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Enron Mail |
FYI.
----- Forwarded by Lawrence Clayton/Houston/Eott on 12/19/2001 11:31 AM ----- Susan Ralph To: Lawrence Clayton/Houston/Eott@Eott 12/19/2001 cc: 10:35 AM Subject: RE: EOTT Follow-up(Document link: Lawrence Clayton) I will be lucky if I have this agreement signed before 8p.m.....also this guy has no business getting a copy of our loan documents. This is unheard of.. Lawrence Clayton To: "Oram, Andrew" <Andrew.Oram@moodys.com<@EOTTEXTERNAL cc: Susan Ralph/Houston/Eott@Eott, Dana Gibbs/Houston/Eott@Eott 12/19/01 10:32 Subject: RE: EOTT Follow-up(Document link: Susan Ralph) AM 1. On the increase of the interim facility, we plan to communicate closing on Friday before mkt opening. We cannot commit to forwarding a copy of this to Moody's on Thursday. 2. ok 3. This will be a wait and see. We will not know the s/t impact until late Jan; but the impact is not expected to be l/t. 4 There is no $12mm loss. I indicated that the s/t impact may be a $1mm a month reduction in gross margins (could be more or less!). As I indicated, this is a GUESS on my part and will be confirmed during the 1st qtr. (To be sure that you are clear on this one: EOTT's monthly EOR & Pipeline margins are impacted by many factors. Availability of credit, although important, is lesser to the many other market factors, effectively managed daily by our experienced operating, marketing and trading personnel.) To extrapolate this to a full year $12mm would be wrong. Additionally, we have taken over commercial operations of the plant. This will result in a variance (higher or lower) to the $24mm in 2002 originally projected under the tolling & storage agreements. To take this to ZERO would be more than wrong but ABSURD. Again, as I have indicated in prior conversations, there is nothing from a debt or liquidity standpoint that s/be pressuring Moody's to act now. You have already taken a downgrade once and further downgrade, in my opinion, is not warranted until more concrete facts are known. EOTT has significant unencumbered assets which provide us many different options. There is no disintegration/doomsday capability as we are largely an asset company and our profitability and cashflows, although impacted by our marketing, is not, per se, dependent upon it on a l/t basis. I continue to encourage Moody's to not overreact during this time that supplier confidence and reassurances are very important to EOTT; but rather to have their rating based upon the underlying facts and not speculation of what might happen under worse case assumptions. Even though the environment has changed, I'm sure you agree that ratings are not determined or maintained based upon these "WORSE CASE" type assumptions/scenarios. "Oram, Andrew" <Andrew.Oram@m To: "'Lawrence_Clayton@eott.com'" <Lawrence_Clayton@eott.com< oodys.com< cc: "'Susan_Ralph@eott.com'" <Susan_Ralph@eott.com< Subject: RE: EOTT Follow-up 12/19/2001 08:55 AM Dear Lawrence, Thank you for the updating phone conversation this morning. To summarize some key points from today, as well as some points we've discussed far into the past: 1. I was pleased to hear that you are going to sign an interim credit agreement sometime tomorrow. As I understand it, no later than tomorrow (Thursday), EOTT will e-mail or fax to me an executed signed interim bank credit facility enabling the issuance of $300 million in letters of credit by this Friday, December 21. This Friday is when EOTT needs to begin posting L/C's in support of its January business. For all the reasons we discussed, we must have this document to take to the standing EOTT rating committee. I will try to have today's meeting postponed until Thursday but early to mid Thursday afternoon will be the latest we could wait since EOTT must be seen in the market to be normally issuing L/C's by Friday and this need will grow in the ensuing days as January volumes are bid for. We can not think of a sound business or financial reason why the $300 million facility would not be executed before then and this facility is important to your current ratings. 2. I understand that you continue to be confident the permanent working capital and L/C facility would be completed around late January 2002. 3. You reiterated that EOTT will run its business at the volume of activity that can be supported by $300 million of L/C support. In the past, roughly $1.5 billion of revenues were supported by L/C's equating to only 10% of revenues due to prior success in expanding open account credit arrangements with sellers/suppliers as well as the natural netting of receivables and payables exposures with the same customer. EOTT believes it will be able to run at the volume of business it targets with a $300 million facility. As I mentioned, at least until the market settles down, we believe this will require EOTT to reduce its level of business. By cutting back on your lower margin business you may be able to limit the loss of EBITDA to in the range of $1 million per month. 4. I understand that you would not expect EGLI to formally announce its intentions on the tolling and storage take-or-pay agreements until January 2002 and that EOTT is working on a range of contractual alternatives with other parties. Moody's will have to treat as nil the revenue generating potential of the MTBE, storage, and pipeline grid until alternative arrangements with third parties are completed. 