Enron Outlook Still Negative

Standard & Poor's says a ratings trigger event may raise liquidity issues for the energy trading company

Standard & Poor's said on Nov. 20 that its ratings on Enron Corp. (triple-'B'-minus/'A-3') will remain on CreditWatch with negative implications following the filing of the company's third-quarter SEC Form 10-Q report.

The 10-Q contained information on a ratings trigger event involving an existing minority interest on Enron's balance sheet held by Citibank and a group of other banks that have the right to accelerate the sale of underlying assets, including a $690 million Enron note, to Nov. 26, 2001 from 2003.

At this time, the trigger event does not constitute an event of default. However, it does raise liquidity issues for Enron. Standard & Poor's believes, given the alignment of interests between Enron and the banks, that the company's efforts to renegotiate and extend the maturity of the obligation will be successful.

Enron's near-term liquidity position is therefore expected to be sufficient to carry the company through the completion of its proposed merger with Dynegy Inc. After drawing on its bank lines a few weeks ago, Enron held roughly $1 billion of cash, which was supplemented by $1.5 billion upon the signing of the Dynegy merger agreement and another $1 billion of secured pipeline loans that have already begun to be funded. About $2 billion of liquidity has been consumed recently in connection with maturities of obligations and trading-related collateral issues, including margin postings and the exchange of letters of credit for cash. Thus, the net available cash now stands at about $1.5 billion.

An expected additional infusion of $500 million of new private equity and around $800 million of imminent asset sale proceeds will further enhance liquidity in the relatively short term. As Enron's credit situation continues to stabilize, Standard & Poor's also expects future maturing obligations to be extended and margin requirements to ease, which will improve the company's liquidity even further. Enron's ratings remain on CreditWatch Negative because of the near-term refinancing risk and Dynegy deal risk, but an update of the CreditWatch listing to positive is possible in the first quarter of 2002 if the resolution of those risks becomes clearer.

From Standard & Poor's CreditWire

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