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November 29, 2004

ARCHIVE: Profiting from Enron Bankruptcy


Recently Nevada Power filed a complaint declaring 200 million dollars in damages to its reputation as a result of the failed energy giant Enron. Liquidation of Enron's assets are supposed to pay for the costs of creditors like Nevada Power, but as KNPR's Ky Plaskon reports it's some others who stand to profit immensely from Enron's bankruptcy.

SOUND: Street

PLASKON: On the surface, the area of east Sahara, past U-S 95 is crumbling: Old strip malls, non-working gas pumps and tiny run-down wood houses. Yet it's the only place Enron considered viable for reinvesting some of the money it charged for electricity in Nevada. Cisco Systems Senior Account Manager Tim Boyle says the company was ahead of it's time when it constructed a block building there in 1998.

BOYLE: Enron was the first I believe to realize that 'hey, these pipes are all in Nevada.

PLASKON: The underground pipes he's talking about hold many tiny glass tubes known as fiber optic cables. In a rare confluence of high tech capacity these cables are the national backbone for up to 21 information technology companies from around the country. Enron built right on top of them. The building has connectivity to all of them, giving the building's tenants the capability to transfer vast amounts of data. For instance sending the entire Library of Congress anywhere in the world within minutes, streaming video to the whole state of California or delivering the nation's e-mail from one spot on East Sahara. The new owners of the Enron structure have a very bright future says Boyle.

BOYLE: They actually have a unique opportunity in the entire market, possibly in the world.

PLASKON: Connectivity to the Internet here may be rivaled by New York and Los Angeles he says, but Nevada's lack of natural or other disasters to date makes it a prime location for company's back-up data systems. Fortune 500 customers agree, virtually flocking to this plot of real estate on the spine of the information super highway. Mike Ballard of Switch Communications, the company that operates the building, knows the rent.

BALLARD: I won't say what any one customer pays but typically to be in this area they will pay for a 10 square foot area about 3 thousand dollars a month and then for whatever band-with they use typically between 100- and 500 dollars a megabyte.

PLASKON: The pipes are so big, customers are transferring not megabytes, but thousands of times that. Four Seasons has 3 terabytes of storage capacity here and is relocating it's data storage operation from Los Angeles because all the bandwidth in the building gives the operator the ability to broker connectivity and that makes it cheaper.

KETCHUM: 50 percent less

PLASKON: Russ Ketchum is Director of Information Technology for the Four Seasons Resort in Las Vegas.

KETCHUM: They can offer every service that we had before and then some to every property here and that gives us a huge cost savings.

PLASKON: The company's evaluated services around the world. With such demand, this former Enron building is expected to be full of paying customers by the end of the year.

SOUND: Inside

PLASKON: After just 18 months of operation the hum inside the building has grown to include the largest on-line shoe seller in the world, Zappos. Nevada Telephone connects 25 thousand customers through here. It's the origin of a Republican call generating system and UMC stores records here. One financial institution alone is using the facility to store 120-thousand e-mails an hour. The capabilities of this former Enron building are growing beyond its walls with a 55-thousand square foot expansion to be completed early next year. So, how did one person, Rob Roy at the age of just 29 get control of such a critical building?

BALLARD: Luck is where opportunity meets preparation. Rob Roy is quite lucky because he was prepared when the opportunity came and it is just growing exponentially today.

PLASKON: Switch Communications is protective of its reclusive majority shareholder and would only provide public relations guru Mike Ballard to speak on the record. Roy had already realized the opportunity in the area and started a similar facility in a strip mall nearby in 2000. Ballard says Roy simply bought the building at an Enron auction.

BALLARD: What occurred is that several other companies should have bid on this facility, but at the time all of these companies were striving to not have happen what happened to Enron which is go bankrupt. And so more than 100 telecommunications companies went bankrupt. Every single one of those should have had an interest in this facility but they were all trying to keep themselves out of bankruptcy.

PLASKON: It wasn't just an auction. It was a private auction to just Rob Roy say Enron attorneys. According to Enron's Broadband Services arm, which is still selling property, it marketed all its properties to 300 different information technology companies over three months, but the sales managers say no one except Roy saw any value in the Las Vegas Enron building. So it went to Roy for 930-thousand dollars two years ago. Normally such a sale would close right away, but Enron's attorneys said Roy needed time to find financing. GK Acquisitions - another property investment company - jumped on board two months later. In June the Arden Street Technology Partners bought in for 1.6 million dollars. And last month the building was sold to Tom Thomas of the Thomas and Mack Company for three million dollars, that's three times it's original sale price two years ago. Thomas now leases the property to operator Roy. He says it's quite a success story.

THOMAS: Rob has had to slow down selling to national based tenants clients so we can expand services and the new building will give us the opportunity to locating their bandwidth opportunity to Las Vegas

PLASKON: But sales of valuable assets like this are supposed to benefit 2-thousand 600 creditors, customers and investors that financed Enron's development of this infrastructure. Robert McCullah of McCullah Research gave the congressional testimony about Enron's trading practices that contributed to its eventual bankruptcy. Now he keeps track of the bankruptcy sales and says the bankruptcy has a pattern of valuable asset give-always.

MCCULLAH: If you are wondering why the would sell an asset for one million that looks like it is worth three. That is the same question as to why you weld sell an asset for 3 billion when you could have got much more.

PLASKON: He points at an attempted sale of an Enron utility in Portland for billions below market value. While investors stand to profit immensely off the Energy giants carcass, creditors including Nevada Power are left searching for other ways to regain losses. Michael Yackira, Executive Vice President and Chief Financial officer of Nevada Power's parent company says the company is in line to get paid out of the sale of Enron's assets and it won't even come close to the costs.

YACKIRA: The secured creditors get cents on the dollars as well so even if anything is left over after the secured creditors are paid then the unsecured creditors would get paid and we would be one of those and even if it was large dollar amounts that were owed, the amount that would be paid would be very, very low.

PLASKON: So, in a complaint filed last week Nevada Power sued some of those secured creditors 8 banks, among them Citigroup, Barclays Bank and Chase for 200 million dollars in estimated damages from Enron. Meanwhile power customers who paid deeply for Enron's investments really have no recourse - only to hear about the success stories of a few entrepreneurs.

Ky Plaskon, News 88-9 KNPR

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