HOUSTON -- A humbled Enron Corp. will enter 2002 with hopes of emerging from bankruptcy with a viable trading business, once the source of 90 percent of its revenues.
Where the once-mighty energy trader once enjoyed billions of dollars in revenue, Wall Street blessings and what seemed like rock-solid political support, Enron came crashing down with dizzying speed in 2001 after investors lost confidence in the accounting behind its core operations.
The company is under investigation by the Securities and Exchange Commission, the House Energy and Commerce Committee and the Justice Department. More than 60 lawsuits have been filed across the country on behalf of employees who watched their 401(k) accounts, loaded with Enron stock that matched their contributions, dwindle as shares tumbled from nearly $80 a year ago to less than a dollar.
On Jan. 10, an auction will be held to see which, if any, company will make a successful bid to purchase 51 percent of Enron's wholesale energy trading operation. Some Wall Street insiders say bids could be as high as $1 billion for the joint venture Enron has been trying to put together, enabling it to revive its oil, natural gas and power trading business - once the country's largest.
Enron was born in 1985 when Houston Natural Gas merged with InterNorth, a natural gas company based in Omaha, Neb., forming a system with about 37,000 miles of pipelines. In 1989, Enron started trading natural gas commodities and eventually became the world's largest buyer and seller of natural gas.
Enron later became the country's premier electricity marketer, then gained more fame by pioneering trading markets in such commodities as weather derivatives, bandwidth, pulp, paper and plastics. The company's EnronOnline was the world's first Web-based commodity trading platform.
Enron also invested billions in its broadband unit, its water and wastewater system management unit and hard assets overseas - such as power operations in India and Brazil - that consistently lost money.
John Olson, a securities analyst with Sanders Morris Harris in Houston, said the company buried those losses in its profitable trading business and turned to off-balance-sheet financing vehicles to keep burgeoning debt off its books.
In these vehicles, the company formed partnerships that took on Enron debt, leaving Enron's credit ratings healthy so it could obtain the cash and credit crucial to running the trading business.
"Over the 1990s, Enron made lots of good deals - and bad deals," said Olson.
Eventually, the debt and bad investments caught up.
On Oct. 16, Enron acknowledged $618 million in third-quarter losses, took a $1 billion charge for losses on bad investments and cut $1.2 billion in shareholders' equity.
Two months earlier Jeff Skilling, Enron's former chief executive, quit for personal reasons. He has said he thought he was leaving a healthy company even though Enron shares had dropped to $35 in August from $80 in January.
Dynegy Inc., a smaller Enron competitor also based in Houston, came along in early November with an $8.4 billion plan to buy the ailing company. But Dynegy walked away less than three weeks later after Enron eliminated nearly $600 million in debt with earnings restated through 1997 and its credit rating was downgraded to junk status, triggering millions more in debt to be paid.
Investor confidence and trading partners evaporated as the stock nose-dived. Lacking any other safety nets, Enron filed for bankruptcy in New York Dec. 2 to keep creditors and lawsuits at bay so the company could try to preserve its trading operation. Money-losing assets went up for sale.
Enron spokeswoman Karen Denne has declined comment on speculation about what led to Enron's demise, saying internal and external investigations will find the causes. Former chief financial Andrew Fastow, Skilling and chairman Kenneth Lay are slated to appear at congressional hearings in February.
While Enron's collapse caused skittish investors of other energy companies to flee, the sector didn't fall alongside the once-mighty trader. But credit rating agencies have promised closer scrutiny of off-balance-sheet financing and some competitors already have publicized plans to strengthen balance sheets and bring so-called hidden debt back on their books.
"Enron is an animal all its own," said Credit Lyonnais analyst Gordon Howald. "A lot of companies have not handled their finances as aggressively as Enron has. But one of the fallouts of Enron is that companies are going to have to disclose a lot more than they have in the past."
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