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Enron Mail |
I think you pose an interesting legal issue. I believe there is caselaw on
this in the states. We have a variation on this in some agreements in that if exposure exceeds x, then collateral must be posted. I will be interested in the responses you get. Regards, Mark Peter Keohane Sent by: Sharon Crawford 11/07/2000 04:17 PM To: Mark E Haedicke/HOU/ECT@ECT cc: Mark Taylor/HOU/ECT@ECT, Jeffrey T Hodge/HOU/ECT@ECT, Chris Gaffney/TOR/ECT@ECT, Greg Johnston/CAL/ECT@ECT, Mark Powell/CAL/ECT@ECT, Rob Milnthorp/CAL/ECT@ECT, mhb@blakes.com Subject: Security under Master Agreements Mark, Rob Milnthorp has asked me to consider whether there is an artful way under our Master Agreements that upon certain occurrences we could elevate our exposure from unsecured to secured, particularly in circumstances where, for whatever reason, we have not received letters of credit or other collateral. My thought is to insert a clause in our Master Agreements in the nature of a "floating charge". The problem with this concept is that it may be resisted within the industry. For example, certain counterparties, i.e. a financial institution or a near-financial institution, such as a bank, a brokerage, a trading institution, etc., would not likely be willing to provide us with security over their assets. In general, counterparties will also have concerns with granting security over their assets, particularly as that security may have restricting consequences for their treasury/banking relationships and covenants, and/or on their ability to conduct business, including disposing of assets which may then require our consent. In addition, it would likely be necessary to introduce this concept on a bilateral basis, such that it would also be binding on us in similar circumstances. (Counterparties could go so far as requiring this concept in our Enron Corp. guarantees.) For example, in the natural gas business in Canada at least, older form marketing agreements and agreements used by gas aggregators with gas producers used "reserved dedication" covenants, whereby reserves were dedicated to a particular contract. These covenants did not, however, create security, to avoid the complicating issues addressed above. To the extent that the reserves were not available, the marketer/aggregator could have a claim, on an unsecured basis, for breach of covenant, but was not in a secured position. I do not believe we want to go to this type of concept. However, we may be able to think of some creative way whereby the counterparty is free to deal with us (and we are free to deal with them) on an unsecured basis, subject to our standard collateralization requirements, but also provide that upon the occurrence of a particularly serious event, such as a Material Adverse Change, a Triggering Event, an Event of Default, etc., the security automatically takes place. We would need to consider whether such a "prospective" security interest could be made to work and be enforceable. I have discussed this concept on a preliminary basis with Rob Milnthorp and Mungo Hardwicke-Brown of the Blake firm to see if we could create a relatively simple clause to be inserted into our Master Agreements which artfully deals with this issue. In essence, the idea would be to get ourselves in a position of being one step ahead of all of the unsecured creditors in the event there is an insolvency. Would you please let me know whether you think this is a worthwhile project or whether we have considered such a thing in the past in Houston. As noted above, the clause would have to be one that could be "sold" to counterparties and be acceptable to us on a bilateral basis (and that may well not be possible). If you believe that it is a worthwhile project, I will continue to work with Mungo Hardwicke-Brown to see if we can come up with something. If you do not believe that it is a worthwhile project or have considered this idea in the past and found it to be unworkable, please let me know, and we will not work on it further. Regards, Peter
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