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These figures gave the company a 41 percent ratio of

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Unformatted text preview: ustry. 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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