Message-ID: <17600174.1075853640978.JavaMail.evans@thyme> Date: Tue, 20 Mar 2001 12:26:00 -0800 (PST) From: peter.keohane@enron.com To: carol.clair@enron.com Subject: Re: Cash Collateral In Canada Cc: mark.taylor@enron.com, sara.shackleton@enron.com, mary.cook@enron.com, brent.hendry@enron.com, tana.jones@enron.com, robert.bruce@enron.com, anne.koehler@enron.com, cheryl.nelson@enron.com, francisco.leite@enron.com, frank.sayre@enron.com, susan.bailey@enron.com, samantha.boyd@enron.com, stephanie.panus@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: mark.taylor@enron.com, sara.shackleton@enron.com, mary.cook@enron.com, brent.hendry@enron.com, tana.jones@enron.com, robert.bruce@enron.com, anne.koehler@enron.com, cheryl.nelson@enron.com, francisco.leite@enron.com, frank.sayre@enron.com, susan.bailey@enron.com, samantha.boyd@enron.com, stephanie.panus@enron.com X-From: Peter Keohane X-To: Carol St Clair X-cc: Mark Taylor, Sara Shackleton, Mary Cook, Brent Hendry, Tana Jones, Robert Bruce, Anne C Koehler, Cheryl Nelson, Francisco Pinto Leite, Frank Sayre, Susan Bailey, Samantha Boyd, Stephanie Panus X-bcc: X-Folder: \Sara_Shackleton_Nov2001\Notes Folders\Carol stclair X-Origin: Shackleton-S X-FileName: sshackle.nsf I am not sure it solves matters. Stikemans opinion points out: 1. as I indicated this morning, "money" means actual currency - notes and coins - not funds transferred by wire into an account, which would likely be treated as an "intangible" resulting in the various requirements/concerns I pointed to this morning regarding perfection by registration; 2. although, in their view, the validity of the transfer approach would be recognized by a court (in Ontario at least), given that the intention of the Transfer Annex is to provide security for contingent obligations under the Master Agreement and the lack of relevant case law, there is a material risk that the Court would nonetheless characterize the transfer as a security interest subject to the requirements for perfection. With our present understanding, in the absence of any definitive case law, and without an unequivocal opinion we can rely on, I am not sure we can rely on the transfer approach to solve the problem, particularly with high volume counterparties who likely are going to create the largest exposures. Peter. Carol St Clair 03/20/2001 09:19 AM To: Peter Keohane/CAL/ECT@ECT cc: Mark Taylor/HOU/ECT@ECT, Sara Shackleton/HOU/ECT@ECT, Mary Cook/HOU/ECT@ECT, Brent Hendry/NA/Enron@Enron, Tana Jones/HOU/ECT@ECT, Robert Bruce/NA/Enron@Enron, Anne C Koehler/HOU/ECT@ECT, Cheryl Nelson/NA/Enron@Enron, Francisco Pinto Leite/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Frank Sayre/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Susan Bailey/HOU/ECT@ECT, Samantha Boyd/NA/Enron@Enron, Stephanie Panus/NA/Enron@Enron Subject: Re: Cash Collateral In Canada Peter: Thanks for responding and sorry about you having to repeat this again as I was not aware of your previous discussions. In Stikeman's November 2000 ISDA Collateral Opinion, they suggest as an alternative course of action to modify the Credit Support Annex to create a debtor/creditor relationship between the parties and to provide for an outright transfer of cash instead of a pledge. Do you have any thoughts on this? Is this an alternative that we should consider implementing with some of our more persistent high volume counterparties who are giving us a hard time about not being able to post cash collateral to us? Carol St. Clair EB 3889 713-853-3989 (Phone) 713-646-3393 (Fax) carol.st.clair@enron.com Peter Keohane 03/20/2001 09:58 AM To: Carol St Clair/HOU/ECT@ECT cc: Greg Johnston/CAL/ECT@ECT, Sara Shackleton/HOU/ECT@ECT, Mary Cook/HOU/ECT@ECT, Mark Taylor/HOU/ECT@ECT, Brent Hendry/NA/Enron@Enron, Chris Gaffney/TOR/ECT@ECT, Mark Powell/CAL/ECT@ECT, Sharon Crawford/CAL/ECT@ECT, Tana Jones/HOU/ECT@ECT Subject: Re: Cash Collateral In Canada In the past few weeks, I have discussed this issue with Brent H., Mark T. Chris G. and Mary C. Under the PPSA jurisdictions in Canada, which includes Alberta and Ontario among others, cash held on deposit as collateral is not clearly categorized as "money" but more likely an "account". Although certain categories of collateral can be perfected by possession, including "money", "intangibles", which includes "accounts", cannot be perfected by possession. The issue comes down to whether we will accept the risk that a wire transfer to an account designated by us constitutes "money". Although it is not clear, the better view is that "money" means cash in hand and not on deposit. The risk is that an unperfected security interest is subordinate to various parties, including a bankruptcy trustee and to subsequently taken but properly perfected security interests. I will admit, however, that this seems to be a risk that others in our market take (although likely unknowingly). Accordingly, to perfect the "account" a registration is likely required at the PPR, which is something we do not want to get into. Even then, as an "account" is an "intangible" certain conflicts rules for perfection by registration need to be considered, as the PPSA jurisdictions provide that perfection of an intangible is governed by the laws of the jurisdiction where the debtor is located, as determined by the location of its principal place of business or chief executive office. i.e. registration may be required in some other jurisdiction entirely. Further, an advance search would have to be done to see if there are competing prior registrations. Also, as the PPR is not a guaranteed title registry, registration priority does not necessarily guarantee security priority, and law firms will not typically give priority opinions under the PPSA. Lastly, if there is an insolvency and the deposit holding institution is also a creditor of the counterparty, there may be some argument that the deposit holding institution will assert rights of set off over the account. In terms of updating advice, the statutory provisions have not to my knowledge changed. I suppose there is some possibility that a court has recently determined that "money" includes deposits that we are not aware of, and I could ask outside counsel to research this issue. Peter. Carol St Clair 03/20/2001 07:45 AM To: Peter Keohane/CAL/ECT@ECT, Greg Johnston/CAL/ECT@ECT cc: Sara Shackleton/HOU/ECT@ECT, Mary Cook/HOU/ECT@ECT Subject: Cash Collateral In Canada Peter and Greg: One of our counterparties is questioning why we won't accept cash collateral in Canada. They claim that under the current state of the law, holding cash collateral is the method for perfecting. Please advise. Should we ask Stikeman to update their advice to us on this? Carol St. Clair EB 3889 713-853-3989 (Phone) 713-646-3393 (Fax) carol.st.clair@enron.com