Two New York banks agreed to put up $1.5 billion to help keep Enron Corp. afloat, while the embattled energy company attempts to reorganize under Chapter 11 bankruptcy
Monday’s announcement came just hours after Enron laid off 4,000 of 7,000 employees at its Houston headquarters. The remaining 3,500 workers were sent home for the day and were to return to work Tuesday.
Under the agreement with Citigroup and JP Morgan Chase, Enron will receive $250 million immediately to supplement existing capital and help the company fulfill other obligations, including the employee payroll. Enron said the funding will be syndicated and is secured by substantially all the company�s assets.
An additional $250 million will be made available as soon as the company provides lenders with a “satisfactory” business plan, Enron said in a statement.
Enron would get another $1 billion after certain conditions are met, including the entry of a final order and the completion of syndication. The company said the remaining $1 billion balance will be used in part to repay $550 million of existing indebtedness of Transwestern Pipeline.
Enron Chairman Ken Lay said with interim financing in place the company can implement the first steps of its reorganization. “We appreciate the support of our lenders and are fully committed to meeting our obligations to our creditors as best we can, Lay said.
The company also said US Bankruptcy Judge Arthur Gonzalez approved motions to pay employees, post-petition vendor obligations, and $4,500 for each laid off employee. Enron warned of substantial forthcoming employee reductions, after the Chapter 11 bankruptcy petition was filed Sunday in the Southern District of New York.
The largest US Chapter 11 filing ever, Enron listed $31.1 billion in liabilities, excluding off-balance sheet transactions, and $50 billion in assets.
Gonzalez has scheduled a Jan. 7 hearing to approve the debtor-in-possession financing plan. Meanwhile, Enron has said the company also is negotiating to line up other financial partners to resume active trading. It huge trading operation was virtually shut down after credit rating agencies downgraded the company to junk status from an investment grade rating.
The company’s energy trading counterparties have since rushed to distance themselves from Enron. Fitch Inc. said Monday the trading business has been heavily damaged with cash, credit, and traders moving on during the past several weeks.