Message-ID: <32889859.1075862275370.JavaMail.evans@thyme> Date: Wed, 31 Oct 2001 13:28:05 -0800 (PST) From: rod.hayslett@enron.com To: jerry.peters@enron.com, james.saunders@enron.com, e..sommers@enron.com, a..lindholm@enron.com, michael.anderson@enron.com, jim.piro@enron.com, keith.marlow@enron.com Subject: FW: E-Notes: Risk Considerations for Enron Counterparties: Failure to Exercise Rights May Constitute Waiver Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Hayslett, Rod X-To: Peters, Jerry , Saunders, James , Sommers, Jeffrey E. , Lindholm, Tod A. , Anderson, Michael , Piro, Jim , Marlow, Keith X-cc: X-bcc: X-Folder: \RHAYSLE (Non-Privileged)\Hayslett, Rod\Sent Items X-Origin: Hayslett-R X-FileName: RHAYSLE (Non-Privileged).pst 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 Areas/nabfmp/energy/!viewme.htm> . > > >