PF Archive

Power News

01 11 2001

Enron brought low by SPV finance The announcement of a Securities and Exchange Commission inquiry into Enron's off balance sheet vehicles looks like bad news not just for the beleaguered corporate but possibly for other Houston-based players with similar affiliates for financial engineering. Enron has so far taken serious punishment on its share price and has suffered a ratings downgrade (Moody's from Baa1 to Baa2 and S&P from BBB to BBB+). Financiers are now examining how the SEC probe will affect the other structured paper in the market. At the centre of the inquiry is the reduction in shareholder equity triggered by losses at the LJM2 affiliate, headed by (now departed) CFO Andrew Fastow. While the mainstream press has focussed on the previous profits made by Fastow from the partnership, as well as possible conflicts of interest, more intriguing will be how far the SEC will go in clamping down on the use of such vehicles. Enron has used several other vehicles, Marlin, Pelican and Osprey amongst them, to bring risk or assets off balance-sheet, with direct implications for its infrastructure finance activities.Bankers questioned over the implications were, understandably, extremely reluctant to speculate on the outcome. One, speaking on the condition of complete anonymity, merely pointed out that the bonds issued by the trusts have not yet been hammered by traders. Another felt that the business of massaging EPS was likely to carry on under stricter governance rules. Either way, Enron's Houston peers will be watching their backs closely. Redbud closes InterGen has closed financing on the $740 million Redbud plant, the second in a series of single-plant financings set to close this year. Redbud...