Enron Corp will most likely file for bankruptcy protection by tomorrow or Wednesday, with layoffs for as many as half its 7,000 Houston employees to follow, according to analysts and sources close to the company.
Job cuts in Enron's overseas operations are already underway, with about 1,100 Enron Europe employees cut on Friday. According to PricewaterhouseCoopers, the court-appointed administrator of Enron's European holdings, about 250 workers remain in the London-based headquarters.
Reports on Friday that up to 85 percent of the company's 21,000 employees worldwide would be laid off were incorrect, according to a source close to the company.
Layoffs will be deep when they happen, but cutting 85 percent of the staff would not leave enough employees to operate the company and would be the same as liquidating the business -- a move the company and its largest creditors are trying to avoid.
As many as 13,000 of Enron's employees work in regulated industries, meaning layoffs are very unlikely in those businesses.
The company has been struggling to stay afloat since Wednesday, when a US$21 billion merger with smaller rival Dynegy fell apart. Credit rating agencies also slashed Enron's debt rating to junk status that day, a move that labeled the company a bad credit risk for its trading partners and all but assured bankruptcy.
Enron Europe filed for creditor protection on Thursday following the ratings cuts.
The European trading operations were not necessarily faltering, but if a company believes a portion of its business is going to be insolvent, which became likely with the credit rating downgrades, the courts in England require it to notify them.
"There are two numbers everyone will be watching for next week," said John Olson, an analyst with investment firm Sanders Morris Harris. "Whether it's Chapter 7 or Chapter 11 bankruptcy and how much debtor-in-possession financing they get."
Chapter 7 would mean liquidation of all the company's assets while Chapter 11 would grant protection from creditors while the company attempts to reorganize. In order for the company to try to salvage its energy trading business, it would need debtor-in-possession financing -- money provided by investors at the time of the bankruptcy filing -- in the range of US$2 billion to US$3 billion, Olson said.
Enron's major creditors, including J.P. Morgan Chase and Citigroup, are said to be working with other banks and investors to forgive or restructure many of the company's debts.
That would let the company minimize some of the red tape and legal wrangling typical of most bankruptcies, and allow the creditors to recover some of the billions of dollars tied up in the company, leaving enough of a business for a potential buyer.
The move will also allow the company to secure funds to pay employees some sort of severance package when the layoffs come, analysts say.
Trading on EnronOnline, its Internet-based trading platform, reopened Friday with almost one-third of the commodity products it normally offers available. Buyers and sellers were busy unwinding their positions and minimizing their exposure to Enron.
The 472 products traded, including natural gas, power, metals and forest products, were up from the 65 products traded on Thursday. The Web site, which used to handle about US$2.8 billion a day in trades, shut for several hours Wednesday when Dynegy pulled out of the merger.
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