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Yet as the company’s financial condition fell apart in the fall of
2001, investors and lenders discovered that Enron’s true debt load
was far beyond what its balance
sheet indicated. By selling assets
to perfectly legal special-purpose
entities (SPEs), Enron had moved
billions of dollars of debt off its balance sheet into subsidiaries,
trusts, partnerships, and other creative financing arrangements. Former CFO Andrew Fastow claimed
that these complex arrangements
were disclosed in footnotes and that Enron was not liable for repayment of the debts of these SPEs.
Enron’s required filing of Form
10-Q with the SEC, on November
19, 2001, told a different story: If its
debt were to fall below investment
grade, Enron would have to repay
those off-balance-sheet partnership obligations. Ironically, its disclosure of about $4 billion in offbalance-sheet liabilities triggered
the downgrade of its debt to “junk”
status and accelerated debt
repayment. Enron’s secrecy about
its off-balance-sheet ventures led
to its loss of credibility in the
investment community. Its stock
and bond prices slid downward; its...
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