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Shocked that Enron Corp. still hasn’t sought Chapter 11 protection from creditors, bankruptcy attorneys theorize that the company is either trying to line up a debtor-in-possession financing or a buyer for its prized electronic trading system before taking the fateful step. The seemingly inevitable bankruptcy filing — Enron’s merger with Dynegy Inc. has collapsed and the company now faces accelerated debt payments because of rating agency downgrades — will also probably be messy and could even include charges of fraudulent conveyance, the lawyers speculated. Enron’s recent announcement that it is suspending the payment of all debts except those essential to maintaining core operations is a sure sign that Chapter 11 is just around the corner, said William Rochelle, a bankruptcy attorney at Fulbright & Jaworski in New York. While Enron would be the largest bankruptcy ever — with $61.8 billion in assets — it also promises to be one of the most complicated, said Joel Zipp, an energy attorney at Cameron McKenna in Washington, D.C. Zipp likened an Enron bankruptcy to the collapse of hedge fund Long Term Capital Management, which had to be bailed out. “This will be more complex than that,” he said. Making the task even more daunting for the company and the bankruptcy court in which it files will be the claims made by many parties, through loans and other securitization devices, on many of Enron’s assets. “It will be something extraordinary,” Zipp said. Rochelle suspects two issues could be holding up a filing. First, the company could be trying to work to secure crucial DIP financing, a situation complicated by banks already having exposure to Enron through high levels of bank debt. Second, Rochelle said, the company could be trying to cobble together a sale of its prized electronic trading system. EnronOnline was shuttered for much of the day Wednesday, before reopening late. Furthermore, the issue that began Enron’s slide into bankruptcy — the off-balance sheet transactions it has said the Securities and Exchange Commission is investigating — will certainly play a prominent role in any Chapter 11 proceeding. Rochelle said he wouldn’t be surprised if a creditor will charge the company with fraudulent conveyance for its handling of the off-balance sheet deals. “Will someone argue that the [transactions] were structured to be kept secret from creditors so they wouldn’t know they were liabilities?” Rochelle said. “It will be a huge issue in a bankruptcy.” If a bankruptcy filing is in the making, Enron has several venues from which to choose, including Houston, where it’s based, and Oregon, where it’s incorporated. The company also has the third option of filing wherever one of its subsidiaries is based. The now-defunct Eastern Airlines used such a strategy to file for Chapter 11 protection in New York. Bankruptcy attorneys, however, said Enron will likely file in Houston because recently adopted rules in Texas now allow the bankruptcy courts there to quickly handle major Chapter 11 cases. Enron’s size won’t create a logistical problem for the Houston bankruptcy court, said Joel P. Kay, a bankruptcy attorney for Hughes, Watters & Askanase in Houston. Nor are the legal issues in such a case involving likely to stump that court. “Just by virtue of the fact that a large volume of cases has been filed here since the adoption of the rules and they have promptly and expeditiously gone through the bankruptcy process from the initial filing to the plans of reorganization speaks well for the system,” Kay said. Copyright (c)2001 TDD, LLC. All rights reserved.

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