Enron Corp. - University of California | Office of The President

not non-recourse because if Enron's credit rating was downgraded that debt would become recourse
as to Enron. This was an extraordinarily dangerous situation for Enron because, in fact, based upon
its true financial condition, which was known to its insiders, Enron did not deserve the investment-
grade credit rating it was carrying and it was in constant and precarious danger of losing that rating
when the true structure of its off-balance-sheet partnerships and SPEs became known and its true
financial condition was revealed.
(m) In fact, Enron did not deserve an investment-grade credit rating and did not
have a solid or substantial financial structure because it was inflating the value of its assets by
billions of dollars while concealing billions of dollars of debt that should have been on its balance
sheet. As a result, Enron's true financial structure was extremely fragile.
(n) Azurix was not becoming a major global water company nor was it accretive
to Enron's earnings. Enron had grossly overpaid for Wessex Water – hundreds of millions of dollars
more than the English company was really worth – which Enron knew meant it would not be
accretive to Enron but, in fact, would result in a later writedown of that overvalued asset. And Enron
created the purported worldwide-water business without any adequate feasibility study or the
creation of any detailed business plan, thus rendering the venture one of extraordinarily high risk that
defendants knew was unlikely to generate profits or adequate returns going forward.
(o) As a result of the foregoing, the forecasts for strong continued revenue and
earnings growth for Enron's WEOS and EES operations were completely false, in part, because the
historical financial performance and condition of those operations had been materially falsified –
thus there was no real basis upon which to forecast such further growth – and because neither of
those businesses had the current strengths or success to justify the forecasts and claims for future
growth that were being made.
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