NEW YORK, Oct 27: Bonds of Enron Corp., which is trying to curb fears that it faces a credit crunch, fell sharply on Friday after The Wall Street Journal reported the energy giant on Thursday drew down about $3 billion from a credit line and is in talks with its banks about obtaining a new multibillion dollar credit line.
Houston-based Enron’s new chief financial officer, Jeff McMahon, said late on Thursday that the company, the largest US energy trader with $67.3 billion of assets, had drawn down from its credit lines to obtain more than $1 billion in cash to alleviate concerns about its liquidity.
There’s been a lot of downward pressure on Enron following the negative news, said an investment-grade bond trader. Investment-grade accounts have been trying to exit those bonds, but there hasn’t been any support from either high-yield or hedge funds.
Enron did not immediately return calls seeking comment.
Enron’s investment-grade 6.40 per cent notes due in 2006, which just two weeks ago were quoted to yield 2.3 percentage points more than five-year US Treasuries, are now quoted at a dollar price, like junk bonds. They were bid Friday at 80 cents on the dollar, with a yield to maturity of 12.09 per cent, or 8.34 percentage points more than Treasuries.
Enron’s 8.31 per cent issue due 2003 fell a similar amount on Friday, and also trades at 80 cents on the dollar, traders said.
Assurances from the top levels of Enron management that the company will maintain its commitment to its credit quality and that no steps are being taken to support the company’s common stock price at the expense of credit quality provide further support for Enron’s ratings, S&P said.
S&P said it revised its outlook after the big drop in Enron’s market capitalization this week, which it said has hurt the company’s financial flexibility and may impede management’s ability to rebuild the balance sheet and sell assets in a timely manner.
The negative outlook acknowledges the potential for erosion of the company’s credit quality as investor confidence in the company’s management has waned, S&P said.—Reuters