Enron Losing More Ground

Enron Corp. limped through another day on the verge of bankruptcy Friday as the Standard & Poor’s credit rating agency dropped the energy giant’s debt even deeper into junk territory and layoffs began in Enron’s European operations.

Separately, Enron auditor Arthur Andersen confirmed that an investigation by the Securities and Exchange Commission into Enron’s partnership holdings also is examining Andersen’s work with the teetering Houston energy trader. In addition, a nearly completed peer review of Andersen’s operations by Deloitte & Touche is being reopened and expanded, Andersen and Deloitte said.

Enron, once the world’s largest energy trader, struggled to continue operations Friday, although business volume was down sharply from pre-crisis levels.

The company’s law firm, Weil, Gotshal & Manges, was said to be preparing a bankruptcy filing and Enron was reportedly working to line up financing to continue operations during bankruptcy proceedings, but a company spokeswoman declined to comment on the matter.

“We’re still looking at a number of options,” spokeswoman Karen Denne said.

U.S. Bankruptcy Court in Houston closed at 4:30 p.m. Friday without having received an Enron petition for Chapter 11 protection from its creditors.

Enron’s stunning deterioration, which began in mid-October, continued. EnronOnline, the company’s Internet trading operation, stopped listing metals contracts Friday and had only limited trading in energy products.

Standard & Poor’s said Friday that a bankruptcy filing by Enron “in the very near term is probable” and lowered the company’s long-term credit rating to CC from B-minus. S&P; also changed Enron’s CreditWatch standing to “negative” from “developing.”

S&P; on Wednesday had cut Enron’s credit rating to noninvestment grade, or “junk,” levels, contributing to the decision by Dynegy Inc. to pull out of its proposed $9-billion merger with Enron.

Enron’s stock closed at a mere 26 cents per share, down 10 cents, on the New York Stock Exchange. Enron traded at nearly $85 per share a year ago and about $33 a share as recently as mid-October, before the barrage of bad financial disclosures.

All of the energy merchants saw their stocks slide Friday, despite reassurances that their earnings would not be hurt by their Enron debts. Dynegy lost the most ground, falling $3.30 per share to close at $30.35.

Layoffs began Friday at Enron’s European operations, which had been taken over a day earlier by an administrator after Enron cut off its funding. PricewaterhouseCoopers, the administrator, said it laid off 1,100 employees at Enron’s London office, retaining only 250 workers.

“The overriding priority is to preserve the valuable parts of the business and to reduce the cash needs of the business whilst seeking to secure the future of certain Enron businesses and its employees,” Tony Lomas, one of Enron’s administrators, said in a statement. The administrators are negotiating to sell the company’s metals business in Europe, he said.

Andersen, Enron’s U.S. auditor, also is being investigated by the SEC, partner David Tabolt said.

The commission is looking into Enron’s murky grid of off-balance-sheet partnerships that caused the company’s slide into ruin. On Oct. 16, Enron announced a surprise third-quarter loss and reduction in shareholders’ equity because of losses at some of the partnerships and subsequently restated four years of earnings because of losses at other partnerships.

The disclosures sent investors and lenders fleeing and created a cash crunch so severe that Enron sought a rescue from its cross-town rival, Dynegy. But Dynegy canceled the merger Wednesday because of the deterioration in Enron’s core businesses and the huge debt load tied to the partnerships.

Tabolt said the SEC has subpoenaed documents from Andersen and added that the company is cooperating.

“We are confident that our system of quality is strong,” Andersen Chief Executive Joseph F. Berardino said in a statement. “We are pleased with Deloitte & Touche’s decision to undertake additional review procedures.”

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Times staff writer Chris Kraul in Houston contributed to this report.