Enron's Share Exchange Agreement with Enron Oil and Gas Co. is Credit Neutral

Strategic Insights -

The Enron Corp., a leading energy company, has entered into a share exchange agreement with Enron Oil and Gas Co. The agreement will reduce Enron's ownership share of Enron Oil and Gas Co. from 53.5% to 16-17%, allowing Enron to issue $200 million in securities that can be converted into 10 million Enron Oil and Gas Co. common shares. This move is aimed at reducing Enron's debt and improving its credit profile.

Key Takeaways:

  • Enron's share exchange agreement with Enron Oil and Gas Co. is credit neutral, according to Duff & Phelps Credit Rating Co. (DCR).
  • The agreement will reduce Enron's ownership share of Enron Oil and Gas Co. from 53.5% to 16-17%.
  • Enron will issue approximately $200 million in securities that can be converted into 10 million Enron Oil and Gas Co. common shares.
  • The proceeds from the sale of these securities will be used to retire Enron's debt.
  • Enron will also receive $600 million in cash and gain 100% ownership of Enron Oil and Gas Co's India and China properties, valued at approximately $40 million of 1999 pro forma pretax cash flow.
  • The transaction does not require regulatory approvals and is expected to be completed by the end of next month.
  • The removal of Enron Oil and Gas Co's approximately $450 million cash flow and $780 million of debt from Enron's consolidated financials will reduce Enron's consolidated cash flow and debt levels.
  • Enron's internal cash flow is expected to remain stable, with Enron Oil and Gas Co. historically reinvesting more than 100% of its operating cash flow into oil and gas activities.
  • Enron will also benefited from a non-cash, non-recurring gain from the share exchange agreement, which will help bolster its equity component.

Statistics:

  • Enron's ownership share of Enron Oil and Gas Co. will be reduced from 53.5% to 16-17%.
  • Enron will issue approximately $200 million in securities that can be converted into 10 million Enron Oil and Gas Co. common shares.
  • The proceeds from the sale of these securities will be used to retire Enron's debt.
  • Enron will receive $600 million in cash and gain 100% ownership of Enron Oil and Gas Co's India and China properties, valued at approximately $40 million of 1999 pro forma pretax cash flow.
  • Enron Oil and Gas Co. has approximately $450 million cash flow and $780 million of debt, which will be removed from Enron's consolidated financials.
  • Enron's internal cash flow is expected to remain stable, with Enron Oil and Gas Co. historically reinvesting more than 100% of its operating cash flow into oil and gas activities.

Sources:

  • Duff & Phelps Credit Rating Co. (DCR)
  • PRNewswire
  • Enron Corp.
  • Enron Oil and Gas Co.