Message-ID: <7607828.1075857289791.JavaMail.evans@thyme>
Date: Thu, 2 Mar 2000 06:48:00 -0800 (PST)
From: donald.black@enron.com
To: carl.livermore@enron.com, yvan.chaxel@enron.com, grant.masson@enron.com, 
	alex.huang@enron.com
Subject: Continued TECO/Mosbacher Delmarva project analysis
Cc: scott.healy@enron.com, mike.miller@enron.com, benjamin.rogers@enron.com, 
	jinsung.myung@enron.com
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Team,

We need to push forward on the next phase of the pricing model.  I sense that 
we have lost some momentum so we need to pick it back up.

Enron needs to shed some of the risk of this deal in order to be able to do 
more of them.  I think the insurance market is a great platform to accomplish 
this.  I think our success potential is high as long as Enron is in a first 
loss position and pro-rata loss for the balance.  However, I am not confident 
that the insurance industry will be able to work up a meaningful offer.  My 
solution is to calculate a bid for their services.

The loss I am trying to protect is associated with a bankruptcy process where 
Enron seeks to gain control of the underlying asset and/or its liquidation.  
I propose that the trigger for an insurance pay-out would be the sale of the 
underlying project to a third party in a liquidation scenario for the benefit 
of creditors (i.e. EPMI).

I would like to price a structure where EPMI takes the first $50/kw of Loss 
and 10% of the balance.  Loss will be defined as Par amount of debt 
outstanding plus Net Amounts owed EPMI less sale proceeds from plant.  Net 
Amounts owed EPMI will include the net amount of MTM and accrued index 
payments owed EPMI under both the Financial Buy and Financial Sell contracts 
as of the date of sale.  For purposes of this analysis lets assume initially 
that Net Amounts are $0.

One way to price this product would be as a put option of 90% (100% - 10%) of 
the MW of the plant at a price equal to par amount of debt less $50/kw.  I am 
open to other ideas.

I expect results to be presented in the form of reduction of the put premium 
( equity's option to put plant to EPMI) that we have been calculating to date.

It is also essential that we update the pricing models to reflect different 
start and end dates and different strike price calls for each year.

regards,

Don
3-4750