE AMERICAS - Traders avoid exposure to junk status fa= llout. By ADRIENNE ROBERTS and ANDREW TAYLOR. 11/29/2001 Financial Times (c) 2001 Financial Times Limited . All Rights Reserved Energy traders on both sides of the Atlantic were doing very little busines= s with Enron even before credit rating agencies demoted the debt of the wor= ld's biggest power trader to junk status.=20 Rivals have been anxiously calculating their potential exposure to an Enron= collapse for at least a month - since the true extent of the company's cri= sis emerged. Most traders before yesterday were only prepared to be buyers of electricit= y and gas from the group, on the basis that it was better to owe than be ow= ed in these circumstances.=20 "There would have been very few sellers to Enron," said one trader last nig= ht.=20 The group accounts for about 25 per cent of energy trading in the US with a= similar market share in the smaller European market.=20 The loss of such a large player could cause liquidity problems in the US, s= aid one analyst.=20 Europe-based energy groups, however, felt there was sufficient capacity in = their market to fill the gap.=20 More worrying is the knock-on effect particularly on smaller companies shou= ld Enron be unable to honour long-term contracts, said Brian Senior, direct= or of trading and asset management at Innogy, the UK arm of the demerged Na= tional Power.=20 The collapse of Enron's credit rating means that it may have to provide a l= ot of cash as collateral to cover long-term liabilities, with money being d= ue as early as next Monday, said Mr Senior.=20 Most large energy groups stopped trading with Enron in European markets two= days ago.=20 "The simplest thing is to pull the plug until they've figured out what's go= ing on," said one analyst.=20 Martin Stanley, president of European energy trading for TXU, another large= US energy group, said: "We have halted trading with Enron. We are sorry to= see it happen because they are a very innovative company."=20 Even before yesterday's events, TXU, like other large traders, had been add= ing up how much it could be owed and how much it would owe, should Enron fa= il to honour its obligations.=20 "We have been looking at various scenarios and have implemented our credit = event management process designed to minimise our cash exposure," said Mr S= tanley.=20 "We are comfortable with our cash position," he added.=20 (c) Copyright Financial Times Ltd. All rights reserved.=20 http://www.ft.com. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 COMPANIES & FINANCE THE AMERICAS - Downgrade is the final straw for Enron. By ANDREW HILL and SHEILA MCNULTY. 11/29/2001 Financial Times (c) 2001 Financial Times Limited . All Rights Reserved writes Andrew Hill.=20 Negotiations over the fate of Enron, the US energy trading group, had been = described as having "a lot of moving parts". Yesterday, those parts finally= broke loose as the credit rating agencies' patience ended with a downgrade= of the energy trader's debt to junk status, and Dynegy, its erstwhile savi= our, withdrew. Immediate concern centred on the possibility of a systemic risk to the ener= gy markets. "It's over, isn't it?" said Gerald Keenan, a partner at PwC. "W= hat it is going to engender is a daisy chain of defaults."=20 EnronOnline, the group's much-vaunted web-based commodities trading system,= shut down, according to traders. Counterparties in the energy market stopp= ed trading with Enron altogether. The shares, which at their peak last year= traded at $90, fell by nearly three-quarters to just over $1. The bonds, w= hich have been trading at levels consistent with imminent bankruptcy for tw= o weeks, fell further.=20 Enron's survival since its much smaller rival, Dynegy, launched a rescue bi= d on November 9, has depended on a fragile pact between Dynegy, ChevronTexa= co (which owns 26 per cent of Dynegy and backed the bid), Enron's lenders, = its trading counterparties and the rating agencies. The logic of this pact = was essentially circular.=20 When Dynegy stepped in three weeks ago Enron was in the early stages of its= crisis of confidence. Shareholders had been shocked by Enron's admission t= hat it would have to shrink shareholders' funds by $1.2bn to end a transact= ion with an off-balance-sheet vehicle established by Andrew Fastow, former = chief financial officer. Suddenly, the lack of transparency they had been p= repared to forgive while the shares rose was a liability.=20 Searching for a way to arrest the downward spiral, Ken Lay, Enron's chief e= xecutive, linked up with Chuck Watson, his counterpart at Dynegy. Dynegy's = all-stock bid - valuing Enron, on Tuesday's closing prices, at $9.4bn - was= dependent, however, on the rating agencies not downgrading the energy's gr= oup's substantial debts to junk status.=20 Such a downgrade, as Enron explained in a regulatory filing last week, woul= d require the group to repay, refinance or provide extra cash as collateral= for some $3.9bn of debts owed by off-balance-sheet trusts.=20 Under pressure from Enron and Dynegy's bankers, the agencies refrained from= downgrading the debt, and Dynegy went ahead with its bid. The agencies jus= tified their position by citing the pending bid.=20 It was an uncomfortable position for the agencies, however, and their resol= ve began to crumble last week as Dynegy and Enron talked about renegotiatin= g the deal.=20 In a tersely worded note issued last Wednesday, Fitch, another rating agenc= y, pointed out that if Dynegy "steps away entirely from the merger, Enron's= credit situation seems highly untenable with a bankruptcy filing highly po= ssible".=20 Yesterday, S&P, then Moody's and Fitch, finally broke the fragile ring of c= onfidence that was holding lenders, bidders and Enron itself together. In i= ts note, S&P explained in stark terms how the virtuous circle of confidence= might now become a vicious downward spiral.=20 The collapse of Enron securities in capital markets made Dynegy less likely= to complete its takeover, S&P wrote. At the same time, Enron's franchise i= n the energy markets had "sustained significant damage", making it a less a= ttractive target.=20 If Enron does now disintegrate, the question is whether the chain reaction = will extend beyond the Houston company and drag in other energy traders, or= even the banks that finance them. Analysts had already begun to liken its = situation to that of Long-Term Capital Management, whose demise in 1998 pro= mpted the Federal Reserve to co-ordinate a rescue by Wall Street banks to a= void a financial crisis.=20 However, the head of one large commodities trader said the biggest market p= articipants had had long enough to protect themselves from the collapse of = Enron.=20 But smaller groups could be affected and the fear is that the complexities = of its balance sheet may still contain the seeds of a wider crisis. Additio= nal reporting by Sheila McNulty in Houston.