364-day revolver fell to 75-80 from 99 last week and the market
waited to see whether the company would merge with
Dynegy, a competitor in
the energy trading and power business. As
went to press,
talks between the two companies had been put on hold while
Moody's Investors Service
reviewed Enron's credit. Calls to
Jeffrey McMahon, cfo,
were referred to spokeswoman
Stevens, who did not return repeated
calls. Calls to the Dynegy investor relations department were
referred to spokesman
Stengel, who confirmed discussions with
Enron, but declined to elaborate further.
The market was divided on the likelihood of the
merger, but many agreed that the complexities of Enron's financial
standing made calling bets on the merger difficult. "I think the
market overreacted to Enron," a banker said of the downgrade in
trading levels. "Now we're thinking of buying it on the cheap.
We're big in the sector and we think that at that price, it makes
sense. Talk [Thursday] was this was one bidder, but there may be
others coming in the woodwork--some European companies. Dealers
agreed that hedge funds were likely buying small pieces of the
credit, in part as a strategy to get more information on the
company. "Senior lenders have the best position; equity holders
have the worst, and there's different chairs on the Titanic in
between," the banker said. "[Buying into the debt] may be the price
of admission you need."
Market players noted that holders of bank debt
and bonds would be getting paid back at par, but they were hesitant
to call an outcome and said uncertainty about Enron's position was
stalling any major trading of the paper. The trading volume was
only about $15 million last week, and dealers said what was
stalling movement was holders wanted to keep the paper while bids
hadn't moved up significantly. "From a seller's perspective, it
doesn't make sense to sell--you'd get punished. There's still a lot
of upside," a trader said. "Bank debt is not as sensitive as other
market instruments." Bids were not coming in much higher due to
general skepticism about the acquisition going through, sources
said. "There's no agreement, so nobody's out there making enormous
bets on it going through."
Enron has a $2.25 billion deal that breaks down
into two tranches. Pricing is 35 basis points over LIBOR.
Royal Bank of Scotland
are the lead arrangers.