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Enron Mail |
The special protection under the Bankruptcy Code is not limited to
swaps. Section 546(e) protects "margin payments" and "settlement payments" which are "made by or to a commodity broker, forward contract merchant, stockbroker, financial institution or securities clearing agency...." and the definition of "swap agreement" for purposes of section 546(g) includes commodity swaps. But your point is well taken, because there seems to be no special protection for agreements that involve transactions covered by different subsections or that involve some transactions that are covered by the special protection, and some that are not. This issue may be even more important outside the letter of credit context. There are special exemptions from the automatic stay in section 362 of the Bankruptcy Code for setoffs under swap agreements and commodity contracts. But, like section 546, these exemptions are in separate subsections, and do not clearly provide for setting off transactions covered by one subsection against transactions covered by one of the other subsections, or against transactions not covered by the exemptions at all. I can imagine setting up netting arrangements with several stages of netting, both to take maximum advantage of the exemptions in the Bankruptcy Code and to get a clear picture of the credit exposure with a particular counterparty. First, you would net all the transactions covered by each subsection. Then you might net the transactions covered by the different subsections. Then you would net the resulting number against transactions not covered by any of the exemptions. Perhaps you do that already. Please let me know if you would like to discuss this subject in more detail. -----Original Message----- From: Mark.Taylor@enron.com [mailto:Mark.Taylor@enron.com] Sent: Friday, May 25, 2001 5:47 PM To: eireland@foleylaw.com Cc: Julia.Murray@enron.com; Carol.St.Clair@enron.com Subject: Letters of Credit; Preference; Swap Transactions Julia sent me a copy of your memo following up on one of the questions asked at the session earlier this week. I would like to ask a follow-up question: Do we lose the benefit of the special treatment under the bankruptcy code when we enter into cross-product (i.e. physical and financial products) netting and joint credit support arrangements. If we agree with a counterparty to net all of our trading exposures under multiple agreements (swap agreements and gas, power, steel, coal, etc. trading agreements) to determine how much credit support should be posted and then only ask for a single LC that supports the whole shebang, do we lose this protection since arguably we are no longer just "under a swap agreement?"
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