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Congress criticizes credit agencies

Officials of Wall Street credit-rating agencies testified Wednesday that Enron executives _ including Jeffrey McMahon, now the company's president _ had purposely misled them as far back as 1999 to bolster the company's credit standing.

Analysts for Standard & Poor's and Moody's Investors Services, told a Senate panel that top Enron officials concealed key information that would have hurt the company's credit ratings.

"Day by day, it becomes ever clearer that Enron . . . committed multiple acts of deceit and fraud," S&P's Ronald Barone told the Senate Governmental Affairs Committee.

While the agencies were quick to blame Enron, skeptical senators wanted to know why S&P, Moody's and Fitch Ratings were slow to downgrade Enron even as the company's stock was in free-fall.

Enron's credit ratings slid in October and November, but were not downgraded to "junk" status until Nov. 28. Enron filed for bankruptcy on Dec. 2.

"You weren't as aggressive as you should have been," said committee chairman Joseph Lieberman, D-Conn.

For the first time in the Enron debacle, critics pointed at McMahon, who had been unscathed by the company's misfortunes and had risen to become its No. 2 executive.

The agencies said Enron began a major push in October 1999 to persuade them to raise the ratings on the company's ability to pay its medium- and long-term debt. A higher credit rating can save a company substantial amounts in interest payments.

Enron officials called the presentation the "Kitchen Sink," claiming the disclosures laid out out all significant financial information, including the assets and debt loads in the company's off-balance-sheet partnerships.

Last October, Enron wrote off $1.2-billion worth of shareholder equity in off-balance-sheet partnerships, beginning its precipitous slide into bankruptcy.

"We now know that material information was missing . . . and much of that was provided was inadequate," John Diaz, Moody's managing director, told lawmakers.

What Enron officials failed to disclose, the credit rating officials said, was information about partnerships such as Chewco, LJM1 and LJM2.

In January 2000, McMahon, then Enron's treasurer, made a major presentation in Houston to persuade the agencies that Enron was "under-rated."

McMahon again promised to provide the "kitchen sink" but failed to discuss Chewco, LJM1 and LJM2, Barone said. And he did not mention that Enron executive Michael Kopper had a financial stake in the Chewco partnership.

Barone also told lawmakers Enron appeared to have intentionally concealed its actual debt by treating nearly $4-billion worth of loans as hedges _ instruments used to reduce financial risk.

Enron officials contend that information about LJM1 and LJM2 were not pertinent because the company had no equity stake in those partnerships and it was not responsible for their debts.

Some information sought by the credit agencies can be found in the presentation materials. Chewco may not have been mentioned, but Chewco had a 50 percent ownership stake in another partnership, Jedi, which company officials revealed as having $550-million in long-term debt.

Enron officials also point out that McMahon was trying to disclose more information than had been previously disclosed. And they point out that after McMahon left the position of treasurer Enron reverted to a less-open posture.

Enron spokeswoman Karen Denne dismissed the rating agencies' "spurious accusations," calling them an attempt "to deflect attention from their own responsibility."

McMahon declined to discuss the allegations himself.