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

Enron's finances, but very likely would have resulted in a substantial downgrade of Enron's credit
rating because of the huge amount of debt it was undertaking. That, in turn, would have endangered,
if not ended, Enron's ability to borrow in the commercial paper market, triggering a further decline
in its stock, causing it to pierce more stock issuance price triggers – a death spiral for Enron – which
Enron, JP Morgan and CitiGroup were desperate to avoid. Also astonishing about the Mahonia and
Delta transactions is the way JP Morgan and CitiGroup were "paid off" to engage in this
manipulative subterfuge. Based on Enron's purported investment-grade credit rating, Enron could
have borrowed money from banks at 3.75%-4.25%. However, in the phony Mahonia and Delta
transactions, Enron paid JP Morgan and CitiGroup between 6.5%-7.0% for the disguised loans
– a huge difference from the cost of a legitimate bank loan – which made these disguised loans
hugely profitable for JP Morgan and CitiGroup!
47. In addition to charging extortionate interest rates for engaging and participating in the
Mahonia and Delta contrivances, both JP Morgan and CitiGroup took unusual steps to protect
themselves financially against loss and what they knew were not only dubious but highly dangerous
transactions. In the case of JP Morgan, it purchased security bond insurance (deceiving the insurance
companies into thinking they were insuring commodity trades and not loans) and obtained other
letters of credit from other financial institutions (deceiving them as well), while CitiGroup undertook
to lay off substantial portions of its economic risk by selling Enron-linked securities as notes,
including the concealed Delta loans in that package of linked securities.
K. Enron's Access to the Capital Markets
48. Because of the nature of and the rapid expansion of Enron's business, Enron needed
constant access to huge amounts of capital. For Enron to continue to appear to succeed it had to keep
its investment grade credit rating and keep its stock price high. Enron's investment grade credit
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