Message-ID: <27933644.1075844461296.JavaMail.evans@thyme>
Date: Thu, 22 Jul 1999 04:24:00 -0700 (PDT)
From: mark.taylor@enron.com
To: rod.nelson@enron.com, sara.shackleton@enron.com, shari.stack@enron.com
Subject: Independent Amounts
Cc: tanya.rohauer@enron.com, susan.bailey@enron.com, susan.flynn@enron.com, 
	marie.heard@enron.com, tana.jones@enron.com, carol.clair@enron.com, 
	justin.boyd@enron.com, mark.elliott@enron.com, paul.simons@enron.com
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I've gone back through the ISDA Credit Support Annex and the "green book" and 
my conclusion is that unless we modify the standard form, we have to give an 
Independent Amount back to the counterparty when we go out of the money far 
enough (note that the definition of Exposure results in a negative number 
when we are out of the money reducing the Credit Support Amount below the 
Independent Amount).  The theory there is that as the market moves against 
us, we are cushioned by our "out-of-the-moneyness" and will be able to ask 
for support as the market moves back in our favor before we are actually in 
the money.  I'm afraid that Credit has been operating under the assumption 
that we get to keep Independent Amounts until the Transaction terminates.  We 
need to set up a system with Credit so we all know what is meant on the 
credit work sheets -- i.e. whether a cushion or up-front amount should be 
given back to the counterparty as we go out of the money or not (maybe the 
paralegals can suggest something?).  I suggest we add the following language 
(taken from the green book) when we are using Paragraph 13 and Credit tells 
us they don't want to have to give the cushion amount back, no matter how far 
we go out of the money:

 "Credit Support Amount" will mean the higher of (i) the amount calculated as 
provided in the definition of that
  term in Paragraph 3(b) and (ii) the sum of the Pledgor's Independent 
Amounts.

I will modify the Force Energy document to include it and, unless you would 
like to suggest alternative language, ask Tana to add it to our list of 
alternatives for Paragraph 13.