Enron Shares Fall Again on Doubts

Investors pounded shares of Enron Corp. to a 12-year low Wednesday amid mounting doubts about whether the Houston-based energy-trading king can survive long enough to complete its announced takeover by cross-town rival Dynegy Inc.

Enron shares plunged $1.98, or 28%, to close at $5.01 in New York Stock Exchange trading, its lowest level since April 1989. Enron, a Wall Street darling just months ago, is down 94% year-to-date.

A minefield stands between Enron and the merger, analysts said. Almost any stumble--a further downgrade by a credit rating agency, a retreat by Enron’s bankers or trading partners, another negative surprise about its financial condition--could pitch it into bankruptcy.

Still, the credit rating agencies held their fire Wednesday, keeping Enron’s bonds one notch above “junk,” or sub-investment-grade, status.

Enron also gained some breathing space from its lenders, announcing that a $690-million note payment due Tuesday had been postponed to mid-December.

“I think they’ll probably limp through [to the merger],” said analyst Michael S. Worms of Gerard Klauer Mattison in New York. “But it’s a bad limp.”

There were no major new disclosures to prompt Wednesday’s sell-off, but investors seemed to be afraid to hold Enron stock over the Thanksgiving weekend, traders said. The stock market is closed today and open Friday for an abbreviated session--traditionally the lightest trading day of the year.

Enron shares plummeted 23% on Tuesday in reaction to a filing Monday with the Securities and Exchange Commission in which Enron disclosed the $690-million obligation. The disclosure was a surprise even to the credit rating agencies that have been in constant contact with Enron executives since the company’s finances began unraveling last month.

The rating agencies’ view is critical, because under some controversial Enron deals that have come to light recently, a downgrade to junk level would be a “trigger event” requiring Enron to immediately pay $3.9 billion to creditors, the company said in Monday’s SEC filing.

Such an event could instantly bankrupt the company, analysts said.

Enron has been reeling since mid-October, when it began disclosing details of deals involving limited partnerships organized by current or former company executives. The partnerships’ purpose appears partly to have been to pump up Enron’s reported profit while concealing large amounts of debt it was incurring.

The SEC has announced that it is investigating the situation.

In addition to announcing the delayed payment, Enron said Wednesday that it had tapped the remaining $450 million of a previously announced $1-billion credit line from its chief lenders, J.P. Morgan Chase & Co. and Citigroup Inc.

Enron probably can restructure its debts and postpone most payments until May, analyst Ronald M. Barone of Standard & Poor’s rating agency said Wednesday. It is in the lenders’ interest to cooperate, as much of Enron’s debt is unsecured by hard assets, and the banks would stand to lose most of their principal in a bankruptcy, he said.

Dynegy broke its recent silence Wednesday by issuing a statement in which Chairman and Chief Executive Chuck Watson said he was “encouraged” by the news of Enron’s agreements with its lenders.

Dynegy is “working to accelerate the regulatory approvals required to complete the merger,” Watson said, adding that oil giant ChevronTexaco Corp., which owns 26% of Dynegy’s stock, reiterated its support for the deal.

Ratcheting up the pressure on Enron, another credit rating agency, Fitch Inc., issued a statement Wednesday listing its own concerns. Enron’s energy trading partners seem to be demanding more cash collateral and reducing their exposure to Enron, which calls into question the ongoing value of the company’s core trading business, Fitch said.

Although Dynegy has reiterated its intention to complete the merger, Enron’s problems make renegotiating the merger terms or canceling the deal a possibility, Fitch said.

“If Dynegy steps away entirely from the merger, Enron’s credit situation seems untenable, with a bankruptcy filing highly possible,” Fitch said.

If the merger falls through, Dynegy still will retain the right to purchase Enron’s Northern Natural Gas Co. pipeline system for $1.5 billion.

However, analyst Andre Meade of Commerzbank Securities said he believes Dynegy still is mainly interested in the trading franchise.

“I don’t think it’s worth Dynegy’s while to go through all this pain if they just want to pick up assets [such as the pipeline] on the cheap,” Meade said.