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Tuesday, 4 December, 2001, 16:01 GMT
Enron wins breathing space
Webgrab from Enron's website
The crippled US energy giant Enron has secured a loan from its creditors, giving it time to restructure its business.


With this financing in place, Enron can continue to do business and move forward

Kenneth Lay
Enron chairman
The company, which has debts of more than $13bn, on Sunday was granted what is known as Chapter 11 bankruptcy by a New York court.

But late on Monday night it announced it had secured a credit line of $1.5bn from two of its main creditors, Citibank and JP Morgan.

And further hopes of fresh cash came from the news that Electricite de France was in talks to acquire Enron's UK marketing unit.

"We're in discussions about the purchase of Enron Direct, just as several other companies are," said EDF executive vice president Gerard Wolf.

Breathing space

The deal on the funds, which would come in the form of debtor-in-possession financing, will allow the company to run a skeleton operation.

The sale of Enron Direct, which deals with UK industrial and individual consumers, would represent a major step towards resuscitating the firm.

Among other firms believed to be interested in Enron Direct are Dallas-based TXU Corp. as well as British-based PowerGen and Innogy - formerly National Power.

EDF said it was bidding for Enron Direct via London Electricity, its British unit.

There has so far been no talk on how much potential buyers are willing to pay for Enron Direct, which has acquired 130,000 customers since its launch at the beginning of last year.

Time to reform

Enron said that the new financing package should ensure the firm's survival at least in the short term.

"With this financing in place, Enron can continue to do business and move forward to implement the first steps of its reorganization," said Kenneth Lay, the firm's chairman and chief executive.

The money will be released in tranches, with $250m available immediately, another $250m after a new business plan is agreed, and the final $1bn only after the loan has been syndicated to other banks.

Citibank may have more than $800m in exposed loans to Enron, possibly the largest among the company's many creditors.

JP Morgan is believed to have exposure on a similar scale, although most of that is secured on the firm's assets.

Legal obstacles

But the process of restructuring Enron is being hampered by a barrage of legal cases.

In its lawsuit filed Monday, rival Dynegy sought an immediate injunction demanding that the Enron subsidiaries that own the Northern Natural Gas pipeline honour their agreement to hand it over.

In the same court, Enron is also suing Dynegy 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 company also claimed that Dynegy waived the right to pull out of the merger after its two-week "due diligence" period.

Shareholder suits

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".

Enron's collapse may also be the subject of a Congressional investigation.

Nancy Rappaport, dean of the law centre at the University of Houston, says that this may raise issues about self regulation.

"Much of the governance that is done is self regulation. If the accounting firms don't regulate themselves and if law firms don't regulate themselves, then usually it means that Congress will want to try to take that over," she told the BBC's World Business Report.

 WATCH/LISTEN
 ON THIS STORY
Nancy Rappaport, University of Houston
discusses Enron's possible court battles
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"
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
05 Oct 01 | Business
Q&A: Bankruptcy made simple
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