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Enron creditors still objecting to sale -- GE buying Enron Wind

A bankruptcy judge has approved General Electric's purchase of Enron Wind, but the creditors of the Enron subsidiary are still fighting over the crucial issue of how the money will be divided up. On April 11, Judge Arthur Gonzalez of the US Bankruptcy Court in New York gave the go-ahead to the purchase of much of Enron Wind's US and European assets. The Power Systems unit of General Electric (GE) is paying a revised purchase price for the wind company of $325 million cash, $100 million higher than the price under a previous deal with owner Enron Corp, a Texas energy giant that declared bankruptcy in December.

A court hearing was scheduled April 30 to determine how the proceeds will be divided amongst the debtors of Enron Wind. Objections to the sale agreement being overly vague have been raised by creditors including Mission Iowa Wind Company, an affiliate of the bankrupt California utility Edison. The terms of the sale specify that 63% of the value of Enron Wind is in its European divisions, which Mission Iowa says is too low. "We're not looking to keep the sale from closing," says Mission Iowa attorney Steve Warren. "Our goal is to get a fair valuation for the assets."

Mission Iowa is owner of the Storm Lake 1 project, which consists of Enron's Z-750 turbines. GE's purchase does not include Enron Wind's warranty obligations on this model turbine. Mission Iowa says turbines at Storm Lake have performed at less than the advertised power curve and that Enron Wind owes it $14.02 million.

GE is buying Enron Wind's US and foreign manufacturing assets -- real estate, intellectual property and contracts. Not in the deal are the 750 kW warranties, Enron Wind's US and European owned and developed wind projects, and all US benefit plans and arrangements, except for certain management bonus payments.

A second objector to the purchase deal is Fortis Bank, which loaned $398 million in total for Enron Wind's Storm Lake and Lake Benton projects in the Midwest, and Cabazon in southern California. Enron Wind's largest unsecured creditor, however, is not likely to object -- it is GE's ailing Capital Corp unit, which is owed $9 million according to court documents. The sale has been approved by US anti-trust regulators and must also be approved by the equivalent authorities in the European Union.

Hostile bid

The extra $100 million added to the price of Enron Wind was the result of a tense two-and-a-half hour live auction of the wind company in New York on April 3, overseen by Gonzalez. He had allowed a rival bid to GE's from Caterpillar Inc, another giant of the corporate world. The bankruptcy court must try to ensure the highest sale price to be fair to creditors. In the end the final purchase price was 45% higher than that announced by GE and Enron on February 20. The revised sale agreement also no longer sets aside $22.5 million in escrow for indemnification claims because GE has completed its due diligence. Escrow funds are a standard mechanism in case of any seller misrepresentation.

The higher sale price is a relief to creditors. Enron Wind's previous price tag of $225 million was only a disappointing 3.9 times Enron Wind's earnings before interest, tax, depreciation and amortisation (EBITDA) in 2000 and 2.8 times its projected 2003 performance, notes Warren. In contrast Enron Wind competitors, such as leading Danish wind companies Vestas Wind Systems, NEG Micon, and Danish-German manufacturer Nordex AG, are valued at a healthy 16.8 to 24.4 times their EBITDA.

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