Proposed Bankruptcy Amendments

As discussed.
---------------------- Forwarded by Mark - ECT Legal Taylor/HOU/ECT on
04/22/99 04:30 PM ---------------------------

Carol St Clair
04/22/99 10:31 AM
To: Jeffrey Keeler/Corp/Enron@Enron
cc: Jeffrey T Hodge/HOU/ECT@ECT, Mark - ECT Legal Taylor/HOU/ECT@ECT
Subject: Proposed Bankruptcy Amendments

Jeff:
I have reviewed the House and Senate versions of the proposed bankruptcy code
amendments as they pertain to derivatives and discussed them with Mark Taylor
this morning and here is our read on what they have done and the effect on
Enron :

1) Both versions added a concept of "master netting agreement" as a new
definition and as an add-on to the definitions of forward contract, swap
agreement, repo agreement and securities contract.. This definition, I
believe, describes agreements like the ISDA Master Agreement.

2) Both versions amend Section 362(b) (the exceptions to the automatic stay)
to provide for a concept that permits setoffs with respect to amounts due and
claims under one or more master netting agreements or any contract or
agreement that is subject to such master netting agreements. Mark and I
think that through this provsion, cross-product netting would be permitted to
the extent our physical and financial contracts separately or collectively
come under a master netting agreement. We wanted to confirm that that was
the intent of this language since it is not entirely clear from the drafted
language how this would work if for example we had separate netting
agreements for our physical and financial contracts. In addition, as
currently drafted, the only caveat to this setoff right is that these rights
are derivative of the setoff rights that are permitted by Sections 362 (b) 6
(forward contarcts), 7 (repos) and 17 (swaps) with respect to each individual
contract. This may still present some problems for us in that no
amendments were made to Section 362 (b) 6 which permits setoffs with respect
to forward contracts but only to the extent that our claim against the debtor
is for a margin payment or a settlement payment . We were hoping to see an
amendment to this Section that broadened this language to include any type
of payment that would be due from the debtor under a forward contract since
we are still unclear as to what a "settlement" payment means. If you look at
Section 362 (b) 17 which deals with swaps, this language is much broader and
it was our hope that the setoff language for forward contracts could track
the setoff language for swaps. Also, we were hoping that the setoff language
for forward contarcts would apply to anyone taht was a party to a forward
contract and not just "forward contract merchants" as currently drafted.
Again, the swap setoff language has a concept of "swap participant" that is
much broader.

3) Finally, we like the fact that the definition of "swap agreement" was
expanded, but are concerned with the new language and how it would apply to
our newer products such as weather derivatives since in order to fit within
the new definition, it must be something that is currently or in the future
"regularly" entered into in the swap market. There are some further
revisions to that definition which I want to discuss with you as well.

In summary, while this language gives us some stronger argumants with respect
to "cross-product" netting, we feel that it doesn't go far enough. Mark has
called Cadwalader to get their read on the draft language. Call me when
convenient so that we can discuss what the next step for us may be.

Carol