Enron committed deceit on us: S&P

According to him S&P had requested a full description of Enrons special purpose vehicle activity to gain a full understanding of the latters off-balance-sheet partnerships. On two occasions - once in 1999 and again in 2000 - Enron made presentations to the rating agency that purported to provide an analysis, including the kitchen-sink, of 100 per cent of Enrons off-balance-sheet affiliates. These presentations failed to mention many partnerships, including Chewco, LJM1 and LJM2. And S&Ps requests for updates and further clarification of this information were not met in any meaningful way.

Enron failed to reveal nearly $4 billion in debt, instead called them hedge instruments. For a company that actually showed between $8 billion and $10 billion in debt, the effect on Enrons book debt-to-total capital ratio of showing several billion more would have been enormous, Barone said.

In a letter to the House Committee on Energy and Commerce, USA, Leo C. O''Neill, S&P''s president described some of the steps taken by the agency to analyse Enron''s creditworthiness. For example, because of the volatility involved in Enron''s business, S&Ps analysts put back between $2 billion to $4 billion in debt onto Enron''s balance sheet for ratings purposes.

In one of its presentations to S&P, Enron had asserted that its communication with analysts, investors and credit officers is direct and candid adopting `No Secrets Policy. Enron had consistently maintained that it has been under rated by S&P. O''Neill noted that it all its presentations Enron failed to mention many partnerships, including Chewco, LJM1 and LJM2.

The off-balance-sheet partnerships had been created and designed precisely to conceal from others the true picture of Enrons financial status. This concealment persisted, notwithstanding repeated requests from S&P for any further information to more clearly depict Enrons true financial situation, Barone said.

Had Enron told the truth about its financial condition during the ratings process, the impact on Enrons rating would have been significant, he said. Had they been revealed, the clandestine dealings and obfuscatory disclosure practices conducted by Enrons management would have cast long shadows on the validity of Enrons credibility in general and its financial reporting in particular.