Subject: Re: Cash Collateral
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]
Date: Tue, 3 Apr 2001 04:27:00 -0700 (PDT)

Mark, I wanted to get back to you on your questions and also give a little 
more detail of the analysis.  As you know, we have issues in Canada about 
taking cash collateral, which issues have been clearly identified and 
communicated by Peter previously (see his e-mails of March 20, 2001).  
However, as opposed to cash, it appears clear under our personal property 
registration legislation that a certified cheque and a bank draft would fall 
under the definition of "instruments".  Under such legislation, as Peter has 
indicated below, a security interest in "instruments" can be perfected by 
possession, thus eliminating the need to register the security interest at 
the personal property registry, which requirement to register creates the 
perfection and priority concerns we have with holding cash collateral.  
Therefore, at first blush, it seems that a counterparty providing a certified 
cheque or bank draft to us (in lieu of cash collateral or a letter of 
credit), which certified cheque or bank draft would be held by us in the same 
manner as we hold L/Cs, might solve our cash collateral concerns and make 
another credit instrument available to us for use in Canada.

There are a few concerns, which I think are raised by your questions.  The 
first is that, if we take the instrument and immediately convert it to cash 
and place the cash in an account, we run into the exact same issues as we 
have with taking cash collateral in the first place.  The personal property 
security legislation specifically indicates that proceeds realized from 
dealing with the original collateral need to be perfected in the same manner 
as original collateral of the same kind (ie. where the proceeds from the bank 
draft are cash, we need to then perfect our security interest in the cash as 
if the original collateral was cash, meaning we have the exact same issues as 
we currently have with perfecting a security interest in cash collateral).  
Therefore, we would need to deal with the instrument (bank draft or certified 
cheque) in the same manner as we deal with L/Cs.  That is, we would cash the 
instrument in payment of outstanding accounts at the time that we become 
entitled under the contract to apply our collateral against amounts owing to 
us from the counterparty.  We would have to actually hold the certified 
cheque or bank draft until such entitlement arose.

The requirement to hold the bank draft or certified cheque for a potentially 
extended period of time raises another concern about how long such an 
instrument can remain outstanding before it becomes "stale dated" and thus 
undrawable.  In other words, it may well be that a bank will only allow such 
instruments to be drawable if they are presented for payment within a 
reasonable time of their issuance.  This is one point that would require 
further research if we are going to consider utlizing such instruments as 
collateral, since the answer could obviously make the use of such instruments 
a solution for only very short term transactions, if at all.

The final point I would make is also raised by your second question below.  
My understanding is that the law in Canada has been somewhat grey in the past 
with respect to whether a person who issues a certified cheque (or the bank 
on which the certified cheque is drawn) can stop payment on such a cheque 
after it has been issued.  I believe that there may have been some recent 
Ontario decisions indicating that a cheque, once certified, must be honoured 
upon presentment and if the bank upon which the certified cheque is drawn 
refuses to pay, it will be liable for the amount.  However, we would need to 
look into this point further, as any risk that a certified cheque can be 
withdrawn by the payor at any time after it has been issued obviously 
eliminates the benefit of the collateral.  I do not believe that the same 
concern exists for a bank draft, as I believe it represents a fully funded 
obligation of the bank to pay, which is irrevocable.

If we wish to consider using such instruments as an alternate form of 
collateral, I would suggest that we have such use vetted by outside counsel 
and obtain an opinion as to the viability and risks associated with such 
use.  Since Stikeman Elliott provided our opinion with respect to cash 
collateral, I would suggest that we use them to provide the advice on these 
points as well.  Please let me know if you would like me to instruct outside 
counsel to proceed.

Thanks
Greg

From: Mark Taylor on 04/03/2001 09:05 AM CDT
To: Peter Keohane/CAL/ECT@ECT
cc: Brent Hendry/NA/Enron@Enron, Carol St Clair/HOU/ECT@ECT, Chris 
Gaffney/TOR/ECT@ECT, Greg Johnston/CAL/ECT@ECT, Mark Powell/CAL/ECT@ECT, Mary 
Cook/HOU/ECT@ECT, Russell Diamond/Enron@EnronXGate, Sara 
Shackleton/HOU/ECT@ECT, Tana Jones/HOU/ECT@ECT, Tanya 
Rohauer/Enron@EnronXGate, William  S Bradford/Enron@EnronXGate 
Subject: Re: Cash Collateral  

Sounds like a great idea.  a couple of questions:
Can we convert the draft into cash and still maintain our security interest?  
If not, can we get the bank to somehow guarantee that the funds will be there 
- in the US that would require either certification by the bank of the 
customer's draft or the issuance of an actual bank or cashier's check.

	Peter Keohane
	04/02/2001 07:02 PM
		 
		 To: Mark Taylor/HOU/ECT@ECT, Sara Shackleton/HOU/ECT@ECT, Brent 
Hendry/NA/Enron@Enron, Mary Cook/HOU/ECT@ECT, Carol St Clair/HOU/ECT@ECT, 
Tana Jones/HOU/ECT@ECT, William S Bradford/HOU/ECT, Russell Diamond/HOU/ECT, 
Tanya Rohauer/HOU/ECT
		 cc: Greg Johnston/CAL/ECT@ECT, Mark Powell/CAL/ECT@ECT, Chris 
Gaffney/TOR/ECT@ECT
		 Subject: Cash Collateral

Greg Johnston may have a solution to the limitation on Canadian cash 
collateