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Fitch sees long, bitter bankruptcy for Enron

Fitch, one of three rating agencies whose downgrades shoved energy trading giant Enron Corp. to the brink of bankruptcy, said on Friday the bankruptcy process will be long, complicated and bitter.

"Fitch anticipates a lengthy and contentious battle over Enron's assets," it said.

Citing Enron's worldwide involvement in energy marketing and trading, natural gas pipelines, merchant generation, retail energy services, and broadband communications, its woes have "had financial impacts both within as well as beyond the energy and utility sectors," Fitch said.

Fitch on Wednesday afternoon downgraded Enron's senior unsecured debt 10 notches to "CC" from "BBB-minus." The cut was somewhat deeper than cuts imposed by the two other leading U.S. ratings agencies, Moody's Investors Service and Standard & Poor's, in the prior two hours.

Almost simultaneous with the Fitch cut, Dynegy Inc., which like Enron is based in Houston, pulled out of its announced merger with Enron.

This left Enron -- already battered by accounting problems, earnings restatements, a federal investigation and management changes -- with a shriveling business, huge debts and, in the minds of analysts and investors, little escape from the courthouse.

Fitch said it is "uncertain" whether Enron will have to liquidate its assets, or can still pledge enough to obtain funding sufficient to run its business, as it works its way through the bankruptcy process.

'Cloud'

Fitch said several matters "cloud" the ability to assess what Enron is worth.

It said Enron's wholesale trading business is unlikely to operate as it once did, making it hard to value. It also said securities regulators' investigation into the company makes it tough to assess how profitable Enron's businesses once were.

Fitch said Enron has some assets that could be monetised to pay off unsecured creditors with claims. Pipeline assets could be worth $1 billion, it said if Dynegy is successful in taking over Enron's largest pipeline, Northern Natural Gas, which Dynegy says is its right.

Enron could also sell assets, but the extent to which it has already pledged them as collateral is "uncertain," Fitch said.

Holders of Enron's roughly $11 billion unsecured debt, Fitch said, could get back 20 to 40 cents on the dollar.

Enron's woes should affect holders of collateralized debt obligations, Fitch said. The credit quality of CDOs, especially "junk" rated ones, could fall because of Enron's "precarious financial position" and inability of unsecured creditors to get much of their money back in a bankruptcy.

Insurance companies could lose $2 billion or more in a bankruptcy, Fitch said. Other energy traders could suffer losses, Fitch said, but not so large that their credit ratings could fall.

Financial institutions, meanwhile, are likely not to suffer major losses or credit downgrades, "given Enron's active participation in many markets," Fitch said.

Citigroup Inc and J P Morgan Chase & Co, which were advising on the Dynegy-Enron merger, are on the hook for a respective $900 million and $800 million, including a respective $500 million and $300 million of unsecured exposure, Fitch said.

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