Collateral Issues

Debbie and Tanya:
I thought it might be helpful to summarize how certain of the collateral provisions in our trading agreements are impacted by the filing of bankruptcy:

1. ISDA Credit Support Annex - Paragraph 4 provides that our counterparties do not have to post or release collateral to us if either an Event of Default, Potential Event of Default or Specified Condition has occurred or if an Early Termination Date has been designated for which an unsatisfied payment obligation exists. In addition, as you are aware, we can no longer hold cash or LC's, and as we discussed, since this language technically applies to LC's as well, it might be worth it to appoint a QI to hold our LC's for us.

2. Industrial Master - same as above except that the limitation on holding collateral only applies to cash.

3. Annex B - the Event of Default/Early Termination Date conditions only apply to requests to reduce collateral, not to a demand to post collateral. There is no QI requirement for holding collateral.

4. EEI Master (without new collateral annex attached)- no conditions precedent in the EEI to posting or releasing collateral. There is no QI requirement for holding collateral. The new collateral annex works like the ISDA Credit Support Annex except that the limitation on holding collateral only applies to cash

5. Enfolio Master Purchase and Sale Agreement - no conditions precedent in the Enfolio to posting or releasing collateral. There is no QI requirement for holding collateral.

Hope this helps. Call me if you have any questions.
Carol St. Clair
EB 4539
713-853-3989 (phone)
713-646-3393 (fax)
281-382-1943 (cell phone)
8774545506 (pager)
281-890-8862 (home fax)
carol.st.clair@enron.com