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Monday, 3 December, 2001, 20:03 GMT
Enron opts for bankruptcy
Enron graphic
The 7,500 staff at the Houston, Texas headquarters of stricken US energy giant Enron have been sent home to wait for the call which will tell them whether they are out of a job.

The firm said that about 4,000 jobs will go initially, the bulk of which will affect the head office.

Another 1,100 people have already been sacked from Enron's operations in London, out of the 13,500 or so employed by the company outside the US.

The company, which has debts of more than $13bn, applied late on Sunday to a New York court for what is known as Chapter 11 bankruptcy.

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This will allow the energy trader to continue to operate while its creditors try to reorganise its finances.

One company - relative minnow Standard Power & Light - has already applied to buy out a majority stake in Enron, saying it wants to sell off all non-core assets and put the business back on its feet.

Its chief executive and president, Richard Ryan, did not give details of how much money he was raising, although he doubted whether Enron's shares would sell for more than a dollar apiece - a far cry from the 12-month peak of $85 seen in December last year.

'Full knowledge'

In the same court, Enron is also suing rival Dynegy Inc for wrongfully terminating a proposed $9bn merger deal, precipitating Enron's collapse - the biggest in US corporate history.

Enron has defended its decision to launch a $10bn lawsuit by saying that Dynegy had "full knowledge" of its finances before 9 November.

The suits will play out over many years

Professor Bracken
Yale University
The company also claimed that Dynegy waived the right to pull out of the merger after its two-week "due diligence" period.

However, Dynergy's chairman and chief executive Chuck Watson has described Enron's suit as "frivolous and disingenuous".

He said his company is countersuing to make sure that key subsidiaries - such as the Northern Natural Gas pipeline, 17,000 miles of pipes connecting Texas to the Mid-West - stay running long enough for Dynegy to take them over.

Dynegy, Mr Watson said, was owed the pipeline in exchange for the $1.5bn it injected into Enron while the talks were taking place.

It is also likely that Enron shareholders will launch suits against the company and its auditing firm.

Professor Paul Bracken, a specialist in corporate strategy and risk at Yale University, told the BBC's World Business Report that the "suits will play out over many years".

Shock collapse

The scale of the collapse of a firm has shocked financiers worldwide, raising fears over Enron's creditors and investors.

In its bankruptcy filing, the company listed assets of $49bn for the units that sought protection.

Last year Enron was seen as the top US energy trader with $100bn in revenues and $1bn in profits.

Since the middle of October, the company has slipped into a downward spiral after reporting a third-quarter loss and revealing a series of questionable off-balance-sheet deals.

Enron's value on the stock market has collapsed from more than $80bn to $220m on Friday.

Its failure is being investigated by the Securities and Exchange Commission - the US financial watchdog - and a congressional panel.

Credit sought

In a statement after filing for bankruptcy, Enron said it was in active discussions with banks and financial institutions to secure credit for the continued operation of its wholesale energy trading business.

Enron exposure
Abbey National: 115m
Barclays: $126.1m
Canadian Imperial Bank: $215m
National Australia Bank: Aus$200m
Centrica: 30m
TotalFinaElf: $25m
Citigroup: $7-800m
"While uncertainty during the past few weeks has severely impacted the market's confidence in Enron and its trading operations, we are taking the steps... to help preserve capital, stabilise our business and enhance our confidence to pay our creditors," Enron chairman and chief executive Ken Lay said.

Professor Bracken also told WBR that possible legal action by banks that have lent money to Enron would play "a major part of the drama over the next few weeks".

Changing fortunes

Enron's financial crisis was sparked six weeks ago when a discrepancy in accounts prompted an investigation by US financial watchdogs.

Enron later admitted that profits between 1997 and 2001 were $600m lower than had been claimed.

While the loss of investor confidence threatened the company, a takeover bid from rival energy group Dynegy initially seemed like a lifeline.

After Dynegy withdrew from the talks on Wednesday and Enron's bonds were downgraded, crisis again loomed large.

Enron shares, which topped $80 last year, lost a further 10 cents to 26 cents in the US on Friday.

The BBC's Mike Johnson
"It is not quite clear how the company fell from grace"
The BBC's Tim Bowler
"Enron now says it intends to sue Dynegy for $10bn"
Professor Paul Bracken, Yale University
"The legal outcome may be several years down the road"
See also:

03 Dec 01 | Business
Barclays counts 89m cost of Enron
03 Dec 01 | Business
Firms admit $4bn Enron exposure
03 Dec 01 | Business
Enron files for bankruptcy
21 Nov 01 | Business
Crisis fears hit Enron shares
09 Nov 01 | Business
Enron admits inflating profits
05 Oct 01 | Business
Q&A: Bankruptcy made simple
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