The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron

by Bethany McLean

In any power-plant deal, the financial close is a major event. It means that the developer (in this case, Enron) will immediately be repaid the millions in expenses it has incurred to get the project off the ground. Teesside was supposed to be built largely with borrowed money: project financed, as they say in the business. Project financing allows developers to stretch their own capital by investing just a sliver of the cost of any project. Instead of looking to Enron for repayment of the debt, the lenders would instead rely on cash flows from the project, comforted by the presence of the long-term contracts for gas supply and purchase of the plant’s power and steam. Because the financing was non-recourse, Enron would have no legal obligation to cover any default. The equity investment in such financing was often split with partners, which means Enron could build and control projects in which its own money represented as little as 10 percent of the total cost.