Enron said it was in talks with potential outside investors, or "white knights," to rescue the company and promised to present an interim financing plan this morning in U.S. Bankruptcy Court in New York that would allow it to keep operating.
California experts said the bankruptcy filing could cause short-term disruption of the state's electricity markets. Closer to home, Enron warned that it would soon announce significant layoffs, mainly among its 7,000 employees in Houston, its headquarters.
The filing sets up what could be one of the most complicated and controversial bankruptcy proceedings ever, given the swirl of litigation and federal and congressional investigations surrounding Enron's murky finances.
Enron at its peak grew to be the world's largest energy trader and the seventh-largest public company in the U.S. It has wielded political clout in Washington and California, pushing a vision of deregulated markets for electricity and other energy commodities.
The bankruptcy filing was widely expected after Dynegy, an energy trading company also based in Houston, announced Wednesday that it was pulling out of a $9-billion acquisition the two companies announced Nov. 9.
In its filing Enron claimed about $50 billion in assets; the previous record bankruptcy filing was by Texaco Inc. in 1987, with $36 billion in assets. Enron listed $31 billion in liabilities but did not include debts from a series of controversial partnerships at the heart of the company's sudden decline.
The list of Enron creditors includes several banks on the hook for billions of dollars in loans. Enron also owes about $49 million to the California Power Exchange, $2.4 million to the California Independent System Operator and $1.4 million to the electric and gas utilities operated by San Diego-based Sempra Energy.
In breaking off the merger, Dynegy cited Enron's deteriorating cash position, its mounting long-term liabilities and unspecified misrepresentations of its true financial condition. Dynegy said a "material adverse change" clause in the deal entitled it to walk away.
Several class-action lawsuits have been filed on behalf of Enron shareholders, employees and retirees who have seen their investments evaporate with the collapse of Enron stock.
But Enron claimed in its suit against Dynegy, also filed in New York, that its onetime suitor had no right to terminate the deal, which it claims was nothing more than a pretext for destroying a rival and gaining access to its valued assets.
In a statement, Dynegy spokesman John Sousa said his company had not had an opportunity to review the litigation but that "we continue to be confident in our position as it relates to exercising the material adverse change provision of the merger agreement."
Combined with the lawsuit, the bankruptcy filing augured a long and bitter high-stakes legal battle between the downtown Houston rivals that could drain the resources of both companies.
"Will it last a while? Sure. If there is no white knight, this could take literally years to be resolved," said Nancy Rapoport, dean of the University of Houston Law Center.
The battle could be fiercest over Enron's crown jewel, the 16,500- mile Northern Natural Gas pipeline network. In exchange for advancing $1.5 billion in cash to Enron after the merger agreement was announced, Dynegy received all the preferred shares of the pipeline network as security. The day after it called off the merger, Dynegy said it expected to take possession of the pipeline in mid-December.
In addition to the damages, Enron has asked the Bankruptcy Court to prohibit Dynegy from taking over the pipeline network.
"This conduct has torn a hole in Enron's business and caused Enron to suffer billions of dollars in damages," the lawsuit reads.
An energy executive pointed to Dynegy and its chief executive, Charles L. Watson, as an example of the "dangers of getting entangled with Enron."
"Watson has put $1.5 billion of ChevronTexaco's money into Enron and doesn't have a pipeline to show for it, or any idea of how the $1.5 billion could be repaid," said the executive, who asked not to be named. ChevronTexaco, the giant oil firm, owns 26% of Dynegy.