ANDREW S. FASTOW - ENRON CORP.

Subsequently, Enron issued 17.2 million shares to raise more than $800 million in equity, its first significant public offering of common stock in five years, with no share-price dilution. The rating agencies responded enthusiastically. "Andy has made it clear that maintaining the credit quality of the company is job one," says Ron Barone, a director at New York­based Standard & Poor's. "He's been able to get the company to focus on cash flow to maintain credit quality, as opposed to managing the balance sheet, which Enron does well anyway. Cash is king, and Andy knows that."

The second part of the action plan was the sale of assets. Under Fastow's direction, each business unit was required to identify strategic assets that would remain in the portfolio. Others determined to be nonstrategic were put on the block. In 1998, Enron reduced its portfolio by a third, selling more than $1 billion of assets--a mix of power plants, pipelines, and subordinated- debt investments--with no negative earnings impact. "For every dollar I sold down, I reinvested it easily in a manner to generate higher returns, which then increased the return on equity and earnings," Fastow says.

He then turned his attention to new forms of capital raising, creating an asset- securitization program in mid-1998. The first target was CoGen Technologies, a $1.1 billion acquisition. "This was a unique idea," Skilling says. "Andy saw that the off-take contracts provided enough headroom to pay for the entire acquisition via a securitization of the contracts. This enabled the company to achieve an incredibly low cost of capital, while allowing 100 percent debt financing with no negative credit impact."

Other innovative financing deals followed. Fastow financed two acquisitions--the $1.3 billion purchase of Elektro, Brazil's sixth- largest electricity distributor, and the $2.2 billion purchase of Wessex Water Plc, a U.K.- based water company--through a contingent equity issue that was used as collateral for a nonrecourse debt issue. Shareholders were informed that the acquisition financing for Wessex would be replaced with permanent financing on terms that would maintain the company's capital structure. "Under Andy's direction, we issued mandatory convertible preferred shares into a trust," Skilling explains. "Those trust assets were then used as collateral for a $1.5 billion 144A debt offering."

Enron then committed to issue an initial public offering on the water company, or the trust would sell securities within three years. As a result, the company received equity treatment from the rating agencies, while raising capital at debt pricing in one of the largest 144A transactions ever executed. Astonishingly to all but Fastow, the company achieved debtlike financing on an equity issue that was nondilutive. And an IPO was filed within six months of the Wessex acquisition.

Numbers Tell the Story
Despite the traditional rules of financing, Fastow reduced the balance-sheet debt, maintained the credit rating, and reduced the cost of capital while simultaneously growing the balance sheet. In just the last two years, Enron has nearly doubled its total assets from $16 billion to $30 billion--without shareholder dilution and without a drop in the company's credit rating. "He has successfully financed billions of dollars in a manner that has held credit quality," says S&P's Barone. "And that is not an easy thing to do. It is a testament to Andy's focus on cash flow and his ability to think outside the box."

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