HOUSTON – In one of the largest corporate bankruptcies in U.S. history, Enron filed for Chapter 11 protection and sued rival Dynegy Inc. for $10 billion as it tries to reverse a tailspin that has crippled the one-time energy giant.
Dynegy countered Monday with a suit of its own.
Enron's Sunday filing was largely expected after its credit rating collapsed and Dynegy scuttled the proposed buyout. Enron listed just under $50 billion in total assets, including those of 13 Enron subsidiaries, and $31.1 billion in liabilities, according to the filing.
In the lawsuit against Dynegy, Enron asserted that its fellow Houston company breached a merger agreement by backing out of its Nov. 9 deal to buy Enron. Enron also says Dynegy has no right to exercise an option on its large Northern Natural Gas pipeline in return for a $1.5 billion investment.
Enron chairman and chief executive Kenneth Lay said the filings, made in Bankruptcy Court for the Southern District of New York, will help the company regain lost confidence. He said the company's operations will continue running normally.
On Monday, Dynegy said it had filed a suit against several Enron subsidiaries not included in the bankruptcy filing. The suit was brought in Harris County District Court in Houston, where both companies are based.
Dynegy chairman and chief executive Chuck Watson called Enron's lawsuit "frivolous and disingenuous," and said Dynegy's suit was to make sure the subsidiaries live up to their contractual obligations to the pipeline.
He said Dynegy expects to acquire the pipeline, one of Enron's most prized assets, and he wants it to remain financially healthy until that happens. But the lawsuits likely will drag that process out, Watson said.
"We have a clear and unambiguous right to Northern Natural Gas," Watson said in a conference call to analysts. "Until we take control of it, we are protected."
Watson said the suit against his company was an example of Enron refusing to take responsibility for its decline.
"The reality is, Enron invited Dynegy to participate in merger negotiations. Dynegy entered those negotiations in good faith and provided $1.5 billion in cash to Enron. Despite assurances that Enron's liquidity situation had stabilized, the cash was gone in less than three weeks, and Enron has had difficulty providing an accounting as to where it went," Watson said.
Enron would use any proceeds from the Dynegy lawsuit to repay its creditors. In the meantime, the company said an undetermined number of its 21,000 workers, mostly among the 7,500 in Houston, would be laid off.
A laid-off worker in human resources, Joann Matson, said Monday that 4,000 employees were notified. This comes on top of 1,100 jobs in London that were cut Friday.
"This whole thing, it's a nightmare," said Matson, who was one of a number of workers seen carting belongings away in cardboard boxes.
Enron also said it is in "active discussions" with several financial institutions to secure credit for the continued operation of its wholesale energy trading business, and to get additional funding to keep the rest of the company operating.
Morgan Stanley Dean Witter analyst Jim McAuliffe said Enron's ability to win new financing will be crucial to a successful reorganization.
"That's going to be the tricky one," he said.
Several energy companies have stopped making trades with Enron for fear they won't be paid. Some have revealed they have multimillion-dollar exposures to Enron.
Enron said it would ask the court to consider several motions to continue payments for Enron's payroll and health benefits and for vendors.
Enron stock was up 13 cents to 39 cents a share Monday. A year ago, Enron traded near $85.
Dynegy fell $3.18, or 10.5 percent, to $27.17.
Enron's loss of credibility in the market stemmed from revelations in October that its former chief financial officer was running partnerships that allowed the company to keep half a billion dollars in debt off its books. In early November, Enron restated its earnings since 1997, eliminating more than $580 million in reported income.
Smaller rival Dynegy descended to rescue its downtown neighbor, but even its top officials were surprised when Enron later disclosed it had a $690 million debt due within a week.
According to BankruptcyData.com, Texaco Inc. filed the largest bankruptcy in history in 1987 when it had $35.9 billion in assets. Adjusted for inflation, that amount would be about $56.4 billion today, the Boston-based company said.