[quote=phaster][quote] Special-Purpose Entities Are Often A Clever Way to Raise Debt Levels
…hidden behind the financial tables, special-purpose entities have recently become the subject of sharper scrutiny. Much of the Enron accounting issues revolved around special-purpose entities…
…Think of the SPE as a trust…To establish this trust, the company must sell the SPE an asset — any of the ones listed on its balance sheet will do…The SPE pays the company for the receivables with the money it collects from these new investors and the company gets to beef up the cash section of its balance sheet.
…With only one asset on its books, investors won’t be hard to find. Even better, they’re willing to accept a lower interest rate because it appears that the repayment of their loan is a pretty sure thing since the SPE has no other debt.
Assuming the parent company has not offered a guarantee on the loan (we’ll get to that shortly), the company no longer has connections to the SPE. And in turn, the SPE’s creditors now only have claim to the assets of the SPE…
…Well don’t forget about the company’s creditors. They aren’t all that thrilled with the fact that the company sold off one of its assets, especially if it did so at a loss. Now how are they going to get paid?
…anyone who spends a second looking at financial statements may be a little perturbed by this arrangement as well. In many instances, we’d like to see that debt reported on the company’s balance sheet. But as long as the company is not liable for the SPE’s debt, FASB allows the transaction to be reported off-balance sheet…
…SPEs have been around for years, stuffed away in some footnote…
I didn’t read the rest of the comment so I don’t know what the point was. History tells me there really wasn’t one. But this quote, containing a lot of fancy phrases, and important sounding words, makes no sense. There may be a transaction that the author was attempting to describe. This isn’t it. This is just words strung together. Bait, if you will, for conspiracy theorists, who don’t really understand shit about the subject.