Facebook Twitter

Enron reorganization gives creditors little

SHARE Enron reorganization gives creditors little

HOUSTON — Most Enron creditors will receive less than 20 cents for every dollar of the estimated $67 billion they are owed under a bankruptcy reorganization plan filed Friday, sharing proceeds from asset sales as well as equity in companies formed from the remains of the once-mighty energy conglomerate.

"The plan represents the best that could be done under the circumstances," said Howard Seife, an attorney representing several insurance companies among Enron's more than 20,000 creditors.

The scandal-ridden company's plan, filed after five deadline extensions, said about 80 percent of creditors would receive 14.4 cents to 18.3 cents on every dollar owed. More than two-thirds of the payout would be in cash, with the rest distributed in stock.

The plan is subject to approval by U.S. Bankruptcy Judge Arthur Gonzalez in New York.

Anthony Sabino, an expert on bankruptcy and energy law from St. John's University, said the meager payback isn't surprising given revelations that Enron wasn't as financially robust as the company purported to be before its failure.

"There was corporate malfeasance and massive accounting irregularities, and therefore Enron as an entity was far less profitable than one would think," he said.

Enron, No. 7 on the Fortune 500 in 2000, collapsed into bankruptcy December 2001 amid revelations of billions in hidden debt, inflated profits and shady accounting. Thousands of employees lost their jobs and stock that once traded as high as $90 per share became worthless.

Stephen Cooper, a restructuring expert and Enron's interim chief executive, said Friday the company was not worth the $63 billion it had initially claimed when filing for bankruptcy. In fact, Cooper said Enron was only worth about $38 billion at the end of 2001, although he could not say how much of that shortfall was attributable to accounting irregularities.

"We did not have the resources to chase all those rabbits down," Cooper said, adding that Enron did, however, turn over the relevant information to federal investigators.

Enron's filing comes 18 months after its bankruptcy filing that led a string of corporate accounting scandals at major public companies, including WorldCom.

Since then, shareholder lawsuits have piled up and creditors have been wrangling for their share of the company's dwindled estate, seeking compensation for everything from bank loans to retirement funds. The bankruptcy, one of the most expensive in history, generated more than $422 million in administrative and legal fees.

The expected recovery by lenders to the once high flyer falls short of other bankruptcies. Bondholders in WorldCom's bankruptcy are to receive 36 cents on the dollar in the only Chapter 11 case larger than Enron's.

Bondholders normally rank behind creditors that made collateralized loans — such as large banks — when it comes to grabbing what's left in a bankruptcy. But in Enron's case, financial institutions such as J.P. Morgan Chase & Co. and Citigroup Inc. are unsecured creditors like bondholders.

The plan shows anticipated recovery estimates for more than 350 classes of creditors, ranging from 100 percent payment of administrative fees to nothing for common stockholders. The plan covers 174 debtor entities, from Enron's large Enron North America unit to the multitudes of smaller subsidiaries, and anticipated recoveries range anywhere from 5 cents to 75 cents on the dollar.

The plan also identifies a string of on- and off-balance-sheet financing transactions, some involving partnerships or other structures credited with helping fuel Enron's flameout. About $2.8 billion to $3.3 billion in assets are associated with the transactions, although the company said Friday that "there is no guarantee" that any of the value once ascribed to these assets remains.

Richard Rathvon, co-chairman of a committee of former Enron employees representing their interests in the bankruptcy, said Friday the group is reviewing the plan.

Enron's plan, already approved by major creditors, says creditors will split proceeds from asset sales and auctions, and receive equity in two new companies — one domestic, the other international. Enron reported Friday it has collected $3.2 billion from asset sales and $2.5 billion from settling its vast array of energy-trading contracts. Auctions have raised about $6 million, the company said.

The domestic business, CrossCountry Energy Corp., will have Enron's full or partial interest in three North American natural gas pipelines. The second company, to be called Prisma Energy International Inc., includes 19 international power and pipeline holdings.

If Enron decides to keep Portland General Electric, its Pacific Northwest utility, it would be a third independent company in which creditors also would receive equity. Enron is soliciting bids on the utility.

The plan said negative publicity leading up to Enron's failure could hurt the new companies' business operations and relations with partners, lenders and other third parties.