Structured finance caught off-balance

Efforts by energy and finance professionals to stress the difference between legitimate off-balance-sheet entities and Enron’s opaque devices have had little impact, as US regulators rush to clean up structured finance. Maria Kielmas reports

Structured finance has been around since the 19th century in the US, in the form of bonds backed by mortgages, but over the past two decades it has become an increasingly popular tool for the energy industry. It enables companies to borrow money on the back of an asset or a project rather than based on their own credit rating.

This form of risk transfer to a special-purpose entity (SPE) allows firms with different credit ratings to create a joint venture for new project development