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
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.
InterGen has closed financing on the $740 million Redbud plant,
the second in a series of single-plant financings set to close this
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