OPPapers.com

Enron Case Study

EDF Case Study: Enron
In the U.S., a record 255 publicly traded companies with assets totaling $258.5 billion filed for bankruptcy in 2001. Until the WorldCom bankruptcy, Enron was the biggest American corporate bankruptcy ever.
Vertical scale is logarithmic
•
Seemingly small movements for high-risk companies can be very substantial.
•
EDF credit measures range from a low of 0.02% to a high of 20% in one basis-point increments. A basis point = 1/100 of a percentage point.
•
EDF credit measures are actual probabilities, not credit scores. A company with a current EDF credit measure of 2% has a 2%probability of defaulting within the next twelve months. That is, out of 100 companies with a 2% EDF credit measure, we would expect, on average, that 2 would default over the next twelve months. Also, a company with a 2% EDF credit measure is 10 times more likely to default than a firm with a 0.20% EDF credit measure.
Letter ratings are for comparison purposes only--a point of reference to improve interpretation of default probabilities.
February 2001
•
Skilling becomes president and chief executive officer of Enron.
•
Debt levels rise to $37.3 billion, a 91% increase over previous 12-month period
•
Share price falls to $68.50
•
EDF Credit Measure climbs to 0.35%
March 2001
•
Enron and Blockbuster cancel video-on-demand deal.
•
Company's asset volatility increasesto 19.03%
•
EDF Credit Measure rises to 0.51%
May 2001
•
Maharashtra State Electricity Board, Dabhol power plant’s sole customer, stops buying power in a dispute with Enron over pricing.
•
Market leverage increases to 45.84%
•
EDF Credit Measure increases to 1.14%
August 2001
•
Skilling resigns as Enron president and chief executive officer, citing personal reasons. Ken Lay returns to position of chief executive officer.
•
EDF Credit Measure increases to 1.91%, equivalent to BB rating
Oct. 8, 2001
•
Enron agrees to sell Portland General to Northwest Natural Gas Co. for $1.8...