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Enron Mail |
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Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Koenig, Mark </O=ENRON/OU=NA/CN=RECIPIENTS/CN=MKOENIG< X-To: Lay, Kenneth </O=ENRON/OU=NA/CN=RECIPIENTS/CN=Klay<, Whalley, Greg </O=ENRON/OU=NA/CN=RECIPIENTS/CN=Gwhalle< X-cc: X-bcc: X-Folder: \GWHALLE (Non-Privileged)\Inbox X-Origin: WHALLEY-G X-FileName: GWHALLE (Non-Privileged).pst -----Original Message----- From: firstcall.notes@tfn.com [mailto:firstcall.notes@tfn.com] Sent: Thursday, October 25, 2001 1:32 PM To: Koenig, Mark Subject: Power & Natural Gas: Houston Hysteria Causing Wholesale Heartburn FIRST CALL RESEARCH NETWORK 09:43am EST 25-Oct-01 (Chris Ellinghaus 212-373-4234) CPN MIR NRG ENE DYN Power & Natural Gas: Houston Hysteria Causing Wholesale Heartburn The Williams Capital Group Power & Natural Gas Chris Ellinghaus (212)373-4234 Houston Hysteria Causing Wholesale Heartburn October 25, 2001 ******************************************************************************** Balance sheet issues at Enron (ENE, $16.41, NR) have triggered investor concerns regarding non-payment of receivables held by trading counter-parties like Calpine, Dynegy, Mirant, and NRG. We do not believe any trading counter party to Enron has a daily value-at-risk (VAR) of more than $100 million and most company risk management controls are considerably more restrictive. We estimate that the majority of trading counter parties have exposure of roughly one month of receivables to Enron which we believe would be in the low hundreds of millions of dollars range at worst. ******************************************************************************** The market is concerned that potential cash flow issues at Enron could spread to other wholesale energy marketers and IPPs. Concerns have surfaced that trading counter-parties might restrict Enron's trading access or require additional credit to support its wholesale energy trading business. Unsubstantiated rumors suggest that some counter-parties may have cut off Enron's credit. The concern is that a potential liquidity crunch at Enron could ultimately lead to non-payment of receivables held by trading counter-parties like Calpine, Dynegy, Mirant or NRG. While we agree that, in the event of a worst case outcome, some of the uncertainties related to Enron's financing needs could have credit implications for its trading partners, in our opinion a multitude of negative events would have to occur before Enron's receivables might be deemed uncollectible. Counter-party risk is largely limited to trade receivables and not open market positions. We know of no industry counter-parties to Enron that have a daily value-at-risk (VAR) of more than $100 million and most risk management controls are considerably less. Enron represents a relatively small proportion of each counter-parties' daily VAR due to concentration controls. Therefore, daily VAR related to Enron should be limited. The greater potential credit risk lies within the trade receivables each counter-party might have with Enron. Trading receivables are typically collected within 30-35 days of the trade date. We believe few counter-parties would have materially more than a single month's worth of trading exposure to Enron at any given time. We believe that most counter-parties would have at most a couple of hundred million dollars of receivable exposure to Enron per month. We would expect few of Enron's trading partners' businesses to be seriously jeopardized as a result of a potential Enron default. Yesterday, the stocks of some of Enron's chief counter-parties fell precipitously. Dynegy fell the most, declining $5.45 or almost 13%. Dynegy clearly is a large counter-party to Enron's trading desk, but we doubt that the magnitude of Dynegy's receivables risk to Enron is remotely equal to the $1.8 billion of market capitalization that Dynegy lost yesterday. Mirant's stock price fell $1.53 or 5.3%, reflecting a decline in market capitalization of over $500 million. We believe that the energy marketers as a whole have more exposure to Enron's trading desk than the IPPs. Calpine and NRG are significantly smaller counter-parties to Enron than the larger energy marketers. Calpine disclosed in its second quarter 10-Q that it transacted over $300 million in the first half of 2001 with Enron. Assuming that Calpine's receivable exposure was equally distributed monthly and currently running at a similar rate, Calpine's receivable exposure to Enron would equal only about $50 million. Calpine's market value dropped over $600 million yesterday. None of the counter-parties we spoke to over the last couple of days would disclose their current receivables exposure to Enron. In our opinion, the uncertainty of the amounts in question have contributed to an over-reaction by the market to the potential risks involved. ******************************************************************************** The information and opinions contained in this document have been derived from sources believed to be reliable but no representation or warranty, expressed or implied, can be made as to their accuracy. All opinions expressed herein are subject to change without notice. This document is for information purposes only, and should not be construed as, an offer to buy or sell any securities. This Firm or persons associated with it may own or have a position in any securities or investment mentioned in this study, which position may change at any time, and may, from time to time, sell or buy such securities or investment. Member NASD and SIPC. First Call Corporation, a Thomson Financial company. All rights reserved. 888.558.2500 Note ID: 114373 ------------------------------------------------------------------------------ To update your order or to receive research on other companies, please call your Account Manager at (800) 262-6000. ------------------------------------------------------------------------------ Thomson Financial Investor Relations TEL: 800-262-6000 75 Wall Street, 18th Floor FAX: 212-363-3971 New York, NY 10005 EMAIL: firstcall.notes@tfn.com First Call is a registered trademark of the First Call Corporation
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