Enron Corp. Monday said it has until Nov. 26 to post collateral for a $691 million note associated with a partnership and faces the potential of writing down the value of more assets in the fourth quarter.
The recent deterioration of the embattled Houston energy concern’s credit rating and decline in its stock price has caused a negative effect on Enron’s projected 2001 fourth quarter profits, the company said in filings with the Securities and Exchange Commission. Enron blamed a reduced level of trading activity. It said the fourth quarter also would be affected by severance, restructuring, and other charges.
Shares of Enron were up 6¢/share to $9.06 in trading Monday on the New York Stock Exchange. Enron announced its latest filing after the market close.
The company said it is working with lenders to develop an amendment or waiver with respect to the $691 million note to avoid an early payment obligation. If Enron can’t obtain a waiver or satisfy its obligations, the partnership, which includes a Brazilian gas distribution company, has the right to begin liquidating the assets. Enron said it could be forced to sell the assets of the partnership below their carrying values and record assets write-downs, “possibly as early as the fourth quarter of 2001.”
Further, Enron warned it could have to repay, refinance, or sell facilities totaling $3.9 billion to satisfy debt obligations totaling $2.4 billion in Osprey Trust and $915 million in Marlin Water Trust, two unconsolidated affiliates.
The company would be forced to take action in case of certain “trigger events,” including a credit downgrade below investment grade and Enron’s shares falling below $59.78/share with respect to Osprey and $34.13/share with respect to Marlin.
If these events are triggered and Enron can’t issue equity on time to repay the notes or restructure the obligations, it will have to pay the difference in cash. Failure to meet its obligation to the trusts, Enron warned could have an effect on the company’s compliance with terms of it revolving credit agreement and other obligations, including its bank facility.
The company said it has taken a number of steps to shore up its cash position and expects to obtain an additional $450 million secured line of credit from JP Morgan Chase Bank and Citicorp North America Inc. about Nov. 20. The proceeds will be used to supplement short-term liquidity and to retire maturing obligations.
In addition, Enron said it is talking with various institutions about investing in Enron equity and is “diligently” pursuing a program to raise an incremental $500-$1 billion of private equity “in the near future.” It warned, however, it can’t be sure the effort will be successful.
Enron restated its earnings for the last 4 years Nov. 8, reflecting consolidation of some of the off-balance sheet partnerships. Enron’s restatement reduced previously reported net income by roughly $586 million and increased its debt by $2.59 billion.
The energy trader restated its third-quarter earnings Monday, increasing its loss for the period by 3¢/share to 87¢. It also increased nine-month earnings by 1¢ to 20¢/share.
Dynegy is purchasing the company for $7.8 billion in stock.
Enron also explained in its Monday filing with the Securities and Exchange Commission that its independent auditor, Arthur Andersen LLP, has not completed a review of Enron’s consolidated financial statements in accordance with established accounting standards.
Enron attributed the delay to an investigation by the special committee of Enron’s board and the need for Andersen to complete its review procedures. “We are continuing to review the transactions in question and are making progress with our investigation,” said committee chairman William K. Powers, Jr., dean of the University of Texas School of Law.