Buffett helps bail out Dynegy with $928m pipeline purchase

The US energy group Dynegy gained a reprieve from bankruptcy yesterday with the sale of its Northern Natural Gas (NNG) pipeline to a group controlled by Warren Buffett for $928m (£593m).

Dynegy paid $1.5bn cash and assumed $950m in debt to buy the pipeline, which runs for 16,600 miles from Texas to the Great Lakes, from Enron in January after its attempt to take over its bankrupt rival failed. But Dynegy's shares have since fallen 97 per cent and its debt rating has been downgraded to "junk", prompting fears it could go bankrupt.

MidAmerican Energy Holdings, an Iowa-based energy group controlled by Berkshire Hathaway, Mr Buffett's investment vehicle, is paying $928m cash for the pipeline and will also assume the $950m in debt. It is the second time this year Mr Buffett, who targets undervalued assets, has bought a pipeline from a troubled energy group. In March, he bought the Kern River Gas Transmission Co from Williams for $450m.

Dynegy shares jumped 52 cents to $1.20 last night. The deal leaves Dynegy with only $300m in near-term debt payments, due in November.

NNG was one of two pipelines Enron had when it was born in 1986. Though not part of the glamorous, asset-light image Enron pitched during better days, NNG was a steady earner, with 70 utility customers and numerous industrial clients to buy the 4.3 billion cubic feet of gas it moves each day.

The pipeline was supposed to be Dynegy's consolation prize after its $9bn deal to buy Enron fell apart last November. Dynegy broke the takeover off after its $1.5bn investment financed by its biggest shareholder, ChevronTexaco, disappeared and Enron admitted its finances were far worse than suspected. Enron filed for bankruptcy a few weeks later.

Dynegy still owes ChevronTexaco the $1.5bn, which is due in November 2003. And it is also facing a $10bn lawsuit from Enron that contends Dynegy went into the merger to solely ruin Enron's finances and gain the NNG pipeline.