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Enron Mail |
Treasa:
Please add "Robert Bruce" to the distribution list (either Bob or I will be available to assist from ENA legal). Also, please keep Cathy Moehlman (ENA Treasury - X33353) in the loop as she calls us for information that we may not have. Thanks. Sara Treasa Kirby 11/28/2000 09:38 AM To: Mark Evans/Legal/LON/ECT@ECT, Marcus Von Bock Und Polach/LON/ECT@ECT, Sara Shackleton/HOU/ECT@ECT cc: Paul Chivers/LON/ECT@ECT Subject: Corp Prepay As you are aware TD were concerned about the basis risk embedded in the prepaid swap structure . They plan to hedge their Enron exposure by buying credit default swaps in the market. However under credit default swaps, only a default on debt as defined by GAAP is included as a credit event, and swaps are excluded from this definition . This basis risk therefore occurs where Enron defaults on the oil swap but has not defaulted on any debt. This does not trigger a payout to TD under their credit protection, their recourse will then be through the Corp guarantee with time delays. To mitigate that risk it was proposed that in the event of an Enron default under the prepaid swap, the MTM termination value of the swap would be converted into a loan and Enron would automatically default on that loan. TD's counsel came back late on Friday to say that they could not give a clean legal opinion on this structure. We therefore proposed an alternative structure which involves TD and Enron entering into a loan of $10.1m at the same time as the swap is executed. This loan will be in the name of Enron Corp. In the event of an Enron default on the prepaid swap, this will cross default into the $10.1m loan and that forms the required trigger for TD's credit default swaps. The lawyers signed off on this last night and Norton Rose are now preparing the loan documentation. They are basing it on the May 2000, 364 day Enron Corp facility and we are expecting first draft tomorrow. I will forward this to you when I receive it. The deal itself is still undefined as TD have credit approval subject to presyndicating the loan to two other banks and putting a certain level of credit protection in place prior to executing the trade. The confirm/term sheet has not changed from two weeks ago and I have forwarded Sara's comments to TD but their focus has been on getting credit approval rather than docs until today. We have not sent a confirm to Morgan Stanley yet as we plan to replicate whatever confirm we agree with TD. I will keep you informed as to TD's progress. Regards
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