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16-9 Case AES - Questioning the Books AES seeks to reassure...

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Questioning the Books: AES seeks to reassure Investors worried over Dilution of Equity Source: Wall Street Journal, 22 February 2002 AES Corp. is scrambling to reassure investors that its use of complex financing, through which the energy giant backed up $650 million in loans at two subsidi- aries with unregistered company stock, won't lead to severe dilution of its equity. If the Arlington, Va., energy firm had to register the pledged shares, it would result in drastic dilution to existing sharehold- ers. AES has 541 million shares outstanding. The terms of the two AES loans, known as "secured equity-linked loans," or SELLS, require that AES maintain unregistered stock at a level of 2.25 times the loan amount as collateral. As a result, AES said, it increased the number of unregistered shares securing the two loans to 255 million shares from 160 million last Friday to compensate for a decline in its stock price. (The 255 million shares provided a cushion over the 208 million needed to cover the loan.) "There are no triggers that would result in these shares being registered," said Barry Sharp, AES's chief financial officer. "We are very confident we
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