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Enron Mail |
Bill-I asked Joe to put this together. fyi, Rick. Fwd to Molly -----Original Message----- From: Deffner, Joseph Sent: Tuesday, May 01, 2001 9:33 AM To: Buy, Rick Subject: Contract Requirements for Monetization Rick, here are a number of the items I look for in the contract while evaluating whether it is a candidate for monetization. Many of these characteristics will be in the contract by definition but a number of these items can tend to be inconsistent across contracts. For maximum funding efficiency, the more homogenous the pool, the better. 1. Clear events of default and prescribed remedies. 2. Clear definition of termination events and process to terminate. 3. Clear liquidated damages provisions upon termination. 4. Firm quantity - take or pay type. We can monetize a requirements contract but will receive a haircut on the value of the deal. 5. Demand charges/index premium contracts easier to monetize. Fixed price contracts require liquid hedging points to lock in the monetizable value. 6. Clear definition of force majeure and permitted duration before contract either continues with LDs or terminates due to frustration. 7. Availability of Business Interruption Insurance to cover losses during a FM event. 8. Regulatory Outs Provisions - Prefer none. 9. Severability clearly defined within the contract. 10. Firm tenor - lenders lack of appetite for a term contract with annual evergreen provisions. If they are not legally obligated, little if any value. 11. Volumetric Take Requirements - Are there make-up provisions for volumes paid for but not taken. If the counterparty didn't purchase the annual minimum, is there an immediate LD payment or does the party have three months for instance to make-up the deficiency. 12. Ability to assign the receivables for financing purposes. Even better if we can assign the contract itself as security. 13. Who is the credit? Is there credit support? Is it capped? 14. Netting provisions. Prefer to have no netting or right of set-off to isolate the payment stream from the Enron estate. Typically, not possible and Enron has to indemnify for set-off claims. 15. Prepayment provisions - Does the counterparty have the right to unilaterally early terminate? Monetization may incur make-whole damages upon a prepayment. Can we pass this cost through as a "break" cost of early unwind. This is my quick cheat sheet of items I screen for. I've asked a few others to give me their thoughts as well and will append to the list. Thanks.
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