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Enron reorganizing to pay creditors 20 cents on dollar

By Jeff St.Onge
Bloomberg News

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The reorganization plan would allocate Enron's remaining assets so creditors owed more than $74 billion would get back an average of 20 cents on the dollar, court papers show.

"The recovery rate for Enron bondholders and other unsecured creditors is abysmal," said Praveen Varma, a Moody's Investors Service analyst who studies bankruptcies. "Typically, bondholders of a diversified public utility get 80 cents on the dollar at the end of a reorganization ... ."

After a bankruptcy sell-off of most of its assets, Enron, once the seventh-largest U.S. company by reported sales, proposes to give creditors, such as Citigroup and J.P. Morgan Chase, more than $7.4 billion in cash. Creditors also would get stock in remaining businesses, valued at $3.7 billion, and whatever proceeds the company receives from lawsuits filed against former banks, law firms and other business partners.

Several Enron executives, including former Chief Executive Jeffrey Skilling, were charged criminally with fraud during the bankruptcy. Former Chief Financial Officer Andrew Fastow pleaded guilty to securities fraud in January and was sentenced to 10 years in prison. Former Chairman Kenneth Lay, who denies wrongdoing, is being investigated, prosecutors said.

At least 5,600 workers lost jobs after the company disclosed it had hidden billions of dollars in debt in off-the-books partnerships. Enron lost $68 billion in market value from August 2000, when its share price reached its zenith. Investors sued Enron to recover $30 billion, alleging accounting fraud. Employee pension funds claim $3 billion in damages.

The reorganization plan is likely to be approved by U.S. Bankruptcy Judge Arthur Gonzalez in New York, said bankruptcy experts such as Jay Westbrook, a professor at the University of Texas School of Law.

About 100 objections were filed for Gonzalez to consider, Enron lawyer Brian Rosen said at hearings that began yesterday to review the plan. All but 27 have been resolved, Rosen told Gonzalez. The judge may approve the plan at the conclusion of the four-day hearing next week or weigh the evidence and issue a written decision within several days.

"Creditors have voted overwhelmingly in favor of the plan and I believe we will make a persuasive case for approval," said Stephen Cooper, Enron's chief executive officer, during a break in the hearing. "It's a very reasonable plan."

The Pension Benefit Guaranty Corp., which guarantees pensions through the federal government, said yesterday that it will seek to take over four of Enron's retirement plans in an attempt to preserve payments to 17,000 former employees.

"I don't know why the PBGC has taken this step," Cooper said. "We always offered to protect our current and future employees." Cooper said Enron had reserved up to $200 million "to true up" the company's underfunded pension plans.
 
Citigroup and J.P. Morgan are Enron's largest creditors and claim to be owed a total of more than $6.6 billion, court papers show. Enron last year filed a suit seeking to downgrade or disallow the banks' claims. A successful resolution could boost returns for other creditors.

The company also sued a group of former executives, such as Fastow, who used off-the-books partnerships to disguise billions of dollars in Enron debt as energy and commodity trades. Fastow personally reaped about $60 million from transactions involving the partnerships, according to R. Neal Batson, a court-appointed bankruptcy examiner.

Two former Enron and four former Merrill Lynch employees go on trial Monday in Houston over irregularities linked to the alleged sale of Nigerian barges.

California Attorney General Bill Lockyer, who opposed the bankruptcy plan, said yesterday that the state would sue Enron for allegedly manipulating prices during the 2000-01 energy crisis.