On November 8, Enron announced restatements of its financial statements and, a day later, a proposed merger with Dynegy.
Loan underwriters and credit-rating agencies often require business entities involved in synthetic leasing and commercial mortgage-backed securities to be SPEs.
Furthermore, the transferor generally derives a tax advantage because the SPE is a pass-through entity that does not pay its own taxes.
(A few months later, Dynegy sank into a scandal of its own.) In the short term, investor confidence in financial reporting and market investing has been shaken.
Given the heightened scrutiny, more companies, such as Tyco and World Com, have withered or even collapsed.
With suspicions now raised by the company’s announcement, investors quickly drove the price down from $34 to $29.
Three days later, the Wall Street Journal delivered the next barrage of bad news.
The SPE provides its sponsor with financing and liquidity while offering creditors protection against the sponsor’s bankruptcy.
A sponsor would typically create an SPE to carry out a specific function through some type of asset transfer.
He went on to win some Emmys— probably not because of the Dremluk episode, but who knows!?! Dremluk and his wife are proud parents of identical twin sons who, he says, are fortunate to have inherited their mother’s good looks.