Enrons secrecy about its off balance sheet ventures

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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 off-balance-sheet financing 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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