=20 (c) Copyright Financial Times Ltd. All rights reserved.=20 http://www.ft.com. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 COMPANIES & FINANCE THE AMERICAS - Downgrade is the final straw for Enron. By ANDREW HILL and SHEILA MCNULTY. 11/29/2001 Financial Times (c) 2001 Financial Times Limited . All Rights Reserved writes Andrew Hill.=20 Negotiations over the fate of Enron, the US energy trading group, had been = described as having "a lot of moving parts". Yesterday, those parts finally= broke loose as the credit rating agencies' patience ended with a downgrade= of the energy trader's debt to junk status, and Dynegy, its erstwhile savi= our, withdrew. Immediate concern centred on the possibility of a systemic risk to the ener= gy markets. "It's over, isn't it?" said Gerald Keenan, a partner at PwC. "W= hat it is going to engender is a daisy chain of defaults."=20 EnronOnline, the group's much-vaunted web-based commodities trading system,= shut down, according to traders. Counterparties in the energy market stopp= ed trading with Enron altogether. The shares, which at their peak last year= traded at $90, fell by nearly three-quarters to just over $1. The bonds, w= hich have been trading at levels consistent with imminent bankruptcy for tw= o weeks, fell further.=20 Enron's survival since its much smaller rival, Dynegy, launched a rescue bi= d on November 9, has depended on a fragile pact between Dynegy, ChevronTexa= co (which owns 26 per cent of Dynegy and backed the bid), Enron's lenders, = its trading counterparties and the rating agencies. The logic of this pact = was essentially circular.=20 When Dynegy stepped in three weeks ago Enron was in the early stages of its= crisis of confidence. Shareholders had been shocked by Enron's admission t= hat it would have to shrink shareholders' funds by $1.2bn to end a transact= ion with an off-balance-sheet vehicle established by Andrew Fastow, former = chief financial officer. Suddenly, the lack of transparency they had been p= repared to forgive while the shares rose was a liability.=20 Searching for a way to arrest the downward spiral, Ken Lay, Enron's chief e= xecutive, linked up with Chuck Watson, his counterpart at Dynegy. Dynegy's = all-stock bid - valuing Enron, on Tuesday's closing prices, at $9.4bn - was= dependent, however, on the rating agencies not downgrading the energy's gr= oup's substantial debts to junk status.=20 Such a downgrade, as Enron explained in a regulatory filing last week, woul= d require the group to repay, refinance or provide extra cash as collateral= for some $3.9bn of debts owed by off-balance-sheet trusts.=20 Under pressure from Enron and Dynegy's bankers, the agencies refrained from= downgrading the debt, and Dynegy went ahead with its bid. The agencies jus= tified their position by citing the pending bid.=20 It was an uncomfortable position for the agencies, however, and their resol= ve began to crumble last week as Dynegy and Enron talked about renegotiatin= g the deal.=20 In a tersely worded note issued last Wednesday, Fitch, another rating agenc= y, pointed out that if Dynegy "steps away entirely from the merger, Enron's= credit situation seems highly untenable with a bankruptcy filing highly po= ssible".=20 Yesterday, S&P, then Moody's and Fitch, finally broke the fragile ring of c= onfidence that was holding lenders, bidders and Enron itself together. In i= ts note, S&P explained in stark terms how the virtuous circle of confidence= might now become a vicious downward spiral.=20 The collapse of Enron securities in capital markets made Dynegy less likely= to complete its takeover, S&P wrote. At the same time, Enron's franchise i= n the energy markets had "sustained significant damage", making it a less a= ttractive target.=20 If Enron does now disintegrate, the question is whether the chain reaction = will extend beyond the Houston company and drag in other energy traders, or= even the banks that finance them. Analysts had already begun to liken its = situation to that of Long-Term Capital Management, whose demise in 1998 pro= mpted the Federal Reserve to co-ordinate a rescue by Wall Street banks to a= void a financial crisis.=20 However, the head of one large commodities trader said the biggest market p= articipants had had long enough to protect themselves from the collapse of = Enron.=20 But smaller groups could be affected and the fear is that the complexities = of its balance sheet may still contain the seeds of a wider crisis. Additio= nal reporting by Sheila McNulty in Houston.=20 (c) Copyright Financial Times Ltd. All rights reserved.=20 http://www.ft.com. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Financial Desk Collapse of Merger Pushes Enron to Brink of Ruin Energy: Bankruptcy filing = is likely as stock value withers and bonds fall to 'junk' status. THOMAS S. MULLIGAN; NANCY VOGEL TIMES STAFF WRITERS 11/29/2001 Los Angeles Times Home Edition A-1 Copyright 2001 / The Times Mirror Company NEW YORK -- Enron Corp.'s lifeline merger deal collapsed Wednesday, and the= once-mighty energy trader slid toward all-but-certain bankruptcy.=20 Its Houston rival and neighbor Dynegy Inc. called off its planned takeover = after Wall Street's major credit-rating agencies slashed Enron's bonds to "= junk" status Wednesday morning. Investors and Enron's trading partners had lost confidence well before the = rating agencies did. In fact, it was the recent erosion of Enron's trading = business and the harrowing slide in its stock and bond prices that forced t= he ratings cut and triggered Dynegy's decision to back out of the deal.=20 Informed sources said Dynegy ultimately balked after coming across much mor= e debt than it expected in evaluating Enron's finances and watching helples= sly as the value of its would-be acquisition shrank dramatically when energ= y customers fled the firm.=20 With the merger called off, Enron was "exploring other options to protect o= ur core energy businesses," Kenneth L. Lay, the company's chairman and chie= f executive, said in a brief statement that skirted the topic of bankruptcy= .=20 The lack of a decent credit rating cripples Enron's ability to run its trad= ing business, the franchise that made it one of America's most admired comp= anies but also gave it a reputation for arrogance and greed, particularly f= or its role in California's energy crisis.=20 Computer screens went dark nationwide Wednesday as the widely used EnronOnl= ine Internet-based trading system shut down.=20 Enron's stock, already down 95% for the year, tumbled $3.50 to close at 61 = cents on Wednesday in a trading stampede on the New York Stock Exchange. A = one-day record of 339 million shares changed hands.=20 The whole company, once worth $63 billion, now is valued at less than $500 = million, or about twice the cost of Enron's new headquarters under construc= tion in downtown Houston.