Re: ISDA Collateral Question

Seems to me that L/C's are the way to go then, rather than asking for cash or
another asset as collateral. (Another option would be to mix and match -
taking cash up to $10 mil. and L/C's beyond that.) Lenders frequently set
up the facilities available to the borrower this way so they keep control
over how much "debt" is supported by the asset base while still giving the
borrower some flexibility. As you can imagine, most other extenders of
credit are willing to take the bank's L/C in lieu of a lien on a hard asset.

Russell Diamond
01/08/2001 06:42 PM

To: Mark Taylor/HOU/ECT@ECT
cc:
Subject: Re: ISDA Collateral Question

Mark,

Letters of Credit are available under this Credit Facility.

Please let me know your thoughts and if you need any additional information
as the originator in EES is calling for me.

Thanks
Russell.

From: Mark Taylor on 01/08/2001 05:39 PM
To: Russell Diamond/HOU/ECT@ECT
cc:
Subject: Re: ISDA Collateral Question

Any chance this language came from a credit facility that provides for the
issuance of letters of credit?

Russell Diamond
01/05/2001 05:20 PM

To: Mark Taylor/HOU/ECT@ECT
cc: Tana Jones/HOU/ECT@ECT, Tanya Rohauer/HOU/ECT@ECT
Subject: ISDA Collateral Question

Mark,

I copied a section of a counterparty's Bank Credit Agreement relating to
certain
negative pledges. The counteparty is IMC Global whom we have some financial
transactions with (actuall their sub IMC-Canada) at ECC, and now an EES
person is looking to
enter into a long term EES transaction. We sent them a draft ISDA for future
transactions
out of ECC and we are now being told by the EES person that if a Credit
Support Annex (CSA)
is required in this ISDA it will kill her deal. She has stated that they are
not able
to fulfil the obligations of the CSA because of the covenants tied to their
Credit
support agreement. As highlighted in red below, it seems that they cannot
have any liens that
secure derivative obligations, although cash is acceptable up to $10
million. Can you
please clarify if collateral as it is stated in the ISDA is considered a
lien, and if this type
collateral would be a breach of their credit agreement. If this is a breach
can you suggest
other methods that we might use so the CSA would be acceptable.

Thanks
Russell

Negative Pledge. Neither any Borrower nor any Subsidiary of any
Borrower will create, assume or suffer to exist any Lien on any asset
now owned or hereafter acquired by it, except:

Liens existing on the date of this Agreement securing Debt outstanding
on the date of this Agreement in an aggregate principal or face amount
not exceeding $135,000,000;

any Lien existing on any asset of any Person at the time such Person
becomes a Subsidiary of a Borrower and not created in contemplation of
such event;

any Lien on any asset securing Debt incurred or assumed for the purpose
of financing all or any part of the cost of acquiring or constructing
such asset, provided that such Lien attaches to such asset concurrently
with or within 90 days after the acquisition or completion of
construction thereof;

any Lien on any asset of any Person existing at the time such Person is
merged or consolidated with or into a Borrower or a Subsidiary of a
Borrower and not created in contemplation of such event;

any Lien existing on any asset prior to the acquisition thereof by a
Borrower or a Subsidiary of a Borrower and not created in contemplation
of such acquisition;

any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the
foregoing clauses of this Section, provided that the proceeds of such
Debt are used solely for the foregoing purpose and to pay financing
costs and such Debt is not secured by any additional assets;

Liens arising in the ordinary course of its business which (i) do not
secure Debt or Derivatives Obligations, (ii) do not secure any
obligation in an amount exceeding $100,000,000 and (iii) do not in the
aggregate materially detract from the value of its assets or materially
impair the use thereof in the operation of its business;

Liens on cash and cash equivalents securing Derivatives Obligations,
provided that the aggregate amount of cash and cash equivalents subject
to such Liens may at no time exceed $10,000,000; and

Liens not otherwise permitted by the foregoing clauses of this Section
securing Debt in an aggregate principal or face amount, together with
all other Debt secured by Liens permitted under this Section 5.09(i),
not to exceed an amount equal to 10% of Consolidated Net Worth
(calculated as of the last day of the fiscal quarter most recently
ended on or prior to the date of the most recent incurrence of such
Debt).