Enron Corporation's 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 LMW 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 Sharonda Stevens, who did not return repeated calls. Calls to the Dynegy investor relations department were referred to spokesman Steve 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. Citigroup, Barclays, ABN-AMRO Bank, J.P. Morgan and Royal Bank of Scotland are the lead arrangers.