Enron teeters on brink of bankruptcy, faces congressional hearings on financial problems
Friday, November 30th 2001, 12:00 am
By: News On 6
HOUSTON (AP) _ As Enron Corp. considers whether it should pursue bankruptcy protection, the embattled energy company faces the prospect of lengthy congressional scrutiny in the wake of its unprecedented collapse.
Rep. Billy Tauzin, chairman of the House Energy and Commerce Committee, on Thursday announced hearings into Enron's accounting practices and into what impact the company's problems might have on electricity and natural gas markets.
``We're very interested in how the company handled its internal books,'' said Kenneth Johnson, a spokesman for the Louisiana Republican. Johnson said the committee's general counsel would investigate circumstances leading up to the collapse.
Experts predicted bankruptcy was the only option for the once-mighty energy trader.
``I would assume it would lead to a sale of the company, which was coming anyway,'' said Jay Westbrook, a bankruptcy expert who teaches at the University of Texas School of Law.
``Bankruptcy provides a lot of protections that makes it easier to do, and it buys time to find out what this company's really worth.''
EnronOnline, the company's Internet-based trading system, was running Thursday on a limited basis. The site was shut down for several hours Wednesday after Dynegy Inc. called off an $8.4 billion merger that was supposed to save Enron from disaster.
Stunned employees tried to find hope in the fact that Enron had yet to make a bankruptcy filing. But analysts said Enron desperately needs cash and credit, and will have difficulty finding much of either.
``Everyone should have at least some skepticism that it could ever emerge from Chapter 11,'' A.G. Edwards & Sons analyst Mike Heim said Thursday. ``The energy trading business has probably taken such a hit to its reputation that it would be difficult to retrench and go forward.''
Enron officials did not return repeated calls for comment
A haggard Chuck Watson, chairman and chief executive of Dynegy, said weak finances and decline in Enron's core energy trading business left his company no choice but to walk away.
``This was a very difficult, complex, unprecedented decay of a company over many months,'' he said at a news conference. ``That's a shame, because (a merger) could have worked.''
Dynegy announced the rescue plan Nov. 9, knowing that Enron posted a $618 million loss in third-quarter earnings and had ousted its chief financial officer for running partnerships that allowed the company to keep half a billion dollars in debt off its books. The Securities and Exchange Commission is investigating.
The picture worsened on Nov. 19, when Enron filed paperwork restating its earnings since 1997 to eliminate more than $580 million in reported income. The SEC filing also disclosed that Enron would have to repay $690 million in debt within a week.
Enron got an extension for the debt, but its stock resumed a free fall that had halted temporarily with the merger announcement. Dynegy started renegotiating Enron's sale price.
After falling 85 percent Wednesday, shares of Enron were off another 25 cents, or 41 percent, on Thursday to finish at 36 cents in extremely heavy trading on the New York Stock Exchange. Enron's 52-week high, reached last December, was $84.88.
Two agencies cut Enron's credit rating to junk status Wednesday, triggering an obligation to pay debts of $3.9 billion, or nearly twice the cash the company is believed to have. At that point, Watson said he had to stop trying to save another company and protect his own.