Beleaguered Enron Corp. files for bankruptcy; sues Dynegy Inc.

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In a statement, the company said it was suing Dynegy for wrongful termination of the merger and seeking at least dlrs 10 billion in damages.
Both lawsuits were filed in U.S. Bankruptcy Court for the Southern District of New York.
In the statement, Houston-based Enron said it is in "active discussions" with several financial institutions to secure credit for the continued operation of its wholesale energy trading business, as well as additional funding to keep the rest of the company operating.
In its lawsuit, Enron claimed that Houston-based Dynegy terminated the merger agreement "when it had no contractual right to do so." It also claimed Dynegy had "no right" to exercise an option to acquire Enron's northern natural gas pipeline because it "can only be triggered by a valid termination" of the merger agreement.
Copyright 2001 Associated Press, All rights reserved

If Corporate America doesn't respond to Enron's bald faced breach on the sale to Dynergy of that pipeline and immediatly resolve that issue, than look for much lower PE's overall because "Contract Risk" is big and out of the cage.

I still haven't seen any explanation of how the devil this happened. In similar cases, some company officer has mucked up, or robbed the company, or a trader has gone berserk trying to cover a losing gamble by making more losing gambles. I assume there were trading losses, but how on earth did it happen to such a solid company? You'd think someone would have said something by this time.

Enron Files Bankruptcy, Sues Dynegy

By C. Bryson Hull
HOUSTON (Reuters) - Enron Corp., its energy trading empire in ruins, filed for Chapter 11 bankruptcy on Sunday and hit rival and one-time suitor Dynegy Inc. with a $10 billion breach of contract lawsuit for pulling out of a last-ditch merger effort.
The filing in federal bankruptcy court in the Southern District of New York sought protection from creditors while Enron, burdened with at least $16 billion in debt, tries to reorganize its finances. Under Chapter 11 of the U.S. bankruptcy code, a company can continue to operate while it and creditors work out a reorganization plan.
The lawsuit accuses Dynegy of wrongfully terminating a $9 billion merger deal last Wednesday. The suit also seeks to stop Dynegy from exercising its option to obtain Enron's Northern Natural Gas Pipeline, the heart of Enron's pipeline system. The units that own Enron's pipelines were not part of the bankruptcy filing, Enron said.
"While uncertainty during the past few weeks has severely impacted the market's confidence in Enron and its trading operations, we are taking the steps announced today to help preserve capital, stabilize our businesses, restore the confidence of our trading counterparties, and enhance our ability to pay our creditors," Enron Chairman and Chief Executive Officer Ken Lay said in a statement. To help it re-capitalize its North American trading business, Enron said it is in negotiations with banks and financial institutions to get credit support. Enron said it would provide traders and back-office support staff, and would trade through its EnronOnline Internet trading platform.
Nonetheless, the expected massive layoffs that are expected to accompany a bankruptcy filing will now become reality. Enron said it would implement "substantial workforce reductions," primarily from among the 7,500 workers employed at its Houston headquarters. It gave no firm numbers, but the cuts are expected to be in the thousands. Enron will also continue its previously planned campaign to sell off non-core and underperforming assets.
Enron is also working with lenders to obtain debtor-in-possession financing to help it maintain its payroll and other operational expenses. Discussions are expected to be done shortly, the company said.
Enron was the top U.S. energy trader with $100 billion in revenues and $1 billion in profits last year, but has unraveled with stunning speed since mid-October when it declared a third-quarter loss and a billion-dollar reduction in shareholder equity linked to questionable off-balance sheet deals.
Its descent into bankruptcy was hastened as partners fled its key energy trading business and was sealed on Wednesday when its credit rating fell to junk status and Dynegy pulled out of a hastily arranged merger announced Nov. 9.
The release made no mention of the more than two dozen shareholder lawsuits that have been filed, accusing Enron of making fraudulent claims about the value of its business and of hiding financial losses.
Its shares closed at 26 cents on the New York Stock Exchange on Friday, having fallen more than 98 percent on the year, and far from a high of $90.56 reached in August 2000.

expert help needed here.

Standard Power and Light to make bid for Enron
Enron's Many Victims

Trading losses occur in many guises. The one that probably got Enron was poorly matched risks. Many commercial trading stategies involve huge positions which are much larger than the company's capital base; however, the risks are supposed to be understood and minimized. There are many types of risk in a trade--to name a few--interest rate, underlying commodity pricing, third party bankruptcy, etc. Often a trading strategy will involve assumptions about prices which seem reasonable but turn out to not be true. For example, in the mortgage market, there are many obscure securities (CMOs, or collaterlized mortgage obligations) which promise a good return as long as interest rates stay within a fairly reasonable range. That's how the clown in California (I think Orange County) bankrupted his county. Everyone thought he was a genius because he had well above average returns in the bond market. It turns out he was assuming an obscure type of risk, and when the market moved, his positions tanked. I bet something of the sort happened with Enron.

