Subject: Re: Cash Collateral In Canada
From: [email-masked]
To: [email-masked]
Cc: [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked], [email-masked]
Date: Tue, 20 Mar 2001 12:26:00 -0800 (PST)

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)
[email-masked]

	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)
[email-masked]