=20 Dynegy shares, meanwhile, sank $4.92 to $35.97, just below where they stood= when Dynegy agreed to acquire Enron on Nov. 9.=20 Dynegy exited the deal because it was "unwilling to risk our franchise, our= credit or our credibility," President Stephen Bergstrom said in a news con= ference Wednesday.=20 "We know when to say no, and this morning we said no," he said.=20 Wall Street had been saying no for days, hammering Enron's stock to less th= an half the $10.41 a share that Dynegy originally agreed to pay. Dynegy was= in the process of renegotiating its price downward when it finally threw i= n the towel.=20 The deal's lack of credibility with stock and bond investors prompted the t= op two rating agencies--Standard & Poor's and Moody's Investors Service--to= cut their ratings on Enron, knowing that they probably were pronouncing a = death sentence.=20 The ratings downgrade triggered clauses in Enron loan agreements that requi= re the company to immediately pay its creditors some $3.9 billion--money th= at it doesn't have, analysts said.=20 The ripples from Enron's collapse spread far and wide, even to the U.S. Tre= asury market, where some investors fled for safety as Enron's bonds plunged= in value.=20 Enron led a trend in energy trading, creating an Internet-based network tha= t allowed millions of suppliers and purchasers of electricity, natural gas,= oil and coal to do business with one another. The trades of contracts, oft= en spanning many years at a fixed price range, are intended to protect majo= r users and suppliers of energy from fluctuations in fuel prices.=20 Energy market experts are split on the long-term effects of Enron's collaps= e. Some say the fallout will be slight, noting that rivals already have ste= pped in to take over business with trading partners who were too nervous to= continue dealing with Enron.=20 "The whole industry should thank Dynegy for basically buying them two or th= ree weeks' time to unwind their deals with Enron," said analyst Andre Meade= of Commerzbank Securities in New York.=20 But Enron was noted for the complexity of its long-term deals, and the effe= cts of its withdrawal as a key player could be far-reaching and unexpected,= other analysts said.=20 Banking companies, dozens of which lent money to Enron, saw their shares di= p on worries about whether those loans will be repaid. Shares of rival ener= gy companies, too, lost value.=20 Enron's chief lenders--Citigroup Inc. and J.P. Morgan Chase & Co.--each hav= e about $800 million in loans that may be at risk in a bankruptcy, said Ric= hard Strauss, a bank analyst with Goldman, Sachs & Co. Some of those loans = are secured by Enron assets, with an unsecured portion of about $270 millio= n for each bank, Strauss said.=20 Thousands of Enron employees around the country have had their retirement n= est eggs decimated.=20 They and other investors have filed a brace of lawsuits alleging that Enron= misled them about its financial condition, inducing them to buy stock that= company executives knew was overvalued.=20 Then-Chief Executive Jeffrey K. Skilling cashed in $62 million worth of sto= ck and options last year, when the stock was near an all-time peak. His bos= s and mentor, Lay, took stock and options gains of $123 million last year, = according to SEC filings.=20 In August, in one of the first outward signs of Enron's troubles, Skilling = abruptly resigned, citing unspecified personal reasons.=20 Last month, a series of revelations began surfacing about its dealings with= partnerships set up and run by Enron officers.=20 Analysts say the deals, now under investigation by the Securities and Excha= nge Commission, appear to have been orchestrated in part to hide the size o= f Enron's vast debt and to artificially pump up its reported profit.=20 Enron was forced to restate its earnings, admitting that it had over-report= ed profit by more than $580 million since 1997. Its previous financial stat= ements, it said in a humiliating admission, "should not be relied upon."=20 Those statements were examined and certified by the accounting firm Arthur = Andersen, one of the industry leaders, itself now named in lawsuits by aggr= ieved Enron shareholders.=20 Meade said Enron's biggest problem may have been that it began to believe i= n its own bulletproof reputation.=20 "The core business--energy trading and marketing--produced a lot of cash, a= nd Enron took that cash and basically squandered it on a lot of investments= that didn't pan out," Meade said, referring to a troubled power generation= project in India and Enron's failed attempts to become a trading powerhous= e in water and in broadband communications capacity.=20 Losses on those ventures left the company awash in debt and vulnerable to t= he credit crunch of recent weeks, when lenders and trading partners suddenl= y demanded cash, and Enron couldn't pay.=20 In California, Enron and Dynegy were among the big, mostly out-of-state ene= rgy companies vilified by Gov. Gray Davis and others as "gougers" and "pira= tes" that manipulated the market and overcharged for electricity.=20 Enron tried to influence California's electricity deregulation when utility= regulators began talking in the early 1990s about opening the power indust= ry to competition.=20 The company's lobbyists pushed for a secretive market in which power custom= ers could sign direct deals with energy companies. Instead, the California = Public Utilities Commission and Legislature designed an open market in whic= h the hourly price of electricity could be seen by all buyers and sellers a= nd the state's utilities were required to buy nearly all of their power day= to day in that spot market.=20 Enron executives have blamed that structure for the demise of California's = deregulation experiment , saying it foolishly prevented utilities from sign= ing long-term contracts that would have buffered them from market price spi= kes.=20 But Sen. Steve Peace (D-El Cajon) argues that a bigger factor in the disast= rous unraveling of the California electricity market was the influence of E= nron on federal watchdogs.=20 Peace, who fine-tuned California's deregulation plan as chairman of a joint= legislative committee, argues that the Federal Energy Regulatory Commissio= n acted too late to curb alleged market manipulation and price gouging. FER= C held off, he said, because of the influence of free marketers such as Enr= on CEO Lay, a longtime confidant of and political contributor to President = Bush.=20 "It should be apparent to all observers that the kind of market Ken Lay pro= moted operated under the same principles that his company operated under. I= t's a kind of anarchic capitalism, in which there are no rules and no refer= ees," Peace said.