Traders last week were immersed in the complexities of the Enron Corporation saga as the beleaguered company's bank debt fell to the low 20s from the 50 range after news broke last Wednesday that the Dynegy Corp. deal was off. No trades were reported last week and dealers said they expect investors to hang on and hope their senior secured status comes through for them in what, at LMW's press time, appeared to be an imminent bankruptcy. Market players said many in the debt are distressed shops that bought paper in the 50s. Many original lenders bailed at that level or earlier on their view of its ultimate recovery on the paper.
"The guys that sold [Enron debt] at 50 look like heroes now because it's worth 20," one dealer noted. Another dealer concurred, "It's really difficult for a bank to make the decision [to sell at a loss]. You never get the upside. It's about downside. You really have to be very convinced it could get a lot worse." It did. Once the Dynegy deal fell through, the credit, which was trading at par three months ago, dropped 20 points in a couple of hours on Wednesday and fell another 10 points Thursday. Bankers said last week that they expect recovery on the bank debt to be 30-50. Calls to Jeffrey McMahon, cfo, were not returned. Sharonda Stevens, spokeswoman, also did not return repeated calls.
While no trading was reported last week, dealers predicted there will be some unloading of the paper. "A lot of people are in this," he said. Those who aren't were puffing sighs of relief last week. "Thank God we're not in that," said a market player whose shop opted not to participate in the renewal of Enron's 364-day revolver in May. "We smelled something was wrong and decided not to take the risk. The pricing was thin. There was some senior management changing at the time. And the stock price was falling. It just didn't add up to be a compelling situation." He agreed that holders have the option of keeping the paper and waiting out the restructuring. "These people may choose to sit with unrealized losses or they may be forced to recognize some kind of loss. It depends on what the institution or regulators say," he noted.
The company has $1 billion in borrowings secured by assets and $3 billion in borrowings against committed lines of credit tapped to repay expiring commercial paper obligations. J.P. Morgan has issued a statement saying it has about $500 million in unsecured exposure to Enron entities, including loans, letters of credit and derivatives.
The $1 billion credit line from Citibank and J.P. Morgan is secured by the Northern Natural Gas and Transwestern Pipeline. Last Thursday Citibank announced it has credit exposure to Enron entities of roughly $115 million in senior unsecured loans, letters of credit and derivatives. It has an additional $100 million in secured exposure. The company has a $2.25 billion unsecured credit facility that breaks down into two tranches. Pricing is 35 basis points over LIBOR. Citigroup, Barclays Capital, ABN-AMRO Bank, J.P. Morgan and Royal Bank of Scotland are the lead arrangers.