|
|
Enron Mail |
Please prepare language per terms of the attached credit worksheet and=20
provide such language to Barry T. and Kim W. for review. Thanks brant ---------------------- Forwarded by Brant Reves/HOU/ECT on 01/22/2001 09:10= =20 AM --------------------------- Brant Reves 01/22/2001 08:48 AM To: Barry Tycholiz/NA/Enron@ENRON, Kim Ward/HOU/ECT@ECT cc: =20 Subject: El Paso credit terms FYI, Someone requested I resend this language. ---------------------- Forwarded by Brant Reves/HOU/ECT on 01/22/2001 08:47= =20 AM --------------------------- Brant Reves 01/19/2001 02:17 PM To: Kim Ward/HOU/ECT@ECT, Barry Tycholiz/NA/Enron@ENRON cc: Edward Sacks/Corp/Enron@Enron, Tracy Ngo/PDX/ECT@ECT, Wendy=20 Conwell/NA/Enron@ENRON=20 Subject: El Paso credit terms Kim/Barry, Situation 1: The following credit matrix could be included within Section 12 of the=20 Jan'02-Dec'03 transaction between ENA and El Paso Electric Company. STANDARD & POOR'S RATING EVENT=09CREDIT LINE BBB- or Above=09Open BB+=09$10,000,000 BB=09$5,000,000 BB- or Below=09$0 Situation 2: Without credit lines, the credit reserve for this deal would be $450,000. In addition, the most recent S&P write-up is attached below. brant Research: Return to= =20 Regular Format Summary: El Paso Electric Co.=20 Publication Date: 01-Aug-2000 Analyst: Judith Waite, New York (1) 212-438-7677=20 Credit Rating: BBB-/Stable/-- Rationale Debt reduction, cost cutting, and increased sales have brought El Paso= =20 Electric Co. back toward investment-grade benchmarks. The company has exceeded debt-reduction=20 targets and expects debt to be about 50% of total capital by 2002. If sales continue to grow at even= =20 one-half the historical 3% to 4% per year, cash flow interest coverage should improve to 3.5 times by then. Still,= =20 the ratings on El Paso Electric continue to reflect the company=01,s high leverage, dependence on nuclear power, hi= gh=20 fixed costs, and high rates.=20 The company borrowed heavily to fund its 15.8% interest in the Palo Ver= de=20 nuclear plant, which supplies 50% of the utility=01,s power. The plant=01,s past operating problems and cont= inued=20 structural problems add some risk to the company=01,s already weak financial profile. Most importantly, customer= s in=20 the generally low-income service territory fought against rate increases needed to recover the nuclear= =20 investment, helping to put El Paso Electric in bankruptcy. A settlement signed with Texas customers in 1995 allowed= =20 the company to keep a $25 million rate increase implemented in 1994, permitted accelerated depreciation o= f=20 generation and transmission assets, and froze rates until 2005 in exchange for extending the El Paso Electr= ic=20 franchise.=20 In 1998, the company agreed to reduce rates--mainly residential--in New= =20 Mexico and Texas, bringing them more in line with Southwestern averages. By the time retail competition= =20 comes to either state (2002), El Paso Electric will have a fairly competitive cost structure which should all= ow=20 them to retain retail customers. By that time, El Paso Electric will have separated its assets into a regulated= =20 transmission and distribution business and an unregulated electricity generation business, as required by New= =20 Mexico and Texas law. Costs incurred to effect this change will be recovered in a competitive transition=20 charge. Stranded costs (accrued charges related to generating plant costs which would have been recovered in a= =20 regulated market) will be recovered over a five-year transition period in New Mexico. In Texas, the rate=20 settlement allowed El Paso to recover those costs through accelerated depreciation over the 10-year period of the=20 settlement agreement.=20 In the wholesale market, El Paso successfully renegotiated contracts wi= th=20 the Comision Federal de Electricidad, the national utility of Mexico, to supply peaking capacit= y=20 in the summer months of 2000 and 2001, and with the Rio Grande Electric Cooperative Inc. to supply power to tw= o=20 Texas cities over a four-year period. Importantly, El Paso Electric also reached a settlement with the city o= f=20 Las Cruces, N.M., ending a long dispute over that city=01,s threat to municipalize the electric distribution sy= stem.=20 Las Cruces sales account for about 8% of total revenue.=20
|