Rumor has it that some nice betting pools, filled to the brim during merchant energy's darkest days, have yet to be claimed. Last summer, many people felt safer betting on a merchant company's bankruptcy than on the company itself. The only real challenge, it seemed, was picking which player would follow Enron into bankruptcy first. In Enron's hometown of Houston -- the energy capital of America -- the stakes climbed particularly high. The Oil Daily, a trade publication fed by industry insiders, captured the dark mood precisely. "One bit of gallows humor making the rounds in the Houston trading community," the paper said, "was whether the funds at risk in various informal betting pools, speculating on which company will declare bankruptcy first, exceeded the value of that particular company's trading book." At the time of that article, published last July, Dynegy ( DYN) and Williams ( WMB) were no doubt clear favorites in the race to Chapter 11. Before the week finished, both companies would see their once-lofty stock prices tumble below $1 to astonishing record lows of 49 cents and 78 cents, respectively. With the companies running on fumes and their credit ratings in shambles, doom seemed inevitable.
Looking back, veteran energy analyst John Olson resorts to a now-familiar war term -- "shock and awe" -- to describe his feelings at the time. "I was in a state of disbelief," said Olson, an analyst at Houston-based Sanders Morris Harris who owns no stock in either company. "Everybody was expecting the worst." As it turns out, of course, gamblers willing to take the long odds on the other side of those "sure-fire" bankruptcy bets have scored the giant jackpots. These days, Dynegy fetches nearly $5 a share -- up 920% from last summer's lows and 325% this year alone. Williams has also rocketed. At around $8.50 a share, the stock is up 989% from its record low and 215% for the year. The last time either stock hit such levels was on the horrifying ride down. Before the slide, the stocks commanded $35 -- or more -- a share. So even after their recent bounces, the shares still retain only a fraction of their old value. But then, the companies themselves are little more than shadows of the giants they once were.