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Enron Mail |
Team,
We need to push forward on the next phase of the pricing model. I sense that we have lost some momentum so we need to pick it back up. Enron needs to shed some of the risk of this deal in order to be able to do more of them. I think the insurance market is a great platform to accomplish this. I think our success potential is high as long as Enron is in a first loss position and pro-rata loss for the balance. However, I am not confident that the insurance industry will be able to work up a meaningful offer. My solution is to calculate a bid for their services. The loss I am trying to protect is associated with a bankruptcy process where Enron seeks to gain control of the underlying asset and/or its liquidation. I propose that the trigger for an insurance pay-out would be the sale of the underlying project to a third party in a liquidation scenario for the benefit of creditors (i.e. EPMI). I would like to price a structure where EPMI takes the first $50/kw of Loss and 10% of the balance. Loss will be defined as Par amount of debt outstanding plus Net Amounts owed EPMI less sale proceeds from plant. Net Amounts owed EPMI will include the net amount of MTM and accrued index payments owed EPMI under both the Financial Buy and Financial Sell contracts as of the date of sale. For purposes of this analysis lets assume initially that Net Amounts are $0. One way to price this product would be as a put option of 90% (100% - 10%) of the MW of the plant at a price equal to par amount of debt less $50/kw. I am open to other ideas. I expect results to be presented in the form of reduction of the put premium ( equity's option to put plant to EPMI) that we have been calculating to date. It is also essential that we update the pricing models to reflect different start and end dates and different strike price calls for each year. regards, Don 3-4750
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