Also, when a company like Enron loses the confidence of the marketplace, no one wants to do business with them. Its like blood in the water--they can't borrow operating capital, and everyone is trying to screw them on trades as they unwind positions to raise cash. It will make an interesting book in a year.

AT the same time, management was refusing to allow employees to sell Enron stock in their pension funds, they were selling their own stock positions.

The company management had decidedly poor ethics, let alone management expertise for the highly volatile commodity trading businesses which they entered beyond natural gas.

Arrogance and greed finally caught up with Enron.

FYI bump.

You'd think someone would have said something by this time.

From the article posted after your post:

...in mid-October when it declared a third-quarter loss

This is not good.

...and a billion-dollar reduction in shareholder equity

This is even worse.

...linked to questionable off-balance sheet deals.

Strike three.

Enron's been in questionable shape all year. When they had to 'fess up on the off balance sheet debts, it really hit the fan in large chunks.

Enron had one of the most irratating tv commercials. At the end of a report of 'innovative' solutions, a electronic music/voice would chime (and resonate):
(((((((Why?....Why???...Why???...))))))

Why indeed.

Here's three letters to the editor from a paper, name withheld :)

Enron's impending bankruptcy reeks of a classic mob-style bust-out. First, the setup: energy deregulation in California. Next, the sting: price-gouging and profiteering during California's energy crisis. Then, the bust-out: Enron executives sell massive personal stock holdings at $80-plus per share. And last, the fallout: bankruptcy, with common shareholders of Enron and the citizens of California wondering what happened.

Hey, Kenneth Lay, can you say "RICO"?

R.T.

Thank you for "Enron's Many Victims" (editorial, Nov. 28). It is an outrage that while thousands of Enron's hard-working employees found their hands tied by management as their retirement accounts were decimated, the company's corporate chieftains--whose "leadership" destroyed the once-mighty entity--will be able to lead the rest of their lives in indescribable luxury. Even more outrageous is the sad fact that this scenario has almost become the rule and not the exception. How long before employees and shareholders alike take action against this near-criminal philosophy so ingrained in today's corporate culture?

D.E.

Re "Collapse of Merger Pushes Enron to Brink of Ruin," Nov. 29: Enron Chairman Kenneth L. Lay not only stuck it to California electricity consumers, he also was one of the main players in the current Bush-Cheney energy policy developed behind closed doors that will favor oil and energy producers and bleed consumers all over the U.S. for years to come.

Lay has been a good friend of former President George Bush's for many years, and this friendship has made Lay much more money than the $145 million that he cheated his own employees in order to get. Lay was one of the biggest contributors to George W. Bush in his races for governor of Texas and president. He helped finance George W. Bush's inauguration bash.

_________

The guilt by association in the last letter is drivel. However, the first two touch a lot that has been said. The "management" in many corps. today have little loyalty, but seek to get a big payout for themselves with options and salaries, then walk away. They win. Happens a lot with industries that don't make anything and just play with money, like the S & L's. Enron made little, essentially it was a parasite alleging that it was providing a "service" under the moniker of "efficiency." In fact, Enron was a lot like an S & L. Too many assume that if a crook wears a suit and tie and heads a "corporation", they're clean and noble entrepreneurs.

"Wrongful Termination"? Hardly. That's a cause-of-action for being unfairly FIRED. Try "Breach of Contract".

Shermy, in my opinion some of those letters are conspiratorial drivel. Anti-capitalist regulation-lovers in California seem to want some big bad energy company to "blame" for energy problems inflicted on them by the California regulators and the Governor. Enron was and is a scapegoat. Sad to see the lfties gleeful of a bankruptcy that will put thousands of Houstonites out of work.

That being said, the trading market Enron pioneered were *not* as profitable as Enron claimed, and they lacked the capital they should have had to handle this kind of business - they were overleveraged and prettie dthe financials to make energy trading look better than it was. They pumped up their own business prospects and engaged in financial 'engineering' that was a hallmark of far too many late 1990s company. Case in point - LUcent, had the same kind of blow up and restatement of earnings and writeoffs, many other techs did as well. But in Enron's case, they are a highly leveraged company and as other posters have noted, rely on their credit rating for backing up their energy trading volume commitments.

FOR THE REAL SCOOP ON ENRON, Peter Eavis of thestreet.com is a great source, he was writing about Enron since early 2001, how it was in trouble ... http://www.thestreet.com/markets/detox/10004714.html

See the Peter Eavis columns I mentioned for the answer. The Enron business was not as healthy as they reported.

Be very careful out there - Amazon.com is doing the same kind of juggling.

Enron/Andersen Create Fraudulent 10-Q Reports To Fleece Stock and Bond Holders

What companies merged to make Enron?