It's high time the media focused on the extent of the rot in the energy sector.
> The energy traders are responsible for a large portion of that debt,
> according to SNL Financial, an independent research firm that says
> $116.65bn of the sector's debt is held by what - pre-crisis - were the top
> nine traders, companies such as Dynergy and El Paso, both Texas-based, and
> Duke Energy of North Carolina.
Just a caveat - Dynegy and El Paso were both Houston based, like Enron. They also happened to both use Arthur Andersen as their accountant. They also both expanded into broadband and other areas, to raise more debt, reduce their dependency on their core energy businesses and cloud their balance sheet.
El Paso took over Enron's mantle as the leading energy company trader over the past year, until they closed their operation recently. Before that, they actively traded with each other. El Paso was also a major predator in terms of acquisitions, gobbling up $35 billion of other corporations in the last 5 years.
(Both El Paso and Enron lost key senior figures who were intimately familiar with their trading operations to 'suicide' within a few months of each other.
But, this was probably just a coincidence.)
>
> SNL Financial's research shows that last year, when the energy sector was
> under intense pressure to reduce its debt, its borrowings grew from $450bn
> at the end of 2001 to the $477.6bn now outstanding.
>
>
Actually, the energy sector was not under pressure to reduce debt in 2001. No
one was. That was part of the beauty of Alan Greenspan's gift of 11 rate
cuts. Debt was cheap. Plus, merger business was down substantially for Wall
Street, so debt issuance and securitization of energy assets were the only
ways to make money.
In fact, most capital markets operations were begging energy companies to issue debt and marketing the story of their stability to investors throughout 2001. This was while the telecom sector was beginning to implode. Issuance had to come from somewhere.
The names touted in 2001, included Mirant, El Paso, Duke and CMS. All are now under fraud investigations and have devalued substantially.
>
> But neither of these options is promising. Overcapacity in the sector has
> hit electricity prices and in turn dented profits. Asset disposal is
> difficult, as the market is already swamped with distressed sellers. For
> many of the companies, their traditional energy businesses are struggling,
> not least because electricity prices have been hit by overcapacity.
Agreed. No operating profits on the horizon, except where they can gouge regional customers. It's not just overcapacity in the energy sector that has rendered many energy assets close to worthless - Energy companies were over valuing assets to begin with. This was done in order to raise new debt.
The energy companies who have lost the most value had the largest trading operations to beef up their revenues, just like Enron. Many are still under fraud investigations and charges of market manipulation, though unfortunately, some have settled for tiny fines and no admission of guilt.
Some had their revenues inflated by up to 15% (like CMS) due to 'wash trades' amongst their own subsidiaries.
The only reason the energy sector didn't fall in tandem with telecoms is because telecom deregulation was a nationwide phenomenon. For energy, it was only half the country. Maybe, that's why the energy bust is taking twice as long, but it's coming.
Nomi
>
>
-------------- next part -------------- An HTML attachment was scrubbed... URL: <../attachments/20030219/63b0483f/attachment.htm>