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Enron Mail |
Should we be entrenched in this type of activity? I'm not even sure that we
find out about all of ESA's ideas. Sara ---------------------- Forwarded by Sara Shackleton/HOU/ECT on 02/01/2000 11:26 AM --------------------------- To: Sara Shackleton@ECT cc: Subject: Convertibility/Insurance trade This is what has been discussed so far. We looked at this once last year, but decided that we were not getting quotes that justified the transaction. This time it looks like we would "sort of" cover our exposure by both selling and buying and hopefully making money off of the difference. ---------------------- Forwarded by Robert H George/ENRON_DEVELOPMENT on 02/01/2000 01:53 PM --------------------------- Enron International Structuring Group From: Bruce Harris 01/31/2000 04:19 PM To: Joe Kishkill/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Cliff Shedd/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Robert H George/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Lynn Aven/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Kent Castleman/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT cc: Bruce Harris/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Martin Sacchi/Corp/Enron@ECT Subject: Convertibility/Insurance trade The trade is the following. Enron would buy Lender's insurance from the insurance market on "to be named later" intercompany loans. Enron would pay a fee each year for this protection. At the same time, Enron would sell convertibility protection via the capital markets' so-called "credit derivative" products. Enron would earn income from selling this protection. If there was a convertibility event, the bank would deliver to us Reais and a crossborder intercompany loan in Brazil. Offshore, we would buy the crossborder loan and pay the bank in USD. Enron now has an intercompany loan and associated R$ which it can't convert into USD. So we would give the loan and R$ to the insurance company and 180 days later we would get paid in USD (no deval. risk). The arbitrage is basically that the insurance market charges less for protection than the capital markets. No cash is required (but we probably need Corp. to stand behind it all). Martin has priced out Lender's insurance at around 2% per annum for 5 years. Convertibility protection in the credit derivative market might earn as much as between 3- 4% per annum (we need to negotiate with some of the US inv. banks). They are essentially the same type of protection, so I am not sure why the differential is so large other than the waiting period and/or the markets sell to different customer sets. Martin has requested docs. from AIG and I have requested docs. from CSFB. Assuming that legal/tax does not see any major issue (there is always some residual risk), we may need to move on this fast as apparently AIG has about $150M available right now. So this is an FYI email that once Martin and I have completed an initial review, if all looks good we will want to move fast through due diligence/approval process. Regards, Bruce
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