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Power News

01 November 2001

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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...

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