A US power-plant maker owned by bankrupt Enron - in jeopardy itself because of its parent's insolvency - has been accused by a German bank of misrepresenting its financial position in order to obtain a multi-million dollar letter of credit (L/C) according to Dow Jones News Service.

National Energy Production Corp., known as NEPCO, lost control of its financial affairs after it was taken over by Enron which swept the power-plant maker's cash into its centralised cash-management system. The US energy giant subsequently went bust.

Cash sweeping

NEPCO, the US'' fifth-largest power contractor, is not bankrupt but it may have trouble posting the bonds that power developers require and it has also been forced to renegotiate contracts with its customers. For example, NEPCO is reportedly seeking additional funding from Florida based TECO Energy Co, which has already given NEPCO up to US$63 million that it now must pay again. This factor contributed to Moody's Investors Service decision this month to downgrade TECO's long-term outlook to negative

Sweeping cash from subsidiaries into centralised accounts is not uncommon amongst holding companies - TECO Energy, with 11 subsidiaries, apparently uses the practice itself - but when the swept cash disappeared after Enron's declaration of bankruptcy, on Dec. 2, the practice became problematic for NEPCO and customers such as TECO.

Misrepresentation

Meanwhile, a lawsuit filed 7 January in a New York federal court says NEPCO's relationship with Enron was inherently problematic. German bank Westdeutsche Landesbank Girozentrale accused NEPCO and another company of failing to disclose that they had no bank accounts, did not control their own funds and had no financial existence apart from Enron, according to Dow Jones News Service.

The bank said the two companies misrepresented their financial condition to obtain a US$23.7 million L/C. NEPCO's response is as yet unknown.

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