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Enron Mail |
Bill,
Thanks for your time today. Attached are some materials I've written on my structure and an enhanced schematic. When combined with what I gave you and this note you should have a pretty good idea of what I'm trying to accomplish. First step is for Enron to come up with a prospective valuation for this plant each year for the next twenty years. That valuation will set the maximum amount of debt we will allow the plant to carry in any given year up to a twenty year final maturity. At some point, the plant valuation going forward will exceed the outstanding debt because the debt amortises to zero whereas the plant will always have residual value to the end of its remaining useful life and at a minimum scrap value. Enron will then enter into two parallel and offsetting price risk management contracts which will pay a demand charge equal to debt service in exchange for formula floating payments. The formula floating payments will be calculated as the positive difference, if any, between the generator strike price and a market index price for energy. The two contracts will contribute to the credit of the project by their respective positions in the project flow of funds. The top contract, (i.e. financial buy), will pay a demand charge to the project and will be on a parity in the flow of funds with debt service. The lower contract (i.e. financial sell) will receive a demand charge and will be subordinate in the flow of funds to debt service and O&M costs. The two contracts are engineered so that project revenue deficiencies will show up in the projects ability or inability to make the demand charge to Enron under the financial sell contract. Therefore, the two contracts are opposite and identical except for their credit exposure to the project. Flow of funds is as follows: Revenues: Merchant marketing activities to third parties Demand payments from Enron under financial-buy Energy payments from Enron under financial-sell Other Flow of funds: Variable O&M Debt service and financial-buy energy payments to Enron Fixed O&M Demand payment to Enron under financial-sell contract Repayment of moneys owed Enron Reserve replenishment Equity Payments owed Enron under both contracts will be secured by a subordinate lien on the same security package as the senior debt. The two contracts should not create any MTM earnings effects or commodity desk VAR effects until one of them disappears. At that point we hopefully have commodity hedge values that will offset the MTM valuation and VAR effect of the remaining exposed contract. The contracts will be written directly to the trustee to avoid bankruptcy issues involving treatment of executory contracts. The contracts will also be written through our Bermuda insurance subsidiary with offsets back to EPMI in order to avoid potential insurance issues. My plan is to charge a fee for entering into these two contracts which will be paid up-front. Other features of the two contracts include: No cross default, The financial buy contract cannot be terminated for bankruptcy filing or any other such credit signal trigger, Either contract can be terminated for non-performance (since financial this means payment default), Either contract can be terminated at any time by either party by making a MTM payment except the financial-buy contract can only be terminated by Enron for non-performance. Any questions, please feel free to call me at 3-4750. regards, Don
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