5. As I mentioned again, our rating reflects (1) the strength of your liquidity and L/C arrangements and (2) longer term earnings, cash flow, business risks, and sector risks of EOTT relative to its capital structure and financial risks. Financial flexibility is pivotal and nailing down the L/C arrangements is critical to keeping the current rating. We will also evaluate the longer term earnings potential relative to balance sheet debt, any effective off-balance sheet debt and leases should they be utilized, receivables monetizations, and inventory sale/repurchase agreements. Until the MTBE arrangements are made and until EOTT re-wins prior levels of open account credit capacity, it seems that EOTT's annualized run-rate EBITDA would be reduced by at least the missing $24 million from the MTBE assets and the $12 million ($1 million/month) of lost margin due to reduced volumes and higher cost caused by living within your $300 million L/C ceiling and incurring higher L/C fees. Regards. Andy Oram -----Original Message----- From: Oram, Andrew Sent: Tuesday, December 18, 2001 3:42 PM To: 'Lawrence_Clayton@eott.com' Cc: 'Susan_Ralph@eott.com' Subject: RE: EOTT Follow-up Dear Lawrence and Susan, I need to report back Wednesday to my bosses and to the EOTT rating committee with an update on EOTT's banking arrangements and confirmed L/C capacity, as well as provide insight into the other items covered in the following e-mail I sent to you last Thursday. Prior to tomorrow's meeting, I'd hoped to have some feedback from you on the items discussed below. I would be grateful to pass along any information you would like me to present to tomorrow's rating committee. Best regards. Andy -----Original Message----- From: Oram, Andrew Sent: Thursday, December 13, 2001 1:17 PM To: 'Lawrence_Clayton@eott.com' Cc: Susan_Ralph@eott.com Subject: EOTT Follow-up Many thanks for the e-mail and phone message back. I look forward to speaking Monday for an update. If you get a chance, it would be helpful to receive further insight by Monday on the following issues: 1. You mentioned below that the pipeline segment needs little L/C support, so we'll need to refine our own understanding of that. We'd surmised that: since the minority of pipeline revenue, as reported, comes from third parties and the large majority of pipeline revenue is reported to be coming from EOTT intersegment sources, the "intersegment volumes" come from part of the North America Crude Oil Segment's activity. It would run some of its volumes, at some point between the point of purchase and the point of delivery, through the Pipeline segment. If that's the case, we'd assume that North American Crude Oil's needs to post L/C's or gain open account standing with the seller/producer should be counted as L/C's needed for Pipeline throughput. Substantial volumes is needed to generate Pipeline's reported revenue (volume x roughly $0.74 tariff?) and the intersegment volumes and values (crude price x volume) are quite large. I'd be grateful if you could help us understand this a bit better. 2. To expand on your point #2 below, does that mean that Standard Chartered is honoring the full $300 million of uncommitted arrangements to sell A/R and inventory? The hard sell I would have here is to state that Standard Chartered is going to provide $600 million of interim credit availability ($300 million uncommitted and $300 million interim committed) to one customer. If so, great. Also, is there some ability to satisfy your L/C needs by posting cash in lieu of L/C's by selling more A/R under the existing line? 3. RE any hedging activity on the Nymex, can you comment how much if any cash is posted to support your hedging activity? 4. Regarding Enron's ownership, we assume Enron's interest in EOTT was pledged to the lenders when Enron monetized its EOTT holdings. I gather that your comment #3 below states that the pledge of the Enron units and GP interest do not complicate a sale of EOTT to an industry partner if that were to become the optimal course of action? Many thanks for any help you can provide. Regards. Andy -----Original Message----- From: Lawrence_Clayton@eott.com [mailto:Lawrence_Clayton@eott.com] Sent: Thursday, December 13, 2001 8:09 AM To: Andrew.Oram%moodys.com%EOTTEXTERNAL@eott.com Cc: Susan_Ralph@eott.com Subject: Re: Phone Message Got your voice message and was pleased to see that you were successful in getting Moody's to take no action on this week. We will call you on Monday to clarify the LC facility status, which we expect to be favorable. In the interim let me address a few of your points: 1. There is little LC capacity needed to support our pipeline revenues. 2. Negotiations w/SC are for a committed LC facility for $300mm, which have no impact on existing facilities. 3. A transaction w/an industry player s/not be significantly impacted by Enron's monetization of its equity interest, which do not include the GP. "Oram, Andrew" <Andrew.Oram@m To: "'lawrence.clayton@eott.com'" <lawrence.clayton@eott.com<, oodys.com< "'susan.ralph@eott.com'" <susan.ralph@eott.com< cc: 12/12/2001 Subject: Phone Message 09:58 AM Dear Lawrence, I left two phone messages seeking information that would be helpful for an internal meeting here at 1:30pm EST today on EOTT. They generally cover: (1) The bank negotiation status, L/C's, and combined open account and L/C capacity needed to support the pipeline segment. We have our assumptions but I wanted to cross check this with you. (2) Clarification to be sure that Standard Chartered is prepared to give EOTT full access to both its $300 million uncommitted facility (about $198 million utilized as of 9/30/01) and its new committed short term $150 million letter of credit facility. (3) A question or two on scenarios for doing a transaction with an industry partner (also in light of Enron's earlier monetization of its interest in EOTT as I discussed in further detail in phone message). Any further information you might provide, beyond that from yesterday's phone call, that would help us specify how EOTT will replace the credit support (L/C's) beginning to roll-off next week would be helpful. We understand you are pursuing several alternatives that may take time to formalize, but anything tangible you can give us now would be very helpful. Thank you and best regards, Andy Oram --------------------------------------- The information contained in this e-mail message, and any attachment thereto, is confidential and may not be disclosed without our express permission. 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