Enron Surprises Reliant with Latest Disclosure
Reliant Resources Inc., a trading partner of Enron Corp. was surprised by news that Enron could be forced to pay $690 million in debt next week because of a credit rating downgrade.
Shahid Malik, Reliant's president of energy trading and marketing, said his company was still evaluating the implications of the disclosure, which Enron made in a filing with the Securities and Exchange Commission (SEC) on Monday.
"It's another surprise to the industry. We don't need any more surprises," Malik stated. Reliant is a big wholesale electricity and natural gas trader and as such both a competitor and trading counter-party of Enron. Enron executives did not mention the potential payment of $690 million during a conference call with analysts on Nov. 14, two days before the credit rating downgrade that triggered it on Nov. 12. Enron agreed to be acquired by smaller rival Dynegy Inc. for approximately $9 billion in stock on Nov. 9 after a collapse in investor confidence and increasing financial woes brought Enron close to collapse.
Dynegy wrote clauses into its agreement with Enron that allow it to walk away from the deal if the problems at Enron turn out to be far worse than previously disclosed, but Dynegy executives have said it is unlikely those clauses will be invoked. Reliant will seek further clarification from Enron about its financial position.
Enron's bids and offers in the wholesale electricity and natural gas markets had become less competitive in recent weeks and that this had allowed Reliant and other companies to capture some market share from Enron. Reliant cautiously continues to do business with Enron.