Enron Slashes Jobs, Lines Up Financing

In a desperate bid to stay afloat, Enron Corp. laid off 4,000 employees at its Houston office Monday--nearly half its headquarters staff--and in New York federal Bankruptcy Court unveiled a $1.5-billion financing plan designed to keep it operating.

Enron’s top lawyer also disclosed that the company is negotiating with three potential investors, one of which could emerge as a white knight and gain control of the troubled company.

Enron attorney Martin J. Bienenstock did not name them and cautioned that any deal could take months to consummate.

As employees left the company’s tower in downtown Houston carrying their possessions in boxes, Bankruptcy Judge Arthur J. Gonzalez set maximum severance payments of $4,500, regardless of seniority or salary level.

Gonzalez also approved a $1.5-billion credit deal--known as debtor-in-possession financing--that was put together by a syndicate of banks led by J.P. Morgan Chase & Co. and Citigroup Inc., which already are owed billions of dollars by Enron.

Bienenstock said the funding, $250 million of which would be released shortly, would be sufficient to reinvigorate Enron’s trading operations and buoy the confidence of Enron’s trading partners that have fled the company in recent weeks.

Analysts said the banks’ willingness to pony up additional money reflected the belief that they had a better chance of recovering their existing loans if Enron survives in some form than if it is forced to liquidate.

“That’s the calculation that the banks are making, that Enron broken up is worth ‘X%’ of total liabilities, which they think is a lesser sum than the ‘Y%’ it will be worth if it is allowed to reorganize,” said Chris Ross, vice president of energy consultancy Arthur D. Little in Houston.

Although the net value of Enron’s trading operations has shrunk from $12 billion before its problems emerged in early October, Bienenstock said the operation is still worth $6 billion to $7 billion and deserves court protection.

“Demands on cash cannot well be predicted,” he said, noting how quickly Enron burned through its cash in November when the trading community lost faith in its credit-worthiness.

Enron shares rose 14 cents to 40 cents on the New York Stock Exchange, where 168 million shares changed hands. The stock rose as high as 45 cents. Shares of Dynegy Inc., Enron’s onetime suitor, plunged $3.18 to $27.17, also on the NYSE.

Enron also asked the court for permission to pay $48 million to critical vendors, including $40 million to contractors on Enron’s $219-million headquarters building nearing completion in downtown Houston. Enron said it already is using the 200,000-square-foot trading floor in the new structure.

The once-highflying energy trading company filed for protection from creditors under Chapter 11 of the federal Bankruptcy Code in New York on Sunday, the largest filing in history as measured in assets totaling nearly $50 billion.

The company also sued Dynegy for $10 billion on Sunday for alleged breach of contract in terminating merger talks Nov. 28. Dynegy struck back with a suit of its own Monday, calling Enron’s suit “frivolous and disingenuous.” In its suit, Enron asked the court to prohibit Dynegy from taking possession of the 16,500-mile Northern Natural Gas pipeline subsidiary, which Dynegy claims as security for $1.5 billion in cash that it advanced to Enron after a merger agreement was announced on Nov. 9.

Dynegy filed a lawsuit in Harris County (Texas) state court Monday seeking unspecified damages and asking the court to confirm its right to the valuable pipeline, which stretches from West Texas to the Great Lakes.

“We think it’s a cut and dried situation. Enron can’t pay us back our cash but won’t give up the pipeline. So we’re asking for an injunction to [allow Dynegy to] take possession of the pipeline,” Dynegy President Steve Bergstrom said in an interview.

Dynegy Chief Executive Charles Watson said the company was within its rights in terminating the merger talks because Enron experienced “material adverse changes” in its condition after the Nov. 9 deal was signed.

He said the company became alarmed at the rate Enron was burning through its cash--about $1.5 billion over a 10-day period ended Nov. 16--and at Enron’s inability to explain where it was going.

Enron said in its suit that Dynegy was aware of its deteriorating condition and that it was not sufficient cause to terminate merger negotiations, which Enron accused Dynegy of conducting in bad faith.

The Northern Natural Gas subsidiary was not included in the 14 Enron operating units that filed for Bankruptcy Court protection, nor were several partnerships whose unusual structure has provoked a Securities and Exchange Commission probe.

The small severance payment added insult to injury for many employees who on top of losing their jobs have seen their Enron-heavy retirement savings plans evaporate in recent weeks with the collapse of their company’s stock.

“People aren’t even being guaranteed $4,500. We have nothing right now. Benefits are concrete only through Dec. 5. It’s shocking because we thought we would have at least some minimum severance,” said one employee who asked not to be identified.

“People were [upset] because the company wouldn’t take any questions. They called us up and said, ‘Bye, be out of the offices in an hour a half.’ They wanted the building cleared by 1:30,” the employee said.

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Kraul reported from Houston and Mulligan from New York.