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Keeping Hold on Enron


Enron (ENE):

Upgrading to 3 STARS (hold) from 2 STARS (avoid)

Analyst: John Kartsonas

Along with confirmed merger talks, Enron restated financials for 1997-2001 to include transactions with special-purpose entities, related parties. The impact was more significant on earlier years. Despite uncertainty over Enron's future liabilities and given our current estimate for tangible book value/share, S&P sees limited downside from present levels. However, we keep monitoring situation, as possible merger failure and more credit downgrades may lead to a more troubled situation.

ChevronTexaco (CVX):

Maintain 5 STARS (buy)

Analyst: Tina Vital

Shares of Chevron Texaco were relatively flat on Thursday, amid press reports that 26%-owned Dynegy (DYN) may buy Enron (ENE) with some Chevron Texaco cash. According to reports, Dynegy may buy Enron for $7-$8 billion -- about $10 per Enron share -- plus $12.8 billion in Enron debt. The deal is valued at around six times trailing-12 EBITDA, in line with current Enron trading multiple. Chevron Texaco is rumored to be considering $1.5-$2.5 billion loan to Dynegy to make the deal work. The oil company has three seats on Dynegy's board. With Chevron Texaco solely an investor in the rumored deal, S&P maintains buy on ChevronTexaco.

Clear Channel Communications (CCU):

Continue to 3 STARS (hold)

Analyst: Howard Choe

The company posted Q3 loss of $0.37 vs. $0.96 EPS, $0.03 lower than S&P guidance. Total proforma revenues and EBITDA was down 0.5% and 17%, respectively. Revenue and EBITDA for segments was as folows: radio -8%, -19%, Outdoor -9%, -23%, entertainment +15%, +15% (division benefited from charity, Madonna, U2 concerts). The Q4 outlook is poor with revenues seen down in low double-digits. S&P thus lowered its 2001 EPS to -$1.88 from -$1.53 and 2002 to -$1.65 from -$1.06. Despite the bleak outlook, S&P recommends holding the company, which is well positioned for recovery and trading inline with peers.


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