Energy Giant Enron on Verge of Bankruptcy

Rival power marketer Dynegy Inc. withdrew its offer to acquire the energy giant yesterday after two major credit agencies downgraded Enron’s bonds to junk status.

The Houston-based company is widely expected to seek bankruptcy protection. With $62 billion in assets as of Sept. 30, it would be the biggest American company ever to go bankrupt, beating the Texaco Chapter 11 of 1987.

Enron’s shares, once peaking to $85 per share, sunk to forty-one cents after the company said it might not be able to pay previously declared dividends on its stock issues.

Enron’s swift collapse has put the financial prospects of 21,000 employees in doubt and wiped out what was left of the holdings of stock investors.

On Capital Hill, lawmakers called for an investigation of the unusual developments.

“We certainly need to try to find answers to the questions involving the collapse of Enron,” South Dakota Senator Tom Daschle told reporters today. “I think we need to find as much information as possible, and make some assessments of whether it’s indicative of energy in the larger context.”

A Dynegy spokesman explained that they pulled out of the aquisition because it needed to protect company shareholders, citing “Enron’s breaches of representations, warranties, covenants and agreements in the merger agreement.”

In early November, Dynegy had offered to buy Enron for $9 billion in stock in addition to an immediate capital influx of $1.5 billion from Chevron Texaco, a major shareholder of Dynegy.

Enron today suspended global operations and all payments other than those necessary to maintain its core energy operations.

The company had provided the United States with between one-half and one-third of the country’s natural gas supply and had been at the forefront of the push to deregulate the energy sector.

The company’s downturn became apparent this summer when Chief Executive Officer Jeff Skilling resigned shortly after the company was accused of profiting from California’s electricity crisis.

Investor confidence continued to plunge when the company revealed that the Securities and Exchange Commission had ordered an investigation of Enron’s finances and investments. Enron admitted to overstating its earnings by nearly $600 million since 1997.

In October, the company also announced a $1.2 billion charge against shareholders’ equity due to deals with business partnerships owned by former chief financial officer, Andrew Fastow, who resigned that month.

The Treasury Department said it would monitor the effect of a possible bankruptcy on the market.

Enron operates in over 40 countries and owns businesses ranging from trading energy-based commodities over the Internet to running a 25,000-mile pipeline system in the U.S.