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

only entered to avoid recognition of a loss. Even so, the value of Enron's investments was rapidly
declining, so Talon's credit capacity was still in jeopardy.
(ii) Raptors II and IV
482. Enron and LJM2 established two more Raptors – known as Raptor II and Raptor IV
– that were very similar to Raptor I. Both Raptors II and IV received only contingent contracts to
obtain a specified number of Enron shares. These Raptors were intended to, but did not, engage in
valid derivative transactions with Enron.
483. Just as it had done with Talon in Raptor I, Enron paid Raptor II's SPE, "Timberwolf,"
and Raptor IV's SPE, "Bobcat," $41 million each for share-settled put options. 10 In this case, Enron
was using the put option merely as a way to funnel $41 million to LJM2 via Timberwolf and Bobcat.
Just like Raptor I, the put options were settled early, and each of the entities then distributed
approximately $41 million to LJM2. These distributions meant that both Timberwolf and Bobcat
were available to engage in derivative transactions with Enron.
484. Just like Raptor I, Enron entered into costless collars on the Enron stock contracts in
Timberwolf and Bobcat to provide credit capacity support to the Raptors. As in the case of Raptor
I, this collaring was inconsistent with the premise on which the stock contracts had been discounted
when they were originally transferred to Timberwolf and Bobcat. The collars, however, effectively
lifted the restriction.
(iii) Raptor III
485. Raptor III was a variation of the other Raptor transactions, but with an important
difference. It was intended to hedge a single large Enron investment in The New Power Company
10 A put option grants, for a premium (the option price), the right to sell at a specified strike
price a specific number of shares by a certain date, which protects the buyer from a decline in the
stock price.
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