Subject: Just in case I go into labour - these are my current thoughts on El Paso
From: [email-masked]
To: [email-masked], [email-masked], [email-masked], [email-masked]
Cc: [email-masked], [email-masked]
Date: Tue, 8 May 2001 10:49:00 -0700 (PDT)

Prepared in contemplation of litigation -  Attorney Client Privilege

There appears to be no succinct way to write down my thoughts on where we are with El Paso but I'm going to try.  

Assumption:
Kilgore's objective:		Maintain PRM accounting treatment for the swap.
Outcome of lawsuit:	 	Game Over for Kilgore if his accountants disagree with the current PRM treatment and move it to debt thus affecting his 					ratios and revolver.

What do we want?
(i) 	To be certain of payment - how important is this really?  Pretty important - but what is this worth is cash terms.  We clearly are in a position 		whereby if El Paso evers transfers the contract to an entity which defaults on payment we are exposed.  However,  realistically what are the chances 	of them defaulting - very low and, would we win that in court - Yes.
(ii) 	To monetize the contract - secondary concern with a value to Enron of $15m.  There are potential ways that we could monetize the contracts 		without disclosing the contract - Joe is working on these.    If there is a way we can do this then our downside from this confidentiality issue is much 		smaller as it would cost us more to monetize (thereby bringing in less gain - probably not much of a difference) but can we get the asset off the book? 	We are pursuing how far we can get  in terms of 'true sale' treatment with V&E - they will give Joe a view on Wednesday.  There are potential other 		ways we can ensure this is off our credit.

If we sue them?  Loss of leverage.
We potentially open up the issue to a much wider audience and potentially affect Kilgore's accounting treatment - the one thing he wants.  So our leverage has disappeared as we are no longer able to maintain the one thing Kilgore is looking for.

Way Forward:
We should continue to pursue a commercial solution to the payment issue and monetize the contract through a secondary route.  If we complete monetization through another route then we are exposed to non-payment which could be perceived as very low risk (we have potentially a one year exposure on the back end based on six years statute of limitations).  If we cannot get a way forward on the monetization , then re-review the way forward. We are at risk of them suing us over the confidentiality breach and that would be in New York.  

Good Luck!

Prepared in contemplation of litigation -  Attorney Client Privilege