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Unformatted text preview: market value plunged $35 billion in
about a month; and on December 2, 2001, Enron became the
largest U.S. company ever to have
filed for bankruptcy.
Enron is not alone in its use of
off-balance-sheet debt. Most air- In Practice lines have large aircraft leases
structured through off-balancesheet vehicles, although analysts
and investors are aware that the
true leverage is higher. Pacific Gas
& Electric, Southern California
Edison, and Xerox have also run
into problems from off-balancesheet debt obligations. Don’t
expect the Enron debacle to eliminate special-purpose entities,
although the SEC has been calling
for tighter consolidation rules.
Companies like the flexibility that
sources provide, not to mention
that such financing makes debt
ratios and returns look better.
Sources: Peter Behr, “Cause of Death: Mistrust,” Washington Post (December 13, 2001),
p. E1; Ronald Fink, “What Andrew Fastow
Knew,” CFO (January 1, 2002); and David
Henry, “Who Else Is Hiding Debt?” Business
Week (January 28,...
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