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. Last Updated: 07/27/2016

Enron Falls 23% on Talk of Dynegy Exit

NEW YORK -- Shares of the Enron Corp. plunged 23 percent Tuesday as expectations grew in the stock and energy markets that Dynegy Inc. would either back out of its deal to rescue the struggling energy trader or seek to renegotiate terms of their merger.

Wall Street analysts said top officials of both companies had not known until the last few days that a recent downgrading of Enron's credit rating meant that the firm faced a $690 million loan payment next week unless it came up with collateral. Enron's disclosure of the obligation late Monday -- along with new numbers about the extent of its cash squeeze -- raised fresh doubts among investors about Enron's financial controls and credibility, they said.

Other trading firms, worried about getting paid as Enron's financial picture darkened, continued to limit their dealings Tuesday with the Houston firm, which has been the nation's biggest energy trader. Analysts also expressed concern about the rate at which Enron appeared to be burning through its cash.

Tuesday evening, Karen Denne, an Enron spokeswoman, said the company had obtained a "verbal agreement" from lenders to extend the time Enron has to repay the $690 million debt. Details of the extension -- including how long it would last -- were still being worked out, she said. The payment had been due next Tuesday.

An executive close to the talks said that bankers could "see a light at the end of the tunnel" for Enron, in the form of the deal with Dynegy, and so were "incentivized to roll over" the loan.

Dynegy, also based in Houston, declined to comment about details of Enron's disclosures, which came in a delayed report by the company -- a so-called 10Q filing with the Securities and Exchange Commission -- of its third-quarter results.

Just a week ago, Dynegy's chief executive, Chuck Watson, reassured investors that Enron's business was strong and that a $1.5 billion cash infusion by ChevronTexaco, Dynegy's biggest investor, would calm the market's jitters.

Dynegy was less impassioned Tuesday. A spokesman, John Sousa, said that "to the best of my knowledge, there have been no changes" in the merger plans.

He added, "We are in due diligence, and the 10Q is an important part of due diligence," he said. Due diligence refers to a company's thorough review of the financial and commercial soundness of a pending deal.

The merger deal, announced Nov. 9, allows Dynegy to back out of the transaction should there be a "material adverse change" in circumstances.

Enron shares fell $2.07, to $6.99, in trading Tuesday. Dynegy shares fell 4.4 percent, or $1.90, to $41.70.

Those stock prices suggest widespread investor skepticism that the deal will go through under the current terms, which call for each Enron share to be exchanged for 0.2685 shares of Dynegy. At Tuesday's prices, Dynegy would be paying a 60 percent premium for Enron.