Subject: Re: Eastern
From: [email-masked]
To: [email-masked]
Cc: [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked]
Date: Tue, 7 Mar 2000 10:40:00 -0800 (PST)

Unless we can model the protection in some form we will not know what our 
true exposure is.  So I need our team reassessing how we can
model the benefit of the credit proctection.  Please keep working on this.

John

Soma Ghosh
07/03/2000 17:57
To: John Sherriff/LON/ECT@ECT
cc: William S Bradford/HOU/ECT@ECT, Tanya Rohauer/HOU/ECT@ECT, Vasant 
Shanbhogue/HOU/ECT@ECT, Bryan Seyfried/LON/ECT@ECT 

Subject: Re: Eastern  

John,

We are currently not modelling the effect of insurance on Eastern on an 
individual  risk basis. I have spoken at length with Houston Research & 
Credit Risk Management on this & whilst we can look at the effect of 
protection on the portfolio, there appears to be no viable way of modelling 
protection on a name by name basis; Given that the portfolio of risk is 
dynamic, specific allocation of protection is not appropriate. As I mentioned 
in my earlier message there is $135mm cap on any one loss, assuming no losses 
have occured prior to that.

I am happy to discuss this further with you if required.  

Bill, I'd appreciate any comments you may have re. the above.

Regards,

Soma

John Sherriff
06/03/2000 15:06
To: Soma Ghosh/LON/ECT@ECT, Bryan Seyfried/LON/ECT@ECT, Mariano 
Gentilini/LON/ECT@ECT
cc:  

Subject: Re: Eastern  

Soma

How are we modeling the affect of the insurance packages on the Eastern deal?

John

Soma Ghosh
06/03/2000 11:53
To: John Sherriff/LON/ECT@ECT
cc:  

Subject: Re: Eastern  

The protection is not a fixed allocation of protection to individual 
counterparties but covers the global portfolio of risk. Enron has in place 3 
tranches of credit insurance covering up to $135mm per event. Whilst the 
insurance is not counterparty specific, it would be available for credit loss 
on Eastern provided that losses had not been incurred prior to an Eastern 
loss. I have already discussed with Houston Credit Risk Management & Research 
the possibility of allocation of risk protection on a name basis; at this 
point in time there has been no resolution in finding an appropriate way to 
allocate protection by name.

Summary of insurance:
Enron absorbs the first $10mm of losses in any one year capped at the 
aggregate of $30mm over a ten year period.
AEGIS absorbs the next $35mm of losses for the same ten year period. 
Chubb will pick up the next $50mm losses for any single event and $100mm in 
losses in the aggregate for 5 years
RSA takes the next $50mm for losses in excess of $95mm over a five year 
period & covers the top 9 counterparties by exposure

Regards,

Soma

John Sherriff
03/03/2000 18:16
To: Soma Ghosh/LON/ECT@ECT
cc:  

Subject: Re: Eastern  

Soma

How does the company's credit insurance (done by Houston last year) affect 
this exposure?

John

Soma Ghosh
03/03/2000 16:24
To: John Sherriff/LON/ECT@ECT
cc: David Weekes/LON/ECT@ECT, Steve W Young/LON/ECT@ECT, Barry 
Pearce/LON/ECT@ECT, Fernley Dyson/LON/ECT@ECT, William S 
Bradford/HOU/ECT@ECT, Rick Buy/HOU/ECT@ECT, Oliver Gaylard/LON/ECT@ECT 

Subject: Re: Eastern

Please note that Total Exposure $ number is $979.8mm NOT $783.2mm.

Apologies,

Soma
---------------------- Forwarded by Soma Ghosh/LON/ECT on 03/03/2000 16:22 
---------------------------

Soma Ghosh
03/03/2000 16:17
To: John Sherriff/LON/ECT@ECT
cc: David Weekes/LON/ECT@ECT, Steve W Young/LON/ECT@ECT, Barry 
Pearce/LON/ECT@ECT, Fernley Dyson/LON/ECT@ECT, William S 
Bradford/HOU/ECT@ECT, Rick Buy/HOU/ECT@ECT, Oliver Gaylard/LON/ECT@ECT 

Subject: Re: Eastern  

John, as requested:

Total exposure as at 29 Feb 2000:    o620.9mm ($783.2mm)
Eurocash I monetezation:    -o124.7mm (-$196.1mm)
Less credit derivatives:         o40.0mm ($63.1mm)
Total Net Exposure as at 29 Feb 2000:  o456.2mm ($713.9mm) 
Net  month on month increase:    o125.4mm ($197.9mm)

Total Value of Eastern Group Guarantee:  o520mm ($820.6mm)
Amount backed by TXU:    Zero

As well as the increase in overall exposure, please note the change in shape 
of the exposure month on month most notably credit exposure now peaking at 
the front end of the transaction (ex credit derivs. the max exposure is at 
day 1), compare to max. exp. at Feb 2005  for month end Jan.. 
Shape of profile & increase in MtM primarily due to:
 - Power curve downward shift at front end yrs 0-11
 - Power curve upward shift at back end yrs 12-18
 - Gas curve upward shift yrs 1-5.