Enron Decline Continues

Enron Corp. bonds and shares fell after the largest energy trader tapped a $3-billion credit line because it has been shut out of the leading market for low-interest, short-term loans.

The company’s stock has fallen 54% in the last 14 days after investors questioned its transactions with affiliates run by Enron’s former chief financial officer. The shares fell 95 cents, or 5.8%, to $15.40 on the New York Stock Exchange.

Investors said Chief Executive Kenneth Lay has failed to reassure them that the company’s credit rating won’t be cut. Enron can no longer borrow in commercial paper markets, where short-term loans carry lower rates than banks offer.

“Do they have the financial flexibility they once had? No,” said John Cassady, who helps manage $3 billion in bonds at Fifth Third Bancorp. “People are questioning the credibility of management.”

The company will use its credit line to pay off $2.2 billion in commercial paper it has outstanding, Enron spokesman Mark Palmer said.

The price of Enron’s 6.75% bonds, which mature in 2009, declined 11/2 points to a bid of 84 cents on the dollar and an offer of 86 cents. At that price, the bonds, which carry a rating of BBB+, yield 9.53%.

Investors have grown concerned that the firm’s credit rating will be cut after $1.01 billion in third-quarter losses from failed investments. Enron needs good credit to raise cash daily to keep trading partners from demanding collateral and to settle transactions.

Enron’s decision to tap its credit line was “a smart financial move,” said Stephen Moore of Moody’s Investors Service. “It took away the hassle and time-consuming nature of rolling commercial paper and insured access to capital.”