Message-ID: <32776079.1075840815288.JavaMail.evans@thyme> Date: Fri, 5 Oct 2001 15:17:33 -0700 (PDT) From: joseph.deffner@enron.com To: louise.kitchen@enron.com, david.duran@enron.com, christina.sherman@enron.com, wes.colwell@enron.com Subject: ECP Swaps Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Deffner, Joseph X-To: Kitchen, Louise , Duran, W. David , Sherman, Christina , Colwell, Wes X-cc: X-bcc: X-Folder: \ExMerge - Kitchen, Louise\'Americas\East Power X-Origin: KITCHEN-L X-FileName: louise kitchen 2-7-02.pst I've spoken with Pushkar regarding the ECP interest rate hedges. There were two sets of hedges put in place. Notional value of $32.68mm executed 5/16/2000 and $350mm on 3/15/2001. I have asked Pushkar to research the cash flows he hedged to determine how those tranche sizes came about. The Fair Value of Enron's equity and sub debt (net of the $30mm Merlin piece) per the DASH of December 7, 2000 indicated a value at that time of $360mm. Additionally, the DASH assumed further gain in the base case of approximately $8mm suggesting there might have been $368mm of value to hedge. Because the generic five year Treasury yields also declined from 5.262% on Dec 7 (DASH date) to 4.508% by March 15 (closing/hedging date), the value of the El Paso fixed cash flow stream would have increased in value above $368mm (perhaps to the $380mm range - that's what I've asked Pushkar to check), it would seem to indicate that the original hedges were rolled into the subsequent hedges to represent the value of the entire transaction at final closing. In that case, the original Linden 6 hedges would not be open positions at all but rather a part of the hedging strategy that was required at closing per the executed DASH. Pushkar has indicated he will look into his files to ascertain how the hedges were sized. Assuming the above accurately portrays what occurred, it would appear the transaction steps at execution followed the DASH requirements. I will followup as early as possible next week. Joe