NEW YORK (HedgeWorld.com)–A lawyer for a collection of the trade creditors of Enron North America said that his best guess is that the marathon Enron bankruptcy litigation will continue through this year and that no decision will be made on a final plan until December or early 2004.
Distressed-debt hedge funds continue to pull on both sides of a tug-of-war in this litigation Previous HedgeWorld Story. Some, such as Angelo, Gordon & Co., purchased much of the debt of a crucial Enron subsidiary, Enron North America Corp., which is sometimes referred to as the parent corporation’s cash cow. Angelo Gordon’s interest is to prevent the consolidation of the different debtors–i.e. of Enron Corp. and Enron North America–thereby preventing the dilution of its share of the Enron North America cash flow. Other hedge funds, such as Racepoint Partners LP and Baupost Group LLC, are on the opposite side of this issue, owning Enron’s instruments and encouraging the consolidation of the debtors.
The lawyers for the hedge funds couldn’t be reached for comment, but the lawyer for the trade creditors’ group, Aaron R. Cahn of Carter, Ledyard & Milburn, said that the issue of consolidation remains an open one.
The debtors–Enron, Enron North America and all the affiliated entities involved in the original December 2001 filing–submitted their own proposed joint Chapter 11 plan and related disclosure statement to the bankruptcy court on July 11, 2003, a plan prepared by the debtors’ law firm, Weil, Gotshal & Manges LLP, New York.
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A Good Day
“This is a good day in what has been a very complicated process,” said Enron’s Acting Chief Executive Stephen F. Cooper, in a statement at the time of that filing. “Having reached agreement with a broad base of our economic stakeholders, we can expedite this process and hopefully avoid lengthy bankruptcy maneuvering and the associated legal expenses.”
The disclosure statement detailed the (preliminary) estimated recovery percentages for more than 350 classes of creditors. Enron’s management expects that the unsecured creditors will receive between 5% and 75% of their claim, depending on which particular debtor the claim is against. On the crucial question of consolidation of Enron with Enron North America, the proposed plan splits the difference with a 70/30 formula. A holder of an allowed general unsecured claim will receive the sum of 30% of the distribution that creditor would receive if the debtors’ estates were substantively consolidated and 70% of the distribution that creditor would receive if the estates were not consolidated.