Spreads on Enron credit-default swaps widened about 500 basis points to 800bps on the back of the company's plummeting stock performance last week. Enron's shares have tumbled 55% over the last two weeks over concerns surrounding a lawsuit filed by the company's shareholders that alleges Enron misled investors by issuing false and misleading information about its future prospects. The lawsuit against Enron fueled fears that it could negatively impact future earnings. "There's been a real panic," noted a trader in New York.
Other energy companies widened on the back of the Enron move, for example, El Paso widened about 25bps from 225bps the previous week to 250bps Thursday. "The entire sector is getting hit because of what's happening to Enron. Everybody is looking for protection," said a trader.
Moody's Investors Service placed Enron's long-term debt on review for a possible downgrade two weeks ago to reflect the growing uneasiness about its future earnings potential. Moody's rates the company's long-term debt Baa1. Analysts said despite the obvious crisis in investor confidence, the long-term outlook for Enron is still stable. An analyst in New York agreed, noting that the company has a solid core business, adding that the outlook is not as dire as the current stock price implies.
