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Enron Tightens In Wake Of Utility Sale

Credit default swap spreads on Enron tightened 40 basis points in the wake of the company's agreement to sell a U.S. utility for nearly USD2 billion. A trader in New York reported that credit default swap spreads on Enron tightened to 275bps last Thursday from 315bps the previous week as investors began gaining confidence in the power company's ability to finance itself. The major players were investment and commercial banks. Enron agreed to sell its Portland General Electric utility to Northwest Natural Gas Co. for approximately USD1.9 billion in cash and stock. The transaction was heralded as a move that will unite the largest gas and electric utilities in Oregon. As part of the deal Northwest Natural agreed to assume USD1.1 billion in debt. Enron will receive USD1.55 billion in cash, USD200 million in Northwest Natural preferred stock and USD50 million in Northwest's common stock.

Ralph Pellecchia, corporate analyst at Fitch, said Enron's agreement to sell Portland General Electric is seen by investors as a positive move because the company plans to use the proceeds from the sale to reduce its debt. Pellecchia added that Enron has made several unsuccessful attempts to sell the Portland utility over the past three years, so the sale was long anticipated. Enron also plans to sell additional oil and gas properties it has in India, which will further boost market confidence in the company's ability to raise capital, Pellecchia said. Fitch rates Enron's senior unsecured debt BBB-plus.

Five-Year Credit Protection On Enron

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