The Journal of Structured Finance Spring 2002, Vol. 8, No. 1: pp. 19-25
DOI: 10.3905/jsf.2002.320269
How Enron Has Affected Project FinanceHenry A . Davis


The Enron bankruptcy and related events have changed neither the nature nor the usefulness of traditional project finance, but they have led to a slowing down of some of the more innovative forms of structured project finance. Among the other direct and indirect effects of Enron have been increased caution among lenders and investors toward the energy and power sectors; increased scrutiny of off-balance-sheet transactions; increased emphasis on counterparty credit risk, particularly with regard to companies involved in merchant power and trading; and deeper analysis of how companies generate recurring free cash flow. There is increased emphasis on transparency and disclosure, even though disclosure in traditional project finance has been more robust than in most types of corporate finance. In the current market environment, for reasons that extend beyond Enron, some power companies have been canceling projects and selling assets to reduce leverage and resorting to on-balance-sheet financing to fortify liquidity.