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Enron Mail |
The incremental financing cost, by my calculation is less than 100,000 and it
was determined to be prudent in light of ENA's interest in keeping these off-balance sheet, regardless of their use in Canada or the US. My estimate is based on 26MM balance, four month average duration (staggered payments), 6% interest rate and 15% withholding tax. Matt Berry of ENA Finance and Morris Clark were part of our discussion on this matter. The reason that we do not look at it over an extended term is becasue this West LB structure was put in place as a bridge until Enron determined if the machines were to be used in Canada or the US. At that time Enron would put in place either a Canadian or US permanent structure that would be more tax-efficient. I am available to talk about this further. Let me know. Chris Enron Capital & Trade Resources Canada Corp. From: Peter Keohane 01/31/2000 10:37 AM To: Christopher F Calger/PDX/ECT@ECT cc: Subject: WestLB Transaction Further to my voice mail, FYI. ---------------------- Forwarded by Peter Keohane/CAL/ECT on 01/31/2000 11:39 AM --------------------------- Enron Capital & Trade Resources Canada Corp. From: Peter Keohane 01/26/2000 10:52 AM To: John J Lavorato/CAL/ECT@ECT cc: Greg Johnston/CAL/ECT@ECT, Eric LeDain/CAL/ECT@ECT Subject: WestLB Transaction John, the attached is a summary by Greg of the financining for the turbines purchased from New Brunswick Power. In summary, ECC pays the bank, West LB directly in three installments under an off-balance sheet lease financing arrangement. The first installment of $US 9MM was made Dec. 1/99. The next installment is due Feb. 1/00 of $US 8MM, and the third installment is due roughly March 31/00 of $US 8MM. The "drag" on the financing is that West LB through whom ENA structures its off-balance sheet turbine financings is not a Canadian resident for tax purposes, and therefore is not tax efficient to ECC in that there is a 15% withholding tax payment on the interest (not principal) component of each lease/financing payment. An off-balance sheet financing with a Canadian resident financial institution would eliminate this tax inefficiency, and this is what I was referring to when I indicated some work may still be required to restructure the turbine financing. The withholding tax if we keep this structure will total roughly C$ 500,000 over all of the lease/financing payments (Chris Calger has the exact figure). Any decision to change the structure should have regard to these costs and the transaction costs and fees associated with finding a new Canadian resident off-balance sheet lender. In addition, if we decide to keep the turbines, or sell or transfer the turbines to ENA or a third party (depending on commercially what it is we decide to do with them), additional work may be required to take title to the turbines, or to assign/restructure the West LB financing and the New Brunswick Power purchase agreement. I am confident that the bulk of commercial legal work for any of these transactions can be handled internally, but that the tax legal work may require the input of outside counsel. We are also obligated to pay GST, but this is ultimately reimbursed through the lease financing (althoguh there is a time value of money component that is not recovered from the time GST is paid and when the GST rebate is made). ---------------------- Forwarded by Peter Keohane/CAL/ECT on 01/26/2000 10:20 AM --------------------------- Greg Johnston 01/25/2000 05:22 PM To: Peter Keohane/CAL/ECT@ECT cc: Eric LeDain/CAL/ECT@ECT Subject: WestLB Transaction Peter, referring to your request for an update as to the status and mechanics of the West LB transaction relating to our acquisition of the NB Power turbines, please be advised as follows: 1. Although ENA executed the Acquisition and Development Agreement (the "Agreement") with WestLB, all of ENA's interest in that Agreement was immediately assigned to Enron Canada, meaning that we are directly responsible for making all funding requests and all cost of borrowing payments to WestLB. 2. The initial payment on the turbines was made through WestLB for an amount of US$9,000,000 on December 1, 1999. GST was payable on US$5,000,000 of that amount. 3. The next installment is due to NB Power on February 1, 2000 and is for an amount of US$8,000,000. Laura Scott will be initiating the funding request in the next day or so to allow the advance to be a LIBOR advance. WestLB will then attend to paying the installment payment (plus GST) to NB Power on Feb 1. 4. The final installment payment is for an amount of US$8,000,000 and is due on the earlier of the date on which we commence disassembling the turbines and March 31, 2000. 5. The cost to Enron Canada for utilizing WestLB, who is not registered in Canada to carry on business, is that we are required to pay withholding tax of 15% on all costs of borrowing (ie. interest payments). The interest is calculated at a LIBOR rate. 6. WestLB has now registered themselves in Canada for GST purposes and will be making the required GST payments to NB Power and then applying for the GST rebate, which rebate amount is for our account under the Agreement. 7. WestLB is aware that, depending on how we proceed with our required use of the turbines, they will be taken out either with respect to (i) the interim financing or, if the interim financing period is short (ie. if we were going to proceed immediately to finish paying for the turbines and commence moving them), (ii) when we put the SPV in place to build the project. 8. If we determine that the turbines are to go to Houston and be moved into the US, the withholding tax issue obviously disappears. If we determine to proceed with the project in some fashion but the interim financing period will be more than a month or so, it probably makes sense to remove WestLB from the interim financing, thereby saving ourselves the cost of the withholding tax. One potential fix is to bring in a Canadian bank to act as funding agent, with WestLB continuing to bear the transactional risk, which could reduce the cost to us of getting a new bank comfortable with the financing arrangement. We have not yet canvassed all the possible solutions, so I have not thought through to the full extent whether this proposal is viable. I think that you are aware of the reasons that the determination was made to proceed with WestLB despite the withholding tax issue, but if you would like to discuss this any further or if there is anything else you would like to discuss, I am happy to do so. Greg
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