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CNN Live At Daybreak

Ken Lay Resigns; Interview of Jamie Sprayregen

Aired January 24, 2002 - 06:01   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CAROL COSTELLO, CNN ANCHOR: The roller coaster is over for Kenneth Lay. As we've told you, the CEO of embattled Enron has resigned.

CNN's Adrian Smith looks at Lay's legacy.

(BEGIN VIDEOTAPE)

ADRIAN SMITH, CNN CORRESPONDENT: For months he's taken the heat. Now he's decided to get out of the kitchen. Kenneth Lay says he's resigning because he wants to see Enron survive. But he had hoped for a graceful way out -- that's unlikely to happen. He'll spend most of his retirement answering questions about what went wrong.

After all, he was the man who took Enron to glory as one of America's top companies only to see it collapse. He remains a rich man, but he used to be very, very rich. In late 1998, Lay reported only fewer than a million shares, but towards the end of '99, that had increased to nearly two million, even as the stock price soared from $25 a share to more than $40 a share, and you add nearly a million more after that as the price spiked to 80 and $90, and he was still buying as late as last August, and stayed bullish.

But then disaster, Enron started to slip. When it finally fell into bankruptcy in December, it left thousands of employees out of work. They had no choice about when they left the company. Employees had invested their savings and pensions in Enron would badly hurt. And Kenneth Lay also lost out. CNN has learned that Lay has personally lost more than $1 million in just six months.

Adrian Smith, CNN.

(END VIDEOTAPE)

COSTELLO: And with Enron now looking to restructure and another big company, Kmart, also headed that same route, we've invited attorney James Sprayregen to join us this morning. He is a partner at Kirkland & Ellis, a firm that deals with bankruptcy and restructuring.

Good morning.

JAMIE SPRAYREGEN, KIRKLAND & ELLIS: Good morning.

COSTELLO: Thanks for waking up with us this morning. SPRAYREGEN: A pleasure to be here.

COSTELLO: Hey Kenneth Lay is resigning. Hearings begin on Capitol Hill. Enron has filed for bankruptcy. Can this company really survive?

SPRAYREGEN: Well Carol, the situation for this company is very difficult at the present time, and time will only tell whether they can survive, but it's a very difficult circumstance with the maelstrom swirling about it right now.

COSTELLO: I think that's an understatement. Should it survive, does it deserve to survive with all that's out there about Enron?

SPRAYREGEN: Well again, I don't think anybody can answer that question at this point and time. Hopefully, the assets will be maximized in value for the benefit of all of the creditors. So whether it should survive and whether that maximizes the value or whether through liquidation values maximize, I think the creditors will have a very big say as time goes on.

COSTELLO: Can you explain to us why bankruptcy will help companies like Enron and Kmart?

SPRAYREGEN: Well bankruptcy in the first incidence imposes what's called the automatic stay, which is exactly what it sounds like. That is all creditor action against a company like an Enron or a Kmart is stopped as a result of the bankruptcy filing so the thousands of creditor actions that you may have across the country are concentrated in one bankruptcy court, and it gives the company such chance, at least, to take a breather and to take the pressure off of multiple actions in multiple jurisdictions.

COSTELLO: Some people might fell it's just not fair for a company to declare bankruptcy and then become profitable again. It's just not fair to the rest of us. I mean we don't get that break usually.

SPRAYREGEN: Well individuals can also take advantage of that if they so desire, but the real point is and the purpose of it from a public policy perspective is to try to put something into a situation where the value is maximized, not necessarily for the benefit of the debtor, but for the benefit of this company's stake holders - all of the creditors. So to say that it's unfair, it's unfair to the creditors to lose all their money also, so we're looking for a way to try to maximize the value of those assets.

COSTELLO: And also when a company goes down like Kmart, I mean there's a giant rippled effect across our economy, right?

SPRAYREGEN: Well there will definitely be a ripple effect. For example, Kmart will be closing a whole number of stores in many, many locations that will obviously effect a number of landlords across the country and a number of suppliers across the country. And we can probably expect some of Kmart suppliers to have some bankruptcy restructuring problems themselves. COSTELLO: Oh yes. Hey, is it a coincidence that two big giant companies have declared bankruptcy? I mean is there more to come with other companies?

SPRAYREGEN: Well the bankruptcy is really demonstration of the workings of American capitalism. Companies that have problems end up in bankruptcy cases. I don't see the connection so much between Enron and Kmart as between the general economic downslide that's been occurring over the last year and they're in different industries and different segments. But they've clearly been affected by the overall economic problems.

COSTELLO: OK, let me ask you about Enron again because as we all know bankruptcy can sometimes help a company become profitable again, but the Enron situation is complicated by the fact that there might be criminal matters involved. Is it really possible for them to become a vibrant company again?

SPRAYREGEN: Well Carol, you make a very good point in that even if it does make sense for Enron to reorganize and come out as a going concern entity (ph) with all of the non-economic factors swirling about Enron, it will make it more difficult and again, I don't think anybody can answer the question whether it's possible at the present time, but there's no question it makes it more difficult than any typical Chapter 11 case with the attention it's receiving and with the criminal and civil probes going on.

COSTELLO: Yes. Senate hearings are supposed to start today on Capitol Hill, and you have to wonder if Enron can really get a fair hearing because Enron gave money to everyone.

SPRAYREGEN: Well that may actually be somewhat of a break on it. Everyone is going to bending over backwards to ensure that their conduct is appropriate on a going-forward basis from a political perspective. So even, I would expect, Enron's hearings to be frank and candid not withstanding some of the questioners having received contributions.

COSTELLO: You'll be watching those hearings, won't you Mr. Sprayregen?

SPRAYREGEN: I sure will, Carol.

COSTELLO: OK. Thank you for joining us this morning. We sure appreciate it.

SPRAYREGEN: Thank you, Carol.

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