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Enron Mail |
Edits are included in the body of the attached.
Barton Clark@ECT 10/17/2000 01:00 PM To: Herman Manis/Corp/Enron@ENRON cc: Sheila Tweed/HOU/ECT@ECT Subject: Re: Ft. Pierce -- HRSG Option Agreement I agree we need more discussion. However, re the " need to skate around lease issues in whatever docs are created now", remember the only document we propose to sign in the near future is the HRSG option and the only payment we propose to make is the option premium to secure the delivery date. I don't see the need to worry about the lease issues in the other draft documents we create now to try to gain agreement in principle to the basic commercial terms of the deal. The other documents will never be signed without necessary 97-10 compliant provisions unless we opt to flip the project to a third party concurrently with their execution. If we don't opt to flip to a third party, we will revise the documents before their execution to address the lease issues. By your response, are you implying that the simple creation of these other draft documents and our discussion of the commercial terms therein with our counterparty gives rise to on-balance sheet concerns irrespective of what we actually sign? Herman Manis@ENRON 10/17/2000 12:08 PM To: Barton Clark/HOU/ECT@ECT cc: Sheila Tweed/HOU/ECT@ECT Subject: Re: Ft. Pierce -- HRSG Option Agreement We need to discuss these issues in more detail tomorrow during the 10 am presentation. We need to be careful to skate around lease issues involving 97-10 in whatever docs are created now because we could end up in a lease model in the future. Anything we create now and should have to live with may hurt us in the future if in a lease. Barton Clark@ECT 10/17/2000 11:26 AM To: Darrell Stovall/NA/Enron@ENRON cc: David Fairley/HOU/ECT@ECT, Rusty Stevens/Corp/Enron@ENRON, Mathew Gimble/HOU/ECT@ECT, Sheila Tweed/HOU/ECT@ECT, Herman Manis/Corp/Enron@ENRON Subject: Re: Ft. Pierce -- HRSG Option Agreement The option of equipment is the same method used to secure firm delivery dates in the ABB transformer financing, which was ultimately rolled into a West LB structure. As I understand it, in a 97-10 context, option premium is not a hard cost and hence does not give rise to on-balance sheet concerns so long as total project soft costs of which the premium is a part do not exceed 10% of aggregate project cost. Here, to keep the deal off-balance sheet we are looking to either (i) a TECO or other third party investor take out ( by purchase of the project entity membership interests concurrently with the project entity's execution of definitive project agreements ) or (ii) a West LB lease structure. Even though we are not drafting the project documents to incorporate a West LB structure at this time, we need to maintain flexibility to revise the documents to reflect a West LB structure if a third party deal does not materialize or if we determine a West LB structure would be more beneficial and West LB would agree to the takeout.The principal constraint imposed by maintaining this flexibility is that all of our expenditures under the HRSG contract until the take out is firmed up must be able to be characterized as option premium/soft cost and must not - when aggregated with other project soft costs - exceed 10% of total project costs. We have opted not to draft all of the project documents on a West LB model now because it has been determined ( subsequent to the draft of the HRSG contract on a West LB model) that as a practical matter incorporation of this approach into all the project agreements will impede our ability to reach commercial agreement with FPUA. If we fail to reach commercial agreement, the off-balance sheet concerns are all academic. Put another way, we think that if we can reach commercial agreement first, it will be easier to revise the documents later to incorporate a West LB structure ( if we decide to go that route ) because it will be easier for FPUA to conceptualize the changes imposed by our financing requirements after the principal commercial issues are solved. The same rationale applies to the HRSG vendor. I know this requires a change to the HRSG draft to eliminate the West LB structure currently reflected therein, but if we opt for the third party takeout, the West LB approach currently reflected in the HRSG contract would have to be deleted anyway. I As soon as it is drafted, we need to run the HRSG option by Herman Manis to ensure that our approach does not jeopardize our ability to use the West LB alternative later or otherwise have adverse accounting treatment. I understand the off-balance sheet treatment is in part a function of our intent at the time we enter into project agreements, and to my knowledge the option has never been used where a third party takeout or lease takeout are being considered as alternative off-balance sheet approaches at the time a project document is signed. It seems to me, however, that the bare execution of the HRSG option where the ultimate takeout mechanic is uncertain and no definitive project agreements have been signed does not foreclose our ability to later opt for a West LB takeout or otherwise result in the project having to be taken on balance sheet if a third party takeout does not materialize. By copy hereof, I'm requesting Herman share with us his thoughts on our proposed approach to the Ft. Pierce project. Darrell Stovall@ENRON 10/17/2000 07:57 AM To: Cheryl Costa/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, John G Rigby/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Barton Clark@ECT Subject: Ft. Pierce -- HRSG Option Agreement FYI, as indicated previously, Bart Clark/ENA recommends an option approach for purchase of HRSG and has lead in developing agreement. Previous ABB option agreement (attached/below) may be used as starting point. Bart, there is a question as to whether the option approach will satisfy off balance sheet requirements. Please advise. ---------------------- Forwarded by Darrell Stovall/NA/Enron on 10/17/2000 07:39 AM --------------------------- Barton Clark@ECT 10/16/2000 05:05 PM To: Darrell Stovall/NA/Enron@ENRON cc: Subject: Re: equipment option Thanks. I will get to the option as soon as I finish a couple of other agreements scheduled to be completed before the Thursday meeting on definitive agreements. I'll add a revised option to the list and try to have it done by Thursday to discuss and send to the accountants. Darrell Stovall@ENRON 10/16/2000 04:57 PM To: Barton Clark/HOU/ECT@ECT cc: Bruce Golden/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT Subject: Re: equipment option Bart, Initial heat balance part of HRSG RFP went out today -- balance hopefully will go out later this week. Reason for 10/18 target date on draft HRSG option? ... I suggest that we need to provide this to bidders as early as possible in the process to avoid "late in the game" surprises and potential delays in getting HRSG commitment. Let's discuss as appropriate -- Darrell Barton Clark@ECT 10/16/2000 11:04 AM To: Darrell Stovall/NA/Enron@Enron cc: Subject: equipment option FYI, I will see about revising the ABB option for the Fort Pierce deal as soon as I finish some other matters ( including the Interface EPC for Ft. Pierce ) that are also in line. Once revised, the option will need to go to accounting for review and approval. I understood the draft HRSG contract went out last week. What is the driver on the requested 10/18 date for completion of the HRSG option? ----- Forwarded by Barton Clark/HOU/ECT on 10/16/2000 10:59 AM ----- Kay Mann@ENRON 10/16/2000 10:44 AM To: Barton Clark/HOU/ECT@ECT cc: Subject: equipment option Hi Bart, I think this is at least close to the final draft. It ain't pretty but it seemed to work. You won't hurt my feelings if you make massive revisions, so long as I get a copy of the new-and-improved version. Kay
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