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Enron Mail |
Clem called wanting to speak to someone about the guaranty issue. Who should
I direct him to? ----- Forwarded by Tana Jones/HOU/ECT on 09/18/2000 09:08 AM ----- Peter Keohane Sent by: Sharon Crawford 09/15/2000 05:39 PM To: Soma Ghosh/HOU/ECT@ECT, Mark Taylor/HOU/ECT@ECT, Clement Abrams/Corp/Enron@ENRON, Derek Davies/CAL/ECT@ECT, Andre Templeman/CAL/ECT@ECT, Tana Jones/HOU/ECT@ECT cc: dpef@blakes.com Subject: Alberta PPA Financing I thought I might try to sum up. It seems to me that we both need to finalize the structure as well as co-ordinate across various groups such that we all know what each is doing with the view to funding on time by the end of next week. 1. As soon as possible next week (i.e. Monday) we need to finalize the swap structure including the credit and covenant package. 2. If there is not already a Term Sheet in place, it may be useful to have one prepared. Frankly, it seems from my various discussions with Global Finance, Credit, Origination, Enron Corp., Royal Bank of Canada and its external counsel and our external counsel, that there are certain agreements, documents, deliverables and covenants that are being expected by, or exchanged between, the parties, but which are not being communicated among each other and we are therefore working at cross purposes. Frankly, unless and until we know what the structure is to look like, what the credit and financial covenants are to look like, and what the documentation expectations are, it is difficult if not impossible to prepare documentation. For example: (a) I had a confusing conversation with the Bank as to the form of Guarantee they were expecting from Enron Corp. I was trying to require the Bank to accept an Enron Corp. standard form Guarantee, whereas the Bank was looking for a long form Guarantee that includes the covenants, representations and warranties of Enron Corp. in its revolving credit facilities. Based upon this disagreement, I left a message for Clement to the effect that we may have a problem to resolve. However, Clement was kind enough to advise me by voice mail that in fact Enron Corp. does not have a problem with giving a long form Guarantee of this nature and that the form of Guarantee had in fact been provided (by whom I'm not sure) to the Bank. (b) The Bank was enquiring as to what would be the governing law of the Enron Corp. Guarantee, to which I advised it would be Texas law. However, I now understand there may be some agreement (by whom I'm not sure) to have the Enron Corp. Guarantee governed by New York law. © In any event, I understand that the Bank will be looking for a form of enforceability opinion from Enron Corp.'s outside legal counsel with respect to the authorization, execution, delivery and enforceability of the Enron Corp. Guarantee, as well as certain conflicts of laws opinions with respect to the governing law of the Guarantee (Texas/New York) being enforceable. (d) In my discussions with the Bank this afternoon, it also became aware to me that the Bank is expecting external counsel legal opinions with respect to Enron Canada. Blake, Cassels & Graydon is prepared to provide those legal opinions. (e) As noted above, I have discussed with the Bank that the governing law of the underlying swap documents would be Alberta, to which they seemed fine. I suggested that Ontario law would also be acceptable. (f) I assume that Enron Canada ought to obtain legal opinions from the Bank's external counsel with respect to the documents and obligations of Swapco (and perhaps even the Bank), but I will need to have this confirmed. (g) It came to my attention during my conversations with the Bank this afternoon that Swapco (or financing SPV) is unaffiliated to the Bank. This presents problems as, I understand for accounting purposes, the two swaps involving Enron Canada cannot be linked, for example by cross-defaults. At the same time unaffiliated exposures under de-linked transactions may not be capable of being set-off. We undertook to attempt to remedy this situation through broadening the set-off concepts under the ISDA Master Agreements. (h) I do not think the Bank frankly (nor anyone else) has a firm grasp on the credit/collateralization/margin requirements, which I think is dependent upon a final understanding of the swap structure. (i) From my discussions with the Bank, it seemed to me that they were not clear as to how their fees and costs would be repaid through the swap structure. Although it might be as simple as adding these amounts to the principal amount of the swaps, I suggested that the Bank prepare a separate "fee letter" to recover its fees. More problematically, the Bank was not clear as to how "increased costs" would be accounted for in the swap structure. Generally speaking, a Bank credit agreement contains provisions that if there are increased costs of funding to the Bank as a result of a change in Bank regulations or lending or reserve requirements, those increased costs are flowed through. They were not sure how this could be accommodated in a swap structure. I suggested that there may be some way to fix this through a price adjustment mechanism in the fixed price or volumes or through a separate indemnification in the "fee letter". (j) The Bank is anxious to see paper, and I am not sure who is preparing the paper and consolidating it in a distribution package to the Bank. For example, I think a package that includes all of the swap Master Agreements and related documentation (which I believe Mark T's group will prepare in Houston), the Enron Corp. Guarantee (which I've indicated above seems to have already been provided in draft to the Bank) and all other documentation needs to be sent to the Bank as soon as possible, as well as to Blake, Cassels & Graydon and Vinson and Elkins if they are to be giving legal opinions to the Bank in connection with the transaction. Of course this depends on finalization of the structure as well as the credit and other covenants package. In concept, I have told the Bank, and I believe the Bank agrees, that the form of the ISDA Master and related documentation would be the same as the form of ISDA Master which currently exists between ENA and Royal Bank of Canada, and the Bank asked that they at least be provided with that paper as soon as possible. Perhaps Tana could look after delivering that as soon as possible, if not this afternoon, Monday morning. Frankly, I think this project, if it is to get funded on time, needs a measure of co-ordination and communication of internal and external expectations. It may be worthwhile to convene a conference call with all relevant groups (i.e. Legal/Global Finance/Credit/Origination) on Monday morning. Regards, Peter
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