U.S. energy companies took the brunt of the fall out from the Enron collapse last week as credit-default swap spreads on major energy suppliers, such as El Paso Energy and Williams Co., widened more than 100 basis points after Enron's decision to file for Chapter 11 bankruptcy protection. A New York-based trader reported that five-year credit-default swap spreads on El Paso widened to about 325bps last Wednesday from about 225bps a week earlier. Williams also got hit hard with its spreads widening to 295bps Wednesday from about 180bps a week earlier. "Most of the market feels pretty tight, but the energy sector is a real pocket of weakness," the trader said.
Traders conceded credit-default swap spreads on Dynegy will remain wide for quite some time due to Enron's decision to sue its rival for allegedly breaching an agreement to purchase the company. They said the other energy players should begin tightening within the next week. "Dynegy is going to be a mess for a long time," one trader remarked. Dynegy's credit-default swap spreads had blown out to about 450bps by Wednesday.
According to John Whitlock, utilities analyst for Standard & Poor's in New York, the energy sector will rebound from Enron's financial woes. He added that El Paso is viewed as having adequate means for raising additional capital.
Five-Year Credit Protection On El Paso
Source: J.P. Morgan