=20 *=20 Mulligan reported from New York, Vogel from Sacramento. Times staff writers= Chris Kraul in Houston and Jerry Hirsch and James Flanigan in Los Angeles = contributed to this report. PHOTO: (no caption); ; PHOTO: (no caption);=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business; Financial Desk Enron Failure's Ripple Effects Analysis: Observers say consequences could b= e severe for energy prices as well as banks and other investors. Firm's tra= ding rivals see opportunities. JAMES FLANIGAN; CHRIS KRAUL TIMES STAFF WRITERS 11/29/2001 Los Angeles Times Home Edition C-1 Copyright 2001 / The Times Mirror Company HOUSTON -- The likely bankruptcy of Enron Corp. could lead to a host of tro= ubling consequences, including higher wholesale prices for electricity and = natural gas and financial distress for banks and other firms as well as maj= or bondholders and other investors, analysts said Wednesday.=20 However, energy trading markets were calm as Enron competitors picked up th= e slack while looking for opportunities to build or expand their own tradin= g operations and acquire Enron assets. The concerns and maneuvering came as Dynegy Inc. on Wednesday canceled its = proposed acquisition of Enron, once the world's largest energy trading comp= any, after Enron's debts were downgraded to non-investment "junk" status, m= aking a bankruptcy filing highly likely.=20 "Banks are starting to worry about a financial meltdown from an Enron colla= pse," said Peter Fusaro, president of Global Change, a risk management cons= ultancy in New York.=20 Enron's debts, which had been partly hidden in off-balance-sheet partnershi= ps, could total $5 billion more than the company's assets, experts in New Y= ork and Houston estimated.=20 Citigroup and J.P. Morgan Chase, major commercial bankers to Enron, will fa= ce losses if Enron files for bankruptcy, analysts said. Shares of Citigroup= and Morgan declined more than 5% on Wednesday. Other experts warned that i= nvestment banking firms such as Goldman Sachs and Morgan Stanley that had b= een part of Enron's sophisticated trading network also could run into probl= ems.=20 As Enron, which rose rapidly in recent years to almost $200 billion in annu= al revenue, neared bankruptcy, shareholders faced being wiped out and inves= tors in about $9billion in Enron bonds may get only cents on the dollar, an= alysts said.=20 Enron's employees, 15,000 of whom hold Enron stock in their 401(k) retireme= nt plans, stood to be among the biggest losers in the company's collapse. M= any probably also will lose their jobs.=20 Major lawsuits against Enron claiming lack of loyalty and prudence in deali= ng with its employees are among scores of lawsuits now confronting the comp= any and Arthur Andersen, the accounting firm that approved Enron's financia= l statements. Enron is under investigation by the Securities and Exchange C= ommission for its handling of disclosure of the partnerships and subsidiari= es.=20 And yet as Enron's crisis approached a possible bankruptcy filing, a brisk = optimism prevailed among energy traders. Enron competitors were as enthusia= stic about opportunities to buy parts of Enron as they were fearful of the = consequences of the big trader's collapse.=20 Stephen Baum, chief executive of Sempra Energy, the San Diego-based utility= holding company, said EnronOnline, the Houston company's highly successful= Internet-based trading operation, would be acquired by other companies and= carry on energy trading in the future.=20 Sempra itself would be interested in discussing formation of such a new onl= ine trading firm, Baum said, "although its name would not be Enron Online."= =20 Baum added that Sempra could be interested in acquiring several Enron asset= s, in the U.S. and abroad.=20 Energy markets were calm Wednesday. Kevin Fox, manager of commodities and t= rading for Aquila Energy, a Kansas City, Mo.-based energy trader, described= markets as "surprisingly orderly."=20 Enron's troubles have been building for well over a month, Fox explained, a= nd so the halt of Enron Online came as no surprise. Fox saw no difficulty i= n his firm and other trading companies fulfilling Enron's contracts should = the energy company cease to operate.=20 Still, others saw disrupted markets and price volatility. Fears about the a= ftermath of Enron's collapse centered on long-term commitments the firm has= made in recent years to handle all the energy needs of giant entities such= as the University of California system or to supply 10 years of natural ga= s at a fixed price range to an electricity generating station.=20 Problems could arise because long-term contracts typically become encrusted= with related transactions that hedge against price movements over time or = the interest cost of financing. Such complexity could make it difficult for= other firms to pick up Enron's long-term contracts.=20 If Enron in bankruptcy "can't cover its obligations, maybe other wholesaler= s can't either," said Gordon Allott, vice president at KW International, a = trading and risk management firm in San Francisco.=20 "And then you have customers going out into the spot market, which could dr= ive prices higher. That's the big bogey monster out there," Allott said.=20 However, any effect on consumers from such disruptions could be slight. Ger= ald Keenan, head of the energy practice at PriceWaterhouseCoopers, noted th= at Enron's collapse would not "affect the basic supply and demand for elect= ricity and natural gas," the true determinant of prices.=20 One major factor reducing the effect of an Enron collapse on markets and en= ergy supplies is the growth in recent years of energy trading into a broad = industry, with more than $300 billion in annual activity in contracts for e= lectricity and the natural gas and oil fuels that produce it.=20 The Intercontinental Exchange, a consortium of six trading firms, handles m= ore energy trades today than did Enron.=20 If Sempra and other companies acquire and operate EnronOnline, the industry= will have two major groups to rely on. The need for energy trading has bee= n growing out of deregulation and change in the electric utility industry.= =20 "Trading absorbs risks of fuel-price movements and the like that used to be= passed on to retail customers in the form of adjustments to monthly bills,= " Fox explained.=20 The breadth and expertise of this new industry, as well as the months of En= ron's decline that gave competitors and markets time to adjust, could promi= se a relatively stable aftermath of Enron's downfall.=20 However, the post-Enron future is likely to see closer regulation of energy= contract trading to increase disclosure of terms and risks.=20 But Enron and its top executives, along with the Arthur Andersen accounting= firm, face months and possibly years of lawsuits from shareholders who suf= fered losses as Enron's stock lost more than $60 billion of market value in= a single year.