Dynegy ponders filing for bankruptcy
HOUSTON (AP) – Dynegy Inc., which claimed a major Enron Corp. pipeline after their failed merger attempt last year, warns it might follow its rival into bankruptcy if a pending sale of that pipeline snags. The company still expects the proposed $928 million sale of Northern Natural Gas pipeline company to MidAmerican Energy Holdings Co. to be completed this month, according to a filing Wednesday with the Securities and Exchange Commission. However, the company said that several risk factors remain and that a delay could create a cash crunch, which could force the energy company to file for protection from its creditors.
Raymond James analyst Jon Kyle Cartwright said Dynegy had to sell the pipeline because it was their most liquid asset.
“We expect the deal to go through and I suspect it will go through in time. But even if it does, Dynegy at best is looking at limping along until the cycle can turn.
“Beyond the problems created by Enron, this is a very cyclical business and it’s the downturn of the cycle, and I’m not willing to say we’ve seen the bottom of the cycle.”
Dynegy’s shares fell 19 cents, or 13 percent, to close at $1.30 on the New York Stock Exchange. Dynegy traded as high as $47.20 last November, but sank as low as 49 cents last month.
In the filing, Dynegy said it is aiming for a quick sale of the pipeline and hopes to have in place other aspects of its $2 billion money-raising program by next spring.
If not, according to the filing, Dynegy “may be forced to consider other strategic alternatives or a possible reorganization under the protection of bankruptcy laws.”
“Dynegy must be prepared for all contingencies; however, reorganization under the protection of bankruptcy laws is always a last resort,” Dynegy spokesman John Sousa said Thursday.
Dynegy’s shares began sinking this year as the entire energy trading sector, in the wake of Enron’s well-documented accounting woes, came under investor scrutiny.
The company’s financial woes mounted as profits fell and its debt grew, leading to its credit rating being cut to junk status by Standard & Poor’s, events that sent shares plunging.
Also weighing on the company’s fortunes was an admission it engaged in “round-trip” trades – simultaneous swaps of power – the accounting for which is under investigation by the SEC. Dynegy maintains it conducted the trades to test its system and that they didn’t yield any profits for Dynegy or its trading partner.
Dynegy alluded to these regulatory problems in its filing Wednesday: “Dynegy has been informed by the staff of the SEC that they believe that, among other things, Dynegy’s disclosures and reports related to (some accounting practices and trades) violate various antifraud and other provisions of the federal securities laws.”
It is unclear if the SEC is considering charges against Dynegy, or if the company is in settlement talks with regulators, a common practice in such cases. Dynegy will say only that it is cooperating with the agency.
Dynegy and Enron, based near one another in downtown Houston, once were considered pacesetters in the emerging energy trading business. Then a few chinks started appearing.
First, both were blamed for manipulating high electricity prices in California in the summer of 2000, an accusation they deny.
Then came Enron’s collapse in a wave of accounting scandals and a failed attempt by Dynegy to bail out its competitor with a merger last November. When the merger fizzled, Dynegy claimed the Northern Natural pipeline, a massive system that runs from Texas up through the Midwest. Now, just as Enron once tried to rely on the pipeline to back its desperate attempt to avoid bankruptcy in the merger try, Dynegy says it might need proceeds from the pipeline quickly to avoid the same fate.
“Through our … filing, we have strived to present a full range of strategic alternatives should any adverse developments impact our liquidity position and materially affect our financial condition,” Sousa said.
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