Enron Mail

From:mark.taylor@enron.com
To:sara.shackleton@enron.com
Subject:Alberta PPA Financing
Cc:
Bcc:
Date:Fri, 15 Sep 2000 11:14:00 -0700 (PDT)

----- Forwarded by Mark Taylor/HOU/ECT on 09/15/2000 06:14 PM -----

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