FW: E-Notes: Risk Considerations for Enron Counterparties:

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FYI

-----Original Message-----
From: Zimmer, Michael J [mailto:Michael.J.Zimmer@BAKERNET.com]
Sent: Wednesday, October 31, 2001 3:22 PM
Subject: E-Notes: Risk Considerations for Enron Counterparties: Failure
to Exercise Rights May Constitute Waiver

< <<...OLE_Obj...<<
< E-Notes provides regular briefings on new developments in global energy
< and public utility law.
<
< October 31, 2001
<
< RISK CONSIDERATIONS FOR ENRON COUNTERPARTIES:
< FAILURE TO EXERCISE RIGHTS MAY CONSTITUTE WAIVER
<
<
< The reduction by Moody's Investor Service Inc. of Enron Corp.'s
< senior unsecured long-term debt to Baa2 from Baa1 this week may be an
< issue of concern for companies that are counterparts to Enron obligations.
< This downgrade may have immediate consequences under existing transactions
< with Enron given that its current credit rating is now two levels above
< non-investment grade. Any further downgrade into non-investment grade
< levels could seriously affect relationships between counterparties and
< Enron, and possibly Enron counterparties and their counterparties.
<
< Enron is the principal in nearly one-quarter of all electricity and
< natural gas trades in the United States. For Enron's power and gas
< trading counterparties, a credit event such as a downgrade by Moody's may
< precipitate certain obligations under the terms of their trading
< transactions. For example, any downgrade, not just a downgrade resulting
< in a sub-investment grade rating, may entitle a counterparty to require
< Enron to provide additional credit in support of Enron's purchase
< obligations. Counterparties should examine all power, gas or other
< commodity purchase and sale documentation to confirm whether they possess
< this right. The failure to exercise this right may constitute a waiver
< and foreclose access to critical performance and payment assurance,
< threatening to alter the risk assessment and mitigation considerations
< upon which the transactions were originally based. Furthermore, a failure
< to declare a credit event or default against Enron could cause a default
< on the part of the counterparty itself in collateral or ancillary
< arrangements, such as its financing. The potential for a domino effect,
< causing defaults or credit events in a series of transactions, is
< considerable.
<
< It is uncertain whether Enron's efforts to obtain new lines of
< credit will be sufficient to overcome the current difficulties.
< Regardless, it is prudent to review the terms of existing transactions
< with Enron or its affiliates, including any guarantees or other forms of
< corporate credit support. It is also advisable to examine the terms of
< transactions dependent on, or otherwise ancillary to, transactions with
< Enron or its affiliates to avoid any consequential effects of the Enron
< credit ratings downgrade.
<
< For further information on how Enron's current financial situation
< could impact your firm's transaction risk profile, please contact Michael
< Zimmer at 202.452.7055 or michael.j.zimmer@bakernet.com, Jonathan W.
< Gottlieb at 202.452.7084 or jonathan.w.gottlieb@bakernet.com or Samir
< Desai at 202.452.7057 or samir.s.desai@bakernet.com .
<
< Michael J. Zimmer
< Jonathan W. Gottlieb
< Samir S. Desai
<
<
<
<
< __________________________________________________________________________
< __
< E-Notes is a publication of Baker & McKenzie. It does not constitute
< legal advice or a legal opinion on any specific facts or circumstances.
< The contents are intended as general information only. You are urged to
< consult your attorney concerning your situation and specific legal
< questions you may have. For further information on the subjects discussed
< in E-Notes, contact Michael J. Zimmer,
< mailto:michael.j.zimmer@bakernet.com or
< Jonathan W. Gottlieb, mailto:jonathan.w.gottlieb@bakernet.com.
<
< For more information about BAKER & McKENZIE and our global energy and
< utility practice, click on our electronic business card:
< <<...OLE_Obj...<<
<
< or visit our website at <http://www.bakerinfo.com/Practice
< Areas/nabfmp/energy/!viewme.htm< .
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