We examine the connection between three dimensional gravity with negative cosmological constant and two-dimensional CFT via the Chern-Simons formulation. A set of generalized spectral flow transformations are shown to yield new sectors of solutions. One implication is that the microscopic calculation of the entropy of the Banados-Teitelboim-Zanelli (BTZ) black hole is corrected by a multiplicative factor with the result that it saturates the Bekenstein-Hawking expression.