RE: reaction from the credit markets on the earnings call

As we have discussed at the Board level as well as in Management Commitee, the default swap market is extremely illiquid. While it is true that ENE is one of the most liquid names in the market, the entire market would move based on an order of $40 to $50 MM. We have heard that there have been standing sell orders in the market totalling approximately $150 MM which have yet to be absorbed, it could be that the prices moved significantly in order for those sellers to find a buyer.

While this market is an important datapoint in evaluating the credit markets view of our name, it is not the sole determinant. It is important to note that secondary trading levels of our bonds (a far more liquid market and accurate indicator of our ability to raise incremental capital) have only widened 5 - 10 basis points over the course of the day.

While I would very much like to tighten the spreads in the default swap market, I think that we need to keep those price markers in perspective. Having said that, anything we can do to support the credit and tighten those prices ultimately helps in our ability to raise debt in all markets.

Ben

-----Original Message-----
From: Seyfried, Bryan
Sent: Tuesday, October 16, 2001 1:35 PM
To: Whalley, Greg; Lay, Kenneth; Frevert, Mark; Fastow, Andrew; Glisan, Ben; Koenig, Mark
Cc: Sherriff, John
Subject: reaction from the credit markets on the earnings call

John thought you might be interested in the following from the credit markets....

Play by play during the call on the 5yr Enron Credit Default Swaps from Morgan Stanley:

1. 5Y BIDS GETTING HIT ON OPENING AS EARNINGS NEWS LOOKED LIKE
CLEANING HOUSE. 250.
2. DURING THE CONFERENCE CALL; WHICH APPARENTLY WAS UNCLEAR,
TICKED OUT 255,260,265.
3. LAY INDICATED NEAR END OF CONFERENCE "NO RATINGS ACTION
ANTICIPATED". MINUTE CONFERENCE ENDED MOODY'S WATCH NEWS
RELEASED. 280 BID.
4. LAY ALSO MENTIONED 3Q NEG CASH FLOW DUE TO SOME CONTRACT
ROLLOFF. UNCLEAR MESSSAGE.
5. ENE SAYS COMMITTED TO "INV GRADE" RATHER THAN "A" 280/325

Summary from Morgan Stanley after the call:

CREDIT DERIVATIVE UPDATE: ENRON CORP

AFTER THE NEWS THIS AM ($1 BIL. CHARGE), THE COMPANY HOSTED A
CALL AT 10AM NY TIME. THE CALL DID NOT GO WELL & ENRON SPREADS
ARE HEADING WIDER IN CREDIT DERIVATIVE LAND. MKTS ARE SPOOKED
B/C: 1) MOODY'S WATCHLISTED CO NEGATIVE, 2) ENE STATED "THEY
ARE COMMITED TO INVESTMENT GRADE RATING," WHICH IS A CHANGE FROM
THE SINGLE-A BOGEY THEY ONCE EXTOLED, 3) CO. DID NOT ADDRESS ALL
LIQUIDITY CONCERNS, AND 4) MORE CHARGES COMING?
5YR MARKETS:

ENE (PRE-WTC): 165/185 ENE (8AM TODAY): 240/260
ENE (WEEK AGO): 250/300 **ENE NOW: 275/350

Clearly the above are a function of what people think they heard...I did not alter any of the email. In general MSDW likes Enron credit but this is how they see the market. Enron is one of the most actively traded names in the credit derivative market. Let me know if you want updates as the market gets more clarity and works throught the details