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Enron Mail |
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Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Schneider, Chip </O=ENRON/OU=NA/CN=RECIPIENTS/CN=CSCHNEID< X-To: Buy, Rick </O=ENRON/OU=NA/CN=RECIPIENTS/CN=Rbuy<, Gorte, David </O=ENRON/OU=NA/CN=RECIPIENTS/CN=Dgorte<, Rohauer, Tanya </O=ENRON/OU=NA/CN=RECIPIENTS/CN=Trohaue<, Hagelmann, Bjorn </O=ENRON/OU=NA/CN=RECIPIENTS/CN=Bhagelm< X-cc: X-bcc: X-Folder: \RBUY (Non-Privileged)\Buy, Rick\Inbox X-Origin: Buy-R X-FileName: RBUY (Non-Privileged).pst Challenge Appetite for credit capacity is much greater than what is justifiable given credit quality of industry and liquidity of transactions. General Themes Dearth of liquidity in market (bearing in mind that EIM's purpose is to stimulate liquidity) Poor credit quality Highly structured nature of steel transactions (inventory management, illiquid options, etc.) M-T-M Accounting and incentives related to achieving earnings targets Size, tenor and rating drive credit exposure; size and tenor drive transaction value -- therefore ratings drive credit limits. Producers are naturally long; end-users are naturally short; Enron is neither and explicitly takes credit/market risk on both sides of a transaction Short-term Solutions Consider expanding "risk pool" (with concentration limits) to provide more flexibility to commercial teams (Pitfall: could be rapidly depleted to achieve short-term budget targets) Reduce size of transactions and increase volume to achieve greater diversity and less concentration Prioritize counter-parties to give consideration to those of greater strategic importance Clarify/[expand?] purpose of E-DASH Action Items Plan more formal education for Steel Group centered around: M-T-M Accounting Basic Credit Analysis and drivers of credit exposure Market Risk Analysis Determination of Credit Lines Calculating Credit Reserves Link Budget Process to Credit and Market Risk capacity allocations More clearly define view of liquidity with regard to different types of transactions/commodities Explore risk syndication options Compare credit evaluation results across business units to ensure conformity throughout Enron--study should take into consideration credit rating, size of company, size of transaction, tenor of transaction and collateral rights Regards, Chip Schneider 713-853-1789 ECN2864
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