Michael,
To clarify, since the implosion, what is clear is that ENE was a house of cards built on their debt which was built on their ratings, and the currency of their stock (ie their ability to raise money from both the equity and debt markets).
I'll post articles from both the Economist and Businessweek (but I think the Economist tells the story best).
What analysts didn't take the time to do, and what was not disclosed with reference to the off balance sheet transactions, was that the debt that was not included on the balance sheet was recourse to Enron (ie even though Enron did not disclose it, they were responsible for it). What was worse was that debt was contingent on the debt ratings. When Enron got downgraded, the repayment schedule for that debt accelerated.
At the same time, the debt markets and the equity markets clammed up for Enron -- and Enron was not able to replace the debt or make the payments -- forcing it to go bankrupt.
As a side note, the sad part of it all is that had Dynegy decided to stand behind Enron, and give it the confidence in the markets that it required for its trading business, Enron would have survived pretty much intact. What stemmed this entire quagmire was the ratings agencies realizing that they were not familiar with how the off balance sheet partnerships worked, and then the allegations of fraud, etc. -- creating the impossibility of Enron to raise capital.
The difference with Calpine is that it is not reliant for the next year on the capital markets and has the ability to (a) sell assets, (b) slow the build out, (c) get a bank line. All of which are possible. Beyond this, it is critical to know that Enron's debt is not contingent on ratings. The only difference is the interest rate paid (and that is the difference of 25 basis points). Bear in mind that S&P is not concerned with bankruptcy and the big reason Moody's downgraded was Calpine's questionable ability to raise money in the debt and equity capital markets.
Hope that helps,
Clement |
