Message-ID: <26551514.1075844238439.JavaMail.evans@thyme> Date: Wed, 9 May 2001 10:13:00 -0700 (PDT) From: lisa.yoho@enron.com To: richard.shapiro@enron.com Subject: (BN ) PG&E Says National Energy Group Assets May Be at Risk Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Lisa Yoho X-To: Richard Shapiro X-cc: X-bcc: X-Folder: \Richard_Shapiro_June2001\Notes Folders\Discussion threads X-Origin: SHAPIRO-R X-FileName: rshapiro.nsf FYI ----- Forwarded by Lisa Yoho/NA/Enron on 05/09/2001 05:13 PM ----- Maria Arefieva 05/09/2001 05:03 PM To: Lisa Yoho/NA/Enron@Enron cc: Subject: (BN ) PG&E Says National Energy Group Assets May Be at Risk ----- Forwarded by Maria Arefieva/NA/Enron on 05/09/2001 05:03 PM ----- "MASHA AREFIEVA, ENRON GAS SERVICES C" 05/09/2001 03:07 PM To: MARIA.AREFIEVA@enron.com cc: Subject: (BN ) PG&E Says National Energy Group Assets May Be at Risk FYI PG&E Says National Energy Group Assets May Be at Risk (Correct) 2001-05-08 21:31 (New York) PG&E Says National Energy Group Assets May Be at Risk (Correct) (Corrects second paragraph to reflect National Energy Group doesn't hold utility's generating facilities and gas plants.) New York, May 8 (Bloomberg) -- Creditors of PG&E Corp.'s bankrupt Pacific Gas & Electric utility unit may be able to grab assets of PG&E National Energy Group, a subsidiary the parent had intended to insulate, PG&E told the Securities and Exchange Commission. By February this year, PG&E had restructured National Energy Group hoping to isolate the new unit's assets. The structure allowed National Energy Group to get a separate credit rating and borrow funds without affecting other units. In its filing, PG&E said creditors may try to link payments between the utility and the parent to $349 million in capital contributions that PG&E made to National Energy Group in 2000, including $250 million transferred in the fourth quarter. National Energy Group's investment grade credit ratings, which were affirmed following Pacific Gas's April 6 bankruptcy, were based on the assumption that the new structure insulated the assets. ``Bankruptcy law is designed to scrutinize the transactions between the company and those with inside influence that took place before the bankruptcy filing,'' Elizabeth Warren, a Harvard Law School professor, said prior to the filing. ``You do that so creditors can be compensated.'' On Feb. 20, Moody's Investors Service gave the National Energy Group an investment grade long-term rating of ``Baa2.'' The ratings company said the company's legal structure and independent financing strategy protect it from PG&E creditors that may attempt to force a consolidation or bankruptcy. Insolvent Transfers Under the federal bankruptcy laws, when a company that's insolvent transfers assets to a parent and gets less than fair value, the bankruptcy court can unwind the transaction. The court can also undo asset transfers intended either to defraud creditors. PG&E said it couldn't assure that fraudulent transfer claims in Pacific Gas's Chapter 11 case wouldn't be successful. If any such claims do succeed, they may have a significantly adverse impact, the company said. PG&E said it thinks Pacific Gas was solvent when it made payments to the parent and that creditors hadn't been defrauded. In some circumstances, bankruptcy judges can undo corporate restructurings. In this case, National Energy Group's assets could be lumped with its parent's and used to pay off creditors. PG&E said such a combination of assets, known as substantive consolidation, ``is an exception rather than the rule.'' Another risk is the possibility that California regulators may try and rescind payments that PG&E made to National Energy Group, the parent said in the filing. The California Public Utilities Commission began an investigation of intercompany payments between all parts of the PG&E corporate structure on April 3. The filing disclosed that National Energy Group has more than $2.22 billion of short- and long-term debt, including debt to its parent, as of Dec. 31. PG&E owns all the stock of the National Energy Group, which it used as collateral for a $1 billion loan arranged by General Electric Capital Corp. and Lehman Commercial Paper Inc. If PG&E defaults on the loan, control of the company would move to the creditors, which may cause a default under certain obligations of the National Energy Group, the filing said. --Liz Goldenberg in New York (212) 893-3940 or lgoldenberg@bloomberg.net, and Jeff St.Onge in Wilmington, Delaware, (302) 984-3362 or jstonge@bloomberg.net, through the San Francisco newsroom, (415) 912-2980/gcb Story illustration: For a graph of the Bloomberg PowerMatch Trading Index of Northern California power prices, see {PMATNPSP GP D }. To graph the Bloomberg PowerMatch Index of Southern California power prices, see {PMATSPSP GP D }. For today's top energy stories, see {TOP NRG } REI US CN DYN US CN MIR US CN PCG US CN EIX US CN DUK US CN NRG US CN WMB US CN EPG US CN CPN US CN AES US CN SRE US CN RRI US CN 13622Z US CN GE US CN NI COS NI CMD NI DBT NI COS NI UTI NI NRG NI ELC NI GAS NI LAW NI BCY NI GEN NI GOV NI US NI CA NI BON NI RULES NI FIN NI ENV NI MMK NI CP NI NOB NI MTN NI FRN NI LOAN NI COR -0- (BN ) May/09/2001 1:31 GMT