=20 And lawsuits by Enron employees, challenging the firm's treatment of 401(k)= accounts, will go forward even if Enron is in bankruptcy, said attorney Ly= nn Sarko of Keller Rohrback, a Seattle law firm that is bringing one of the= suits on behalf of employees.=20 "There is still liability faced by fiduciaries, officials who were administ= rators of the savings plan and by the companies that insured it," Sarko sai= d.=20 *=20 Flanigan reported from Los Angeles and Kraul from Houston. Times staff writ= er Jerry Hirsch contributed to this report. GRAPHIC: Fallout on Wall Street / Los Angeles Times;=20 Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Business; Financial Desk Markets Enron Troubles, Uncertainty Send Stocks Tumbling Wall St.: Sellers = gain the upper hand, but many analysts say markets were due for a pullback. From Times Staff and Wire Reports 11/29/2001 Los Angeles Times Home Edition C-4 Copyright 2001 / The Times Mirror Company Stocks tumbled Wednesday amid investors' nagging uncertainty about the econ= omy and as energy giant Enron headed toward financial collapse. Meanwhile, = Treasury bond yields were little changed. After sliding early in the sessio= n, they rebounded after the government got a tepid reception for a record s= ale of two-year notes.=20 On Wall Street, the Dow industrials slid 160.74 points, or 1.6%, to 9,711.8= 6. The market was in a steady decline most of the session. The tech-dominated Nasdaq composite suffered a 2.5% decline, off 48 points = to 1,887.97.=20 Losers topped winners by about 2 to 1 on the New York Stock Exchange and on= Nasdaq.=20 Early in the week the market seemed poised to retake the 10,000 level on th= e Dow and the 2,000 level on the Nasdaq index. Instead, sellers have gained= the upper hand.=20 Analysts noted that many investors aren't convinced the economy will improv= e in the first half of 2002. For weeks, hopes that business will improve ea= rly next year have been boosting the market.=20 "We're not out of the woods yet" with the economy, said Richard Jandrainof = Banc One Investment Advisors Corp.=20 The Federal Reserve's latest report on conditions by region, released Wedne= sday, painted a generally somber picture of the economy.=20 Still, many analysts said stocks' sell-off this week doesn't appear to be a= nything special.=20 "The reality is, we were due for some pullback," said Barry Hyman, chief in= vestment strategist at Ehrenkrantz King Nussbaum.=20 Hyman and other analysts were actually pleased to see investors take a caut= ious step back after fearing that the market was rising too much and too qu= ickly.=20 The market's softness was spread across most sectors, but one of the weakes= t spots was utilities, which dropped after Dynegy backed out of its planned= merger with Enron.=20 NYSE-listed Enron broke the record for heaviest trading in a single day wit= h more than 339 million shares changing hands, as it fell $3.50 to 61 cents= . The previous volume record was the 304 million shares of Intel traded on = Nasdaq on Sept. 22, 2000.=20 Investors were selling most utility stocks Wednesday. The Dow utilities ave= rage fell 2.9% to a 52-week low of 279.95.=20 Financial stocks were slammed on worries about spillover from an Enron coll= apse. J.P. Morgan Chase sank $2.30 to $37.50, and Citigroup dropped $2.75 t= o $47.80. Both are in the Dow.=20 Retailing issues remained vulnerable to concerns that this holiday shopping= season will be the worst in a decade. Gap stumbled 79 cents to $13.61 afte= r Prudential Securities reduced its rating on the clothier to "sell" from "= hold" and called its holiday merchandise poor. Electronics retailer Best Bu= y fell $1.18 to $69.90, and Bed, Bath & Beyond declined 74 cents to $32.34.= =20 Technology also was weaker as investors fear there is still too much invent= ory and not enough demand. Chip equipment maker Altera fell $1.83 to $21.83= ahead of its update on business in the fourth quarter. After the market cl= osed, Altera reaffirmed its revenue projections for the year's final three = months.=20 IBM, another Dow stock, dropped $2.05 to $112.15 after announcing it will c= ut 1,000 jobs from its seven U.S. chip plants because of a slowdown in the = microprocessor industry.=20 What was bad for stocks normally would be good for bonds, but that wasn't t= he case by the close of trading Wednesday.=20 Yields fell early in the day, then reversed after the government's biggest = sale ever of two-year notes flooded the market with debt.=20 The Treasury sold $21 billion of the two-year notes at a yield of 3%, up fr= om $19 billion sold in October, part of an effort by the government to fina= nce a spending increase using short-dated debt.=20 The five-year T-note yield ended unchanged at 4.29%. The 10-year T-note end= ed at 4.93%, up from 4.92%. Copyright ? 2000 Dow Jones & Company, Inc. All Rights Reserved. =09 Nov. 29, 2001, 2:49AM Houston Chronicle Enron on edge of collapse=20 Stock value plunges as Dynegy bails out; bankruptcy expected=20 By LAURA GOLDBERG=20 Copyright 2001 Houston Chronicle=20 After Dynegy pulled out of its deal to buy Enron Corp. Wednesday morning, i= t appeared the most likely option for Enron was bankruptcy protection.=20 From Wall Street to Houston, it was widely expected Enron would file for ba= nkruptcy, perhaps as soon as today.=20 "It's probably imminent," said Andre Meade, a stock analyst with Commerzban= k Securities in New York.=20 Jeff McMahon, Enron's chief financial officer, said Wednesday night that En= ron was evaluating all its options for restructuring its balance sheet and = debt, and ways to return its business to health.=20 McMahon said Enron wasn't considering a Chapter 7 bankruptcy filing, which = would involve a liquidation or selling of all assets.=20 He didn't rule out a Chapter 11 filing, which lets a company protect assets= while it works out a reorganization plan, but he stressed that Enron was a= lso reviewing other options.=20 He declined to describe what the options are, but said he prefers to fix En= ron without a bankruptcy.=20 Earlier Wednesday, Enron said it had suspended making payments other than t= hose needed to maintain core business operations and it was working to reta= in employees needed for its trading and other core energy businesses. No la= yoffs were announced.=20 Wall Street doesn't believe Enron has real choices other than bankruptcy. S= hares in Enron lost much of their value Wednesday, closing at 61 cents. The= company, which was dropped from the Standard & Poor's 500 index, also brok= e the record for most shares traded in a day.=20 Before Oct. 16, a buyout by Dynegy, let alone a bankruptcy, were unthinkabl= e for Houston's largest company and the world's largest energy trader. But = that day, Enron disclosed millions in financial losses related to investmen= t partnerships it did business with and were run by Enron's since-ousted ch= ief financial officer.=20 In the days and weeks that followed, the Securities and Exchange Commission= started investigating Enron, a stack of shareholder and employee lawsuits = were filed, Enron restated earnings and made disclosures about its balance = sheet that Wall Street found troubling.=20 Dynegy swooped in to rescue Enron when the two companies agreed to a merger= deal Nov. 9. But continuing bad news surrounding Enron put pressure on tha= t deal.=20 Until Wednesday morning, it appeared Enron and Dynegy would find a way to r= escue the merger by revamping its terms.=20 After several days of talks among the companies, bankers and others, Chuck = Watson, Dynegy's chairman and chief executive, said in an interview he conc= luded a solution wasn't reachable.=20 The final confirmation for Watson was when Standard & Poor's Wednesday morn= ing cut Enron's credit rating to so-called junk status, effectively halting= Enron's ability to run its core business of energy trading and marketing, = which is dependent on access to cash and credit. That trading franchise was= a key reason for Dynegy's interest in Enron.=20 S&P said in its rating report that it cut Enron's credit rating because it = didn't believe the merger, which wasn't expected to close for six to nine m= onths, would go through.=20 When the companies inked the deal on Nov. 9, Watson said he expected no mor= e surprises about Enron's financial state. But the deal included escape cla= uses just in case.=20 Among reasons Dynegy cited for ending the merger were "breaches of represen= tations" by Enron. It also invoked an escape provision that let Dynegy to w= alk away if Enron had a "material adverse change" in its business.=20 "We have never been willing to risk our franchise, our credit or our credib= ility," Watson said. "We knew when to say no and this morning we said no."= =20 Since Nov. 9, Enron made new financial disclosures and saw significant drop= s in its stock price and trading business. All of that caused Dynegy to see= k new terms for the merger agreement, including a lower price, cash infusio= ns to stabilize Enron and a restructuring of Enron's debt repayment schedul= e.=20 Watson traced the beginning of the end to Nov. 19, the day Enron filed its = 10Q with securities regulators. Companies must file their 10Q every quarter= with details of their earnings and balance sheet with the SEC.=20 Dynegy was hit by surprise when Enron disclosed it would have to pay off a = specific debt obligation worth $690 million almost immediately and when it = saw that Enron's cash situation wasn't what it expected, Watson said.=20 Those disclosures, he said, caused Enron's trading business, which had some= what of an uptick after the merger announcement, to go "down again and down= again."=20 "That was sort of a blow that we never really recovered from," Watson said.= =20 Watson said he worked hard to rescue the deal, but would only go for a "glo= bal solution" that would take care of all the problems. For one, he said, E= nron needed another $1 billion-$3 billion infusion to keep going.=20 Sources told the Chronicle that J.P. Morgan Chase & Co. and Citigroup were = willing to kick in $500 million or more. Watson said he "absolutely" tried = to raise more money but couldn't find willing parties.=20 He also said he didn't get the definitive agreements he needed from the rel= evant parties on restructuring Enron's massive debt load.=20 However, sources familiar with the situation said every time Enron and Dyne= gy were close to a deal, Dynegy changed the terms.=20 One source said that while Ken Lay, Enron's chairman and chief executive of= ficer, was present at a lot of the negotiating meetings, Watson wasn't.=20 Another source said at one point on Monday, Lay was taxiing on a plane to l= eave New York after signing a term sheet faxed to him by Dynegy. But before= the plane took off, he was called back with the news a deal hadn't been re= ached.=20 "I think it is fair to say we thought several times over the past weekend a= nd early this week, we thought we had renegotiated the deal," said McMahon,= Enron's chief financial officer.=20 "The goal post seemed to keep moving on us," he said.=20 With Dynegy out of the picture, Enron's ability to run its core business of= energy trading and marketing is close to zero after three rating agencies = Wednesday cut Enron's credit status to so-called junk.=20 Other traders aren't interested in doing business with a company that has a= junk credit rating. Enron shut down its EnronOnline trading platform Wedne= sday.=20 The credit downgrades also make due almost immediately repayment of about $= 3.9 billion Enron owes in certain obligations. The company, which already f= aces billions in near-term debt obligations, can ill afford the extra bill.= =20 Enron employees worried Wednesday about what kind, if any severance package= s, they might get, the possibility of mass layoffs and a bankruptcy filing.= =20 Little work got done as employees spent the day riveted to their computer s= creens watching Enron's stock price tumble and their hopes of a bailout cru= mble.=20 Several employees had loaded up boxes of their personal belongings.=20 "I'm just preparing," said one financial analyst, who was carrying a box of= personal finance books and notebooks out of the building.=20 The outlook for Dynegy was much better even though its stock also took a hi= t Wednesday. It closed down $4.92 cents at $35.97.=20 Dynegy is expected to gain business that would have gone to Enron and could= hire some of Enron's top traders, analysts said.=20 As part of the merger deal, ChevronTexaco Corp., a Dynegy shareholder, gave= Dynegy $1.5 billion. Dynegy, in turn, gave the money to Enron.=20 In return, Dynegy got ownership rights, under certain circumstances, to Enr= on's Northern Natural Gas pipeline system, which spans 16,500 miles from Te= xas to the Great Lakes, even if the merger deal fell apart. Dynegy told Enr= on on Wednesday it was exercising its rights.=20 It seemed possible Enron could fight Dynegy on its plans for the pipeline o= r even its termination of the merger deal.=20 Chronicle reporter L.M. Sixel contributed to this story.=20 Nov. 29, 2001, 12:56AM Houston Chronicle Enron trading screens go blank; other firms reassuring investors=20 Another jolt=20 By MICHAEL DAVIS=20 Copyright 2001 Houston Chronicle=20 Shortly after Enron Corp.'s bond ratings were cut to junk status Wednesday,= energy trader Charlie Sanchez watched the company's trading business simpl= y vanish from his computer screen.=20 "I watched their different markets just peel off my screen, one by one," sa= id Sanchez, energy markets manager at Gelber & Associates in Houston.=20 Although Enron's troubles were well-known, the collapse of Enron's trading = business Wednesday still jolted traders. Sanchez just said, "I'm in shock."= =20 The downgrade of Enron's debt was the first domino to fall Wednesday, follo= wed by the shutdown of Enron's online trading business and then the announc= ement that Dynegy had called off its deal to buy Enron.=20 EnronOnline, the company's Internet commodity trading platform, went down e= arly Wednesday, signaling that the company had temporarily halted trading a= ltogether. EnronOnline handles about 60 percent of the company's trading bu= siness, or about $2.8 billion a day in deals.=20 Enron's Chief Financial Officer Jeff McMahon said he didn't know when Enron= Online would be up for trading again. However, the company continues to do = telephone transactions, he said.=20 The commodities markets appeared to weather the event. But the shutdown of = the company that was by far the biggest player in the market led other comp= anies that regularly dealt with Enron to hastily issue statements assuring = investors they were not going to be dragged down as well.=20 With EnronOnline down, many traders had to revert to calling around to nume= rous sources to find out what the market was doing rather than simply loggi= ng onto EnronOnline and clicking on a single tab to size up the market wher= e they wanted to trade.=20 But as far as the overall impact on commodities markets and the New York Me= rcantile Exchange, the loss of Enron's trading business for whatever period= likely will not be that big, said Kyle Cooper, oil analyst with Salomon Sm= ith Barney in Houston.=20 "It could widen the bid-ask spreads in a few places, but in terms of liquid= ity on the Nymex, you're talking about a few thousand contracts out of 60,0= 00 to 70,000 contracts in all," Cooper said.=20 One trader described Enron as "a needle in a haystack in terms of the total= long-term capital markets."=20 Nonetheless, the shutdown prompted a call for closer monitoring during a br= iefing at the White House.=20 U.S. Treasury department officials kept a close eye on the credit and energ= y markets Wednesday but discerned no upheavals from the troubles at Enron.= =20 "We are monitoring credit markets as we do every day" Treasury spokeswoman = Michele Davis said. "We haven't seen anything extraordinary."=20 The exit of Enron will lead to a change in the balance of power in the trad= ing business. Traders said companies that likely will benefit from the loss= of Enron's trading activities include El Paso Corp., Mirant Corp., Reliant= Energy and Duke Energy.=20 The market appeared more worried about possible losses connected with Enron= .=20 El Paso Corp.'s stock took a beating Wednesday -- down $3.59 to close at $4= 4.91 -- over concerns that it had too much exposure to Enron through its tr= ading business. The company issued a statement saying it had "systematicall= y reduced its trading with Enron" over the past few weeks.=20 "Due to Enron's loss of investment grade status, any new business will have= to be supported by cash collateral. El Paso foresees no material disruptio= ns in the energy trading markets resulting from today's downgrades or the p= otential of an Enron bankruptcy filing," according to the company's stateme= nt.=20 El Paso's natural gas and power trading exposure to Enron is about $50 mill= ion, the company said, adding that it does not expect any adverse earnings = impact from Enron's difficulties.=20 Atlanta-based Mirant said its exposure to Enron is $50 million to $60 milli= on, noting that it too had begun limiting its exposure risk early in what i= t described as "the Enron crisis."=20 Calpine Corp. said it had no "net exposure" to Enron, which means that what= Enron owes Calpine for gas and electric trading is offset by Calpine's lia= bilities to Enron.=20 Enron faced a cash crunch in part because some trading partners lost confid= ence the company would have the cash to pay bills. As a result, they were e= ither demanding more collateral to ensure it delivered on trades or restric= ting dealings with the Houston-based company.=20 "Each company is going to have to evaluate what their situation is from pro= ducers to utilities, it's going to be a case-by-case situation. It's going = to take a long time to figure it all out," said one trader who asked not to= be quoted by name.=20 Shortly after the news of the company's latest problems broke, a flood of h= uge trading orders came out of Enron, leading traders to speculate that the= company was scrambling to clear its accounts before filing for Chapter 11 = bankruptcy protection.=20 A typical order from the company would be for 100 contracts in a single lot= to buy or sell commodities such as natural gas. After the debt downgrade w= as announced, single orders for 1,000 to 2,000 contracts began coming from = the company.=20 The flood of large orders out of Enron caused the near-month futures contra= ct on the New York Mercantile Exchange to spike up and then fall off just a= s quickly in late morning trading.=20 "They could not leave this exposure to the whims of the market," one trader= said. "They needed to get out."=20 Enron reportedly has been working over the past few weeks to line up altern= ate parties to hand off their thousands of contracts the company handles da= ily, many of which are for long term periods such as 10 to 15 years.=20 But some of the more obscure contracts on items such as emissions credits a= nd weather derivatives may be more difficult to unload. In addition to natu= ral gas, power and oil, Enron trades such items as broadband, paper, metals= and water.=20 "I really think that a lot of the kinds of stuff that is foreign and esoter= ic that Enron has been making a market in will take a while for others to p= ick up," Sanchez said.=20 Nov. 29, 2001, 12:54AM Houston Chronicle Bankruptcy filing by Enron could be largest ever=20 By TOM FOWLER=20 Copyright 2001 Houston Chronicle=20 If Enron files for Chapter 11 bankruptcy this week, as many observers expec= t it will, it may be the largest such event to date.=20 With $61.7 billion in assets on its books as of Sept. 30, the deal would to= p Texaco's 1987 bankruptcy, which sought protection for a company with $35.= 9 billion in assets. It would also beat the 1988 bankruptcy of Financial Co= rporation of America, which had $33.9 billion in assets.=20 The value of the assets and liabilities on Enron's books continues to be a = moving target, however. While Enron's unaudited quarterly financial report = indicates $61.7 billion in assets, $27 billion in liabilities, $6.5 billion= in long-term debt and $15.3 billion in deferred credits, the turmoil of th= e past month has changed much of that.=20 On the asset side, for example, the company says properties like its natura= l gas transmission lines, fiber optic network and electric generation facil= ities are worth close to $14.6 billion. Much of the gas pipeline properties= have been encumbered in recent weeks, however, by the company's efforts to= raise additional cash and credit from banks.=20 And the likelihood the company could find buyers to pay its asking price fo= r assets like the fiber optic network or overseas power plants is highly un= likely, said Ralph Pellechia, a credit analyst with rating agency Fitch.=20 "It's really a buyer's market, not a seller's market," Pellechia said. "It'= s anticipated a lot of their assets, particularly their international asset= s, would go for a lot less than the initial investment in them."=20 The company also counts $7.1 billion in investments and advances to "uncons= olidated affiliates" as assets, which could include Enron equity that was u= sed to back some of the complicated off-balance-sheet financing partnership= s that led to the company's current woes. Given the constant surprises surr= ounding those partnerships and the company's steeply dropping stock price -= - now worth less than a cup of coffee -- that $7.1 billion figure is also s= uspect.=20 Several unexpected debt obligations related to the partnerships Enron opera= ted have also changed the tally since Sept. 30. Analysts say debts for the = company range between $13 billion and $17 billion, including another $3.9 b= illion in debt repayments related to two special partnerships, Osprey Trust= and Marlin Water Trust, that will come due more quickly than expected foll= owing the credit rating agency downgrades on Wednesday.=20 "All these changes are making the situation like sand falling between their= fingers," said Bill Porter, chairman of Houston law firm Porter & Hedges. = "The only alternative left to them to stabilize their situation is bankrupt= cy protection."=20 Company officials say they're still reviewing options, but on Wednesday sai= d they are temporarily suspending all payments to creditors other than thos= e needed to maintain core energy trading operations.=20 "With Dynegy's termination of the merger and the ratings agency downgrades,= we are evaluating and exploring other options to protect our core energy b= usinesses," Enron Chairman and CEO Ken Lay said in a statement.=20 Sources familiar with the broken Enron-Dynegy deal said the paperwork for a= bankruptcy filing has been in the works for weeks, and even preceded the N= ov. 9 merger announcement. They say if the preliminary deal had not been se= cured that day, Enron would have had to file for bankruptcy the following M= onday.=20 Recent efforts by Enron's bankers, including J.P. Morgan Chase and Citigrou= p, to get creditors to hold off on demanding payments may mean the pending = bankruptcy filing will be what is known as a prepackaged deal.=20 In a prepackaged bankruptcy, creditors agree beforehand how the sale of the= company's assets would be divided among them. It would save all parties un= told millions in legal fees that would be spent fighting over the company w= hile assuring at least some recovery of their investments.=20 Prepackaged bankruptcies are common, said Jay Westbrook, a professor at the= University of Texas School of Law, because they allow companies to buy par= ts of the faltering business they want without the hassles of long, drawn-o= ut legal battles.=20 "The purchasers will essentially just pay their money and walk away, with t= he proceeds getting divided up among those holding claims," Westbrook said.= =20 Chapter 11 bankruptcy has the added benefit of freezing the many lawsuits t= hat have been filed by angry shareholders. Those lawsuits would eventually = be handled by the bankruptcy court, including determination of the validity= of the claims in the suits.=20 If Enron's bankruptcy is not prepackaged, it's almost assured that the valu= e of Enron's remaining businesses, such as its energy trading, will disappe= ar, said Bob Chapman, a principle with Houston management consulting firm K= ing, Chapman & Broussard.=20 "The only guys that do well in bankruptcies are the lawyers," Chapman said.= "What you usually see is a long period of people trying to carve up the be= ast where what remains of the business will continue to atrophy."=20 Because the company will most likely look to simply liquidate its assets, w= hat would at first be a Chapter 11 bankruptcy filing could later be convert= ed to a Chapter 7 filing, where a court-appointed trustee overseas liquidat= ion of the remaining assets.=20 "From our perspective, a lot of the future rests in the hands of the banks,= " said Fitch analyst Glen Grabelsky. "What their intentions are in granting= forbearance, what kind of liquidity they're willing to extend to Enron, on= ly they can answer."=20 Nov. 29, 2001, 12:56AM Houston Chronicle Ballpark Place project stopped dead in tracks=20 By RALPH BIVINS=20 Copyright 2001 Houston Chronicle=20 Construction of the Ballpark Place tower has been postponed, partly because= of the uncertainty surrounding Enron Corp., the project's developer announ= ced Wednesday.=20 Trammell Crow Co. had anticipated breaking ground this week on the 34-story= tower across from Enron Field, said Matt Khourie, who heads Trammell Crow = operations in Houston.=20 Ballpark Place was planned for a parcel of land owned by the developer, bou= nded by Preston, Prairie, Crawford and La Branch streets.=20 The $108 million Ballpark Place was expected to be a dominant skyline featu= re, rising over left field at Enron's namesake stadium.=20 Ballpark Place would have included 253,000 square feet of office space, 216= apartment units, ground-level retail space and several levels of covered p= arking.=20 Questions surrounding the future of Enron Corp., a major employer in downto= wn, was key in encouraging Trammell Crow to shelve its plans, Khourie said.= =20 Enron has about 3 million square feet of downtown office space, including a= 40-story building under construction. As Enron's need for space decreases,= the downtown office market is sure to feel the aftershocks.=20 "Given the national economic uncertainty and the uncertainty associated wit= h the future availability of Class-A space springing from the recent events= at Enron, we have decided to delay our construction start until the future= visibility improves," Khourie said in a written statement.=20 It has been widely speculated that Dynegy, another Houston energy firm, wou= ld move into the new Enron building.=20 But Dynegy's plans to buy Enron fell apart Wednesday, leaving questions abo= ut the the new 1.2 million-square-foot tower.=20 Trammell Crow has not abandoned its plans for Ballpark Place.=20 Khourie said the company intends to start construction, perhaps next year, = after the economy improves.=20 "We are still very bullish on the project's residential/office mixed-use co= ncept for our unique location and also are optimistic on the mid- and long-= term prospects for Houston's Central Business District," Khourie said.=20 "The decision to delay relates directly to the short-term environment that = we are currently facing."=20