You are the CFO of Expanded Industries. Expanded has suffered through 4 or 5 tough years. This has deteriorated its financial condition to the point that Expanded is in danger of violating two loan covenants related to its largest loan, which is not due for 12 more years. The loan contract states that if Expanded violates any of these covenants, the loan principal becomes immediately due and payable. Expanded would be unable to make this payment, and any additional loans taken to repay this loan would likely be at higher rates, forcing Expanded into bankruptcy. An investment banker suggests forming another entity (called special purpose entities or SPE) and transferring some debt to this SPE. Structuring the SPE very carefully will have the effect of moving enough debt off Expandeds balance sheet to keep the company in compliance with all its loan covenants. The investment banker assures you that accounting rules permit such accounting treatment.

For your initial post:

1. Clearly identify the ethical dilemma(s). What is the issue? Why do they need to make a decision? Is there a conflict of values for you the CFO?
2. List at least three stakeholders and note why they are impacted by the decision.
3. List all possible courses of action (may use bullets). Include at least three possible courses of action.
4. Lastly, what course of action would you choose to take?

The initial post should include a minimum of two sources. Consider looking at the pros and cons of debt financing, looking up debt covenants, or SPE.