Enron Faces Grim Odds in Bid to Survive

Enron Corp. may be able to preserve its renowned energy-trading business if it can reorganize itself under Chapter 11 of the bankruptcy laws, but whether the cash-strapped company would be able to get the financing to continue operating was in doubt, analysts said Sunday.

And an even bigger question was whether current Enron management, led by Chief Executive Kenneth L. Lay, would be allowed to manage the firm in reorganization, energy experts said.

Enron is under a Securities and Exchange Commission investigation of its accounting and disclosure practices. Enron admitted last month that it overstated its income and financial strength for the last four years. The SEC investigation now has spread to Arthur Andersen, Enron’s accounting firm.

And a former chief accountant of the SEC, Lynn Turner, reportedly has called for “a criminal investigation of the entire [Enron] matter.�

Under such circumstances, potential owners or partners of Enron’s remaining business--or the troubled firm’s many creditors--might want current management removed, analysts said. Typically, management is left in place when firms reorganize under bankruptcy protection, but creditors can petition the Bankruptcy Court to replace top executives. Enron said in a statement Sunday that it is in talks with potential outside investors to rescue the company.

“Enron’s bankruptcy filing speaks of other energy firms resuming normal trading with Enron, but there are few firms in the energy business who want to do business with Enron’s present management,� said an energy executive who requested anonymity.

But Enron President and Chief Operating Officer Greg Whalley said in the bankruptcy filing, “Obviously our potential partners share our confidence, or they would not be at the table with us.�

In any event, whether Enron would be allowed to enter Chapter 11 also remained a question. The firm needs to have debtor-in-possession financing to carry on operations while the Bankruptcy Court deliberates. Borrowing that financing would represent new debt, to which the firm’s existing creditors might object. They could petition the court to force it into a Chapter 7 bankruptcy, a liquidation of assets to repay creditors.

The trading business, which was the core of the troubled firm’s profit, would provide a way to earn money to repay creditors, Enron said. The reason Lay might want to stay in management, energy analysts suggested, would be to keep control of a business that is being investigated.

As is customary in such legal documents, there was no mention of management in Enron’s filings in U.S. Bankruptcy Court in New York City, which is headquarters of Enron’s law firm, Weil Gotshal & Manges.

The wholesale energy trading operation that Enron is trying to preserve revolved around EnronOnline, the Internet market for contracts in electricity, natural gas and other fuels and financial derivatives. At one point, the company was hauling in much more than $100billion a year in revenue from buying and selling energy contracts. In its filing Sunday, Enron listed the assets of the trading arm at $13.7billion and debts at $8.8billion.

The trading business could be attractive to a “consortium� of financial institutions, as Enron officials referred to the potential suitors. Presumably Citigroup Inc. and J.P. Morgan Chase & Co., Enron’s main commercial bankers and two of its largest creditors, would be part of such a consortium.

Financial firms could succeed in reviving the trading operations if they brought credit support to the business for which Enron would supply traders, its unparalleled back office of Internet communications lines and the staff to devise formulas for the power-and fuel-trading contracts, analysts said.

The proposed new trading business would run with much lower overhead because Enron plans to lay off most of its 7,500 Houston-based employees who are not directly involved in energy trading.

But there are operating questions as well as financial ones hanging over Enron’s ability to continue in business. Until two months ago, Enron accounted for almost 25% of the worldwide trading in electricity and natural gas, but its share of trading has slipped dramatically as its uncertain finances drove other companies away.

Competitors in energy trading, which has grown into a major industry, are divisions of large electric power companies, such as Duke Energy Corp., American Electric Power Co. and others.

These firms already have reaped increased trades during Enron’s incapacity, and it may not be easy for a revived EnronOnline to regain that business.

Finally, the true state of Enron’s finances remains relatively unknown. Enron listed assets of $49.5billion and debts of $31.2billion in its bankruptcy filing. But an investment banker familiar with the inner workings of the complex firm said, “Enron is not one company but dozens of companies. There are not 100 people in the world who know what is really there.�

Clearly, the Bankruptcy Court faces a monumental task sorting out the massive complexities of Enron.

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The History of Enron

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