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Enron Mail |
Catalytica hit us with extensive comments to the form of spark spread option
confirmation appended to the Option Repurchase Agreement between ENA and CCSI last week in San Francisco. Sara Shackleton is negotiating directly with CCSI's counsel with respect to CCSI's requested comments, but there are two issues raised by the markup that are not strictly lawyer comments that need to be addressed in order to finalize the confirmation. One comment CCSI made was to request some type of collateral deposit if ENA's credit quality slipped in the future. You will recall that the spark spread should be repurchased by September 30,1999, pursuant to the option repurchase agreement, well in advance of the 2003 effective date of the spark spread. Nevertheless, to make the spark spread appear arms length ( which it most certainly is!), in view of the theoretical effectiveness of the spark spread and its 2016 expiration date, CCSI decided it needed credit protection. In the course of negotiating the changes to the spark spread, we tendered to CCSI for its consideration a bilateral collateral deposit agreement, wherein each party would be required to deposit collateral if credit quality fell in the future. Unless ENA allows CCSI to pay the spark spread premium in installments, the credit protection would only apply to ENA since it is the only party making payments after the effective date, and if the installment payment request by CCSI is rejected successfully, the form will need to be amended to apply unilaterally to ENA ( assuming we agree to give CCSI this comfort). The form of collateral deposit provision requires that we define an "Exposure Threshold" for ENA that triggers its obligation to provide credit support in the form of collateral for CCSI's benefit. Normally, the calculation of an appropriate amount would be done by credit. I understand from Sara, however, that credit is no longer involved in this deal and that perhaps Randy can suggest who might be the appropriate person to determine an appropriate "Exposure Threshold" amount for ENA in this context. Of course, if the CCSI premium is paid in installments, we would need to calculate an appropriate CCSI "Exposure Threshold" as well. The second issue in the CCSI revisions that the lawyers do not feel comfortable unilaterally addressing appears in the "Gas Daily Price" definition under Cash Settlement Amount. Here,CCSI's counsel has suggested, if the measures for determining Gas Daily Price should change, that vague alternative measures be used to define the Gas Daily Price. I'm not sure whether we are comfortable with what an alternative measure may yeild, and may want an alternative process if the current measures disappear, or may have in mind more definite alternatives. Brad, it would be useful if you could give us some guidance on this point. Thanks for your assistance.
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