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Enron on the verge of bankruptcy

With plans for a life-saving merger falling through and the company's debt cut to junk bond status, the Houston, Texas-based energy giant Enron Corporation is on the verge of bankruptcy.

The battered energy company on Wednesday saw its shares tumble 84 per cent in a matter of hours, in an stinging show of lack of investors confidence in the company's ability to salvage itself from the severe cash crunch facing it.

Dynegy had earlier walked out of a merger deal -- on which Enron had pinned its hopes for a revival -- saying the company had not disclosed its real financial status during merger negotiations.

Meanwhile, Standard and Poor's and Moody's had cut Enron's credit rating to junk bond status warning that a collapse of the merger plans could send Enron into bankruptcy.

"A move by Enron to seek protection from its creditors through a voluntary filing under Chapter 11 of the US bankruptcy code is a distinct possibility if the merger falls through," Standard and Poor's had warned.

The ratings cut combined with the collapse of the merger is expected to make it impossible for Enron to raise more cash, meaning that bankruptcy is likely for a company that last year posted $100 billion in revenues and over a billion dollars in earnings.

Reports suggest that Enron halted all payments 'other than those necessary to maintain core operations'.

"Uncertainty during the past few weeks with respect to the merger has dramatically lowered the market's confidence in Enron and its trading operations. With Dynegy's termination of the merger and the ratings agency downgrades, we are evaluating and exploring other options to protect our core energy businesses," Enron chairman Kenneth Lay was quoted as saying in an agency report.

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