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Enron Mail |
There was an error in the distribution process in the previous memo which
caused parts of the text to be omitted . The following is the correct message. The memo below is from our legal group pointing out some lessons we learned from our restructure experiences last year. We fully support the conclusions stated in the memo and hope that we can learn from these experiences to improve our approach to new transactions. TO: Cliff Baxter DATE: March 29, 2000 FROM: Mark Haedicke Julia Heintz Murray Lisa Mellencamp RE: Lessons Learned in the Restructure Group Establish Benchmarks. Establish benchmarks for terms and conditions expected in debt and security instruments to ensure standard and adequate lender protections in the downside case. The use of non-standard terms and conditions negotiated into our documents has made it more difficult to act quickly, has increased the legal time and expense involved, has affected the liquidity of our investments in the distressed market and has opened the door to disagreements with respect to interpretation of provisions in the documents. Non-standard terms and conditions give the other side room to argue, where more standard provisions, with more standard and universal interpretations, would not. Approval Process. Make certain that the approval process highlights and justifies deviations from the benchmarks, allows for an examination of the pricing of the transaction based on any increased risk as a result of those deviations and evaluates any increased legal risk in the downside case. Hold Firm in Negotiations. Be tougher in our negotiations of the transaction documents after the basic business deal is cut. We start with a number of provisions that get negotiated out when we could hold firm and obtain what we need and want. Deviations from the approved deal should go back through the system. Evaluate for Downside Case. Evaluate our documents carefully for the downside case and price for what controls and options we will have. What can we do if things go south? See if additional protections or leverage can be built into the documentation. For example, a second lien position gives leverage in the downside case. Also, we should look at preferred equity positions with debt-like features. Prompt Exercise of Remedies. Be prepared to exercise our remedies quickly and to actually do it. In certain instances verbal waivers have been granted without going through any approval process. Also, we have given waivers too easily in some instances which has resulted in other creditors and investors receiving more favorable treatment. Use of Directors. Consider carefully the use of Enron employees as directors. In some instances having Enron employees as directors on boards of companies in which Enron has invested as an equity owner and/or has provided financing has hampered our ability to trade our investments and to take certain actions that might be in our interest but not the company's interest. Trading Contracts. Limit the instances when we grant security interests in our trading contracts or contractually tie up in any way our ability to terminate our trading contracts. If we do, evaluate carefully the language used and have the trading experts involved. Evaluate carefully the hedging strategies employed by the companies in which we invest. Reevaluate the use of master netting agreements. Use of Proceeds. Establish tighter use of proceeds provisions. If we are making a significant investment, we need to make sure that the funds are used for the designated purposes. Consider in some instances parceling out the dollars as certain hurdles are met. Proforma Compliance Certificates. Eliminate disputes about financial covenant interpretations and calculations by having proforma compliance certificates required as a condition to closing and having the business people work through the calculations prior to closing, not after a dispute has arisen. Evaluate Distressed Investments. Evaluate all the components of our distressed investments as a package to see what is in the best interests of Enron as a whole and to coordinate strategies. Pricing. Evaluate carefully the proposed pricing of a transaction. Are we being adequately paid for our risk? If the deal does not conform to our benchmarks, are we being paid for the deviations?
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