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

it controlled, and was doing phony deals with, with shares of Enron common stock and Enron had
agreed to issue millions of shares of its stock to these entities if Enron's stock price declined below
certain so-called "trigger prices." Because of the triggers and the way Enron capitalized the SPEs,
it was absolutely vital that Enron's stock continue to trade at high levels and that Enron maintain its
"investment grade" credit rating, otherwise defendants' scheme would unravel.
19. Enron's investment grade credit rating was indispensable to enabling it to get
counterparties to do huge trading transactions with it – transactions others would not do unless
assured of Enron's creditworthiness. Since Enron's trading of energy resources was the core of its
WEOS business, any downgrade of its credit rating would have disastrous consequences for its core
business operation. This investment grade credit rating gave Enron access to the commercial paper
market – a market reserved for America's largest and most creditworthy corporations – so that it
could borrow billions of dollars to maintain its liquidity and finance its capital-intensive business.
Enron's access to the commercial paper market also meant that Enron's $3 billion commercial paper
back-up credit line, arranged by the lead banks (JP Morgan and CitiGroup) with participating banks,
would not be drawn down upon, thus limiting those banks' financial exposure to Enron. It also
meant that Enron and its banks could easily sell debt securities to public investors to raise long-term
capital, using the proceeds to reduce its short-term commercial paper and other bank debt. Finally,
Enron's investment grade credit rating was critical to the scheme, as only Enron's insiders and its
banks knew, because under the terms of the partnerships/SPE deals, if Enron's debt was
downgraded to below investment grade, the debt of those entities that they had told the securities
markets was non-recourse as to Enron would become recourse to Enron, which could cause the
house of cards to topple. As Enron's CFO stated in a 10/01 conference call, "We understand that
our credit rating is critical to both the capital markets as well as our counterparties." Earlier,
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