Message-ID: <23114147.1075862188395.JavaMail.evans@thyme> Date: Tue, 6 Nov 2001 07:31:06 -0800 (PST) From: rick.buy@enron.com To: david.port@enron.com, s..bradford@enron.com Subject: FW: Question for Bank Meeting Today Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Buy, Rick X-To: Port, David , Bradford, William S. X-cc: X-bcc: X-Folder: \RBUY (Non-Privileged)\Buy, Rick\Sent Items X-Origin: Buy-R X-FileName: RBUY (Non-Privileged).pst I don't know that we have to cover all of this but we should meet today to get a start on this. Rick -----Original Message----- From: Wenz, Michelle Sent: Tuesday, November 06, 2001 9:19 AM To: Buy, Rick; Bradford, William S. Subject: Question for Bank Meeting Today Importance: High In preparation for Friday's Bank Conference, Cheryl Lipshutz and I are sitting with the banks right now and we understand that you are meeting with them at 2pm this afternoon. Here is a list of the initial questions they are posing to the RAC group: RAC 1. Does VAR analyses take care of the quality and predictability in regard to price risk management? (JP) 2. Is the risk control and deal approval process going to change? (B) 3. What percent of wholesale power and gas trading business does the top twenty counterparties represent? (B) 4. Has Enron been asked to raise the amount of collateral posted by any counterparties? What is the aggregate amount? (B) 5. How is the credit downgrades expected to affect Enron's margin requirements? How much extra cash will be needed in the immediate term to cover these requirements? What would the source be for this cash? (B) 6. What is the sensitivity analysis of the trading portfolios from a liquidity and margining requirement standpoint based upon i) two standard deviations in the relevant underlying commodity price both upward and downward, ii) a one notch credit downgrade by S&P, in addition to the action already taken by Moody's and Fitch, and iii) a combination of the two scenarios? (BNP) What is the availability of sufficient liquidity to accommodate such scenarios? (BNP) 7. Provide daily average, high and low VAR for 2000 and first quarter 2001 versus month-end values as provided in filings. (S) 8. How are VAR limits established? (S) 9. What are the various VAR limits and how often have they been exceeded in the last year? How and when would VAR limits be adjusted? (S) 10. What assumptions underlie VAR calculations? Does VAR include operational risk? (S) 11. Given Enron's VAR policy, will VAR grow as trading volumes increase? (S) 12. Why is Enron's VAR higher than other traders, including merchant banks? (S) 13. What risk information is distributed? How timely is the information? (S) 14. What financial measures does the company consider important in tracking the success of its trading business? (S) 15. How is the VAR model validated? Is the model backtested? If so, is it a theoretical backtest where positions are held fixed or an actual backtest where actual P&L is compared to the estimated VAR? How many times last year did the back tested value exceed the VAR? (S) 16. What is the model vetting process? Who is responsible for validating traders' models? What is the time lag between front office development of a model and validation? Are there any products that use unvalidated models for trading purposes or P&L? (S) 17. How does the company ensure that traders use appropriate marks when marking to market? (S) 18. Who monitors limits? (S) 19. How frequently is the trading operation audited by internal and external auditors? (S) 20. Is there a formal stress test that estimates the impact of a credit downgrade? What is the qualitative assessment of such an event? (S) 21. What is the current and year end expected counterparty exposure? Gross or net of collateral? (S) 22. What is the investment/non-investment grade counterparty exposure split for 2000 and first quarter 2001? (S) 23. What percentage of investment grade counterparty credit risk is BBB+ or below? (S) 24. How often does Enron review the credit rating of counterparties? (S) 25. What is the breakdown of liabilities from price risk management activities? (H) 26. Which companies are Enron's largest trading partners (share in trading turnover)? (H) 27. What is the total dollar amount Enron would have to post if i) downgraded to BBB- by S&P/Moody's, or ii) downgraded to non-investment grade by S&P/Moody's if called on all trading collateral accounts? (B) 28. Does Enron guarantee the obligations of the trading subsidiaries? (S&P) Michelle Wenz Enron Global Finance 713-853-0920 michelle.wenz@enron.com