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Biotech / Medical : Biotech Valuation -- Ignore unavailable to you. Want to Upgrade?

To: tom pope who wrote (5460)	1/17/2002 10:28:11 AM
From: Mark Bong	Respond to of 52153

Tom, Peter's point is very interesting about the convertibles. I would also point out that this arrangement constitutes a ‘contingent liability’ for Enron, thus it should have been reported as a footnote in the 10-K. I don't believe that it was. Enron had legitimate off-balance sheet transactions like it’s Dabol power project in India. The financing arrangements for SPCs (Special Purpose Corporations) that are used as ownership vehicles income producing projects like power plants usually have debt that is collateralized to the asset owned by the SPC and is ‘non-recourse’ to the parent company. Therefore, in the case of SPCs, debt does not have to be reported as debt of the parent corporation since the parent has no liability to repay the debt, even in the event of bankruptcy. (which Dabol is facing now due to a default by a state in India which is refusing to purchase Dabol’s power in accord with the take or pay agreement for purchasing electricity). It is conceivable here here that Enron and it's attorneys used the SPC concept and found a creative way to apply it to their other businesses in a manner for which it was probable not meant to apply. Anyone feel free to correct me if my assumption is incorrect. A side note- Enron booked revenue from the sale of services to their partnerships thus increasing net income. The concept of booking revenue from a sale that is then financed by the parent corporation brings back memories of Charles Keating and others in the old Savings and loan scandals. Many transactions in those scandals were essentially the sale of distressed real estate owned by one S&L to another S&L owned by the parent at a higher price, and thus revenues and net income were booked and the capital account of the S&L increased, permitting them to take in more deposits and grow. However, the entire transaction was financed, so cash flow was not impaired. Of course, since the real estate was appraised well above its market value and the loans had interest payments that were accruing, the scheme was bound to unravel at some future date. It did just as Enron unraveled.