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Liquidation seen as increasing prospect for Enron

There may not be enough of Enron Corp left to reorganise now that its major money-making unit is gone, making liquidation a more probable and less palatable option, analysts and bankruptcy experts said on Monday.

The most valuable part of the Houston-based giant, which is in the midst of the largest Chapter 11 bankruptcy proceeding in history, was its once-dominant trading unit. But Swiss bank UBS Warburg is taking control of the trading unit, as part of a deal approved by US Bankruptcy Judge Arthur Gonzalez on January 18.

But experts believe the unit will make nowhere near the money it did in the past, and Enron will only get a third of the profits while assuming all the risk. And since Enron has few other ways to raise cash short of selling off its other brick-and-mortar assets, it may not have enough to dig out from underneath debts of at least $16.8 billion.

"I think it's going to be a fire sale. I don't think there will be an Enron going forward," said Hugh Larratt-Smith, national director of the trade group Turnaround Management Association. "There is surprisingly little value left after the trading assets are gone."

Larratt, whose group represents reorganisation specialists, said that lack of cash-creating assets means Enron might not be strong enough to operate under Chapter 11.

Chapter 11 of the US Bankruptcy Code, under which Enron filed on December 2, allows a company to remain in operation under control of a bankruptcy judge, so it can earn money to pay back creditors. However, an Enron without adequate means to make money could instead be liquidated - sold off in bits and pieces for cash - under Chapter 7 of the bankruptcy code.

'HORSE RACE'

"Ultimately, I think it is going to be a horse race for them to stay out of Chapter 7," said John Olson, an analyst with Houston investment bank Sanders Morris Harris.

All that truly remains of Enron beyond the trading unit are its Transwestern and Florida Natural Gas pipelines, which could fetch about $2 billion, Olson said. To that tally can be added roughly $6 billion in global assets and $1.5 billion in broadband assets, but Olson cautioned that both groups of assets will sell at drastic discounts.

Olson said that Enron's debt is a "moving target" because of the tangle of some $19 billion in derivatives the company became enmeshed in. Since their values are based on underlying securities, putting a price on them can be a very challenging prospect.

"Those are like land mines and hand grenades," he said, and could add at least $1 billion in debt, if not more.

Steven Pearson, a partner at PricewaterhouseCoopers, said it was very difficult to value some of Enron's more innovative derivative products. Pearson's firm is one of those overseeing Enron Europe's administration, a process similar to Chapter 11.

On one deal, Pearson said Enron and the other party in the deal disagreed about the value of the contract to the tune of hundreds of millions of dollars.

"No wonder they went bust," he added.

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