Enron CEO: Big Pay, Big Task

By NANCY RIVERA BROOKS

April 5, 2002 12 AM PT

TIMES STAFF WRITER

Enron Corp. won Bankruptcy Court approval Thursday to pay $1.32 million a year to its new chief executive after the Securities and Exchange Commission and a Florida pension plan dropped objections.

The job for restructuring specialist Stephen F. Cooper could prove as big as the payday: Piece together a much smaller company that can emerge from Chapter 11 proceedings or find a way to divvy up the paltry leftovers to the satisfaction of creditors.

The SEC and the Florida State Board of Administration dropped their protests to the hiring of Cooper after his employment contract was amended to provide more protections for creditors and investors and eliminate a $5-million bonus.

In addition, Enron agreed to support the naming of a special examiner with broad investigatory powers to examine the energy company’s downfall. Lawyers for the various parties reached a tentative agreement during a private conference Thursday with U.S. Bankruptcy Judge Arthur J. Gonzalez, who is expected to enter the order early next week.

“Paying Cooper $1.32 million is not that bad. I suspect that’s a relative bargain for what he’s got to pull off,” said Chris Ellinghaus, an energy analyst with Williams Capital in New York. Cooper, a principal with New York consulting firm Zolfo Cooper, has said he intends to sell assets and reorganize Enron as a much smaller company focusing on natural-gas pipelines and power plants, but the details of his plan remain a mystery.

After Gonzalez approved his contract Thursday, Cooper told reporters outside the New York courthouse that his goal is to bring Enron out of bankruptcy “as quickly as humanly possible,” suggesting that a year might be enough time.

That would be an extraordinarily quick trip for the largest U.S. corporate bankruptcy ever filed. Complicating matters, the Enron bankruptcy has become enormously contentious as creditors and law firms have taken potshots at each other in recent weeks, claiming conflicts of interest, and the SEC has weighed in on an early version of Cooper’s employment contract using unusually harsh language.

Whether Cooper can salvage a version of Enron and repay the more than $31 billion owed to creditors is the subject of great skepticism in the investment community. But progress is being made, Enron watchers believe.

Cooper, who has steered dozens of companies through bankruptcy proceedings, has “turbocharged” Enron’s efforts to reorganize, Enron bankruptcy lawyer Martin Bienenstock said in court Thursday.

So far, through a series of piecemeal deals, Enron has reached agreements to sell assets that would bring in more than $2 billion in cash and has indicated that up to $9 billion in assets will be shed over the next year. Before Cooper’s hiring Jan. 29, Enron sold its core energy trading business to UBS Warburg in a no-cash deal that would give Enron a cut of any future profit.

With Cooper at the helm, the company has announced plans to close its broadband system, which will save $2.5 million a year, has successfully negotiated the removal of top executives and directors associated with Enron’s meltdown and has proposed a novel way to keep crucial employees by linking bonuses to how much cash is raised through asset sales.

Enron executives also have hinted they might not sell Portland General Electric, the Oregon utility promised to Portland-based Northwest Natural Gas Co. in a $3-billion deal that has been pending for several months.

But doubters abound. Even if Cooper reorganizes Enron into a natural-gas pipeline and power company, it would be fairly small in an industry where bigger is seen as better, said Andre Meade, a utilities analyst with Commerzbank Securities in New York.

The brief furor over Cooper’s employment contract illustrated how heated Enron’s bankruptcy proceedings have become.

The SEC blasted the contract as too generous and riddled with conflicts of interest because many on Enron’s creditor committee are current or former clients of Zolfo Cooper, or investors in a fund run by Cooper.

The terms of the contract, which did not require Cooper to take on the fiduciary responsibilities of a corporate officer, “cast doubt on the fairness of Enron’s handling of its bankruptcy case and on the bankruptcy process as a whole,” the SEC said in its objection filed last month.

The Florida State Board of Administration, the pension plan that lost $334 million through Enron investments, also questioned Cooper’s independence and sought a trustee to replace him at the helm of the Houston company.

The pension plan and other shareholders are troubled that many of the big banks on Enron’s creditor committee, which selected Cooper to run Enron, had a role in some of Enron’s infamous off-balance-sheet partnerships, said Florida pension plan lawyer Andrew J. Entwistle, who called them “aiders and abettors” of Enron’s alleged accounting frauds.

Many of the objections were eliminated when Cooper agreed to assume fiduciary duties at Enron, recuse himself from decisions involving clients and investment partners, agreed to work at least 35 hours a week and drop his request for a $5-million bonus, even if Enron failed to reorganize.

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Selling Off Assets

Struggling to emerge from bankruptcy protection, Enron has garnered $2 billion by agreeing to sell off assets.

Sale amount (millions) Asset Buyer

$776.0 Wessex Water (Britain), YTL 66% owned by Enron

350.0 Enron Oil & Gas India British Gas

325.0 Enron Wind GE Power Systems

315.0 GE turbines, generators and an Iberdrola unfinished power plant in Spain

145.0 Enron Metals (Britain) Sempra

57.0 20,000 power contracts in Texas, Constellation Massachusetts, Maine Energy (pending auction)

43.5 Enron Metals & Commodity Sempra

29.0 200 gas supply contracts with Occidental Energy SoCalGas and PG&E; Marketing (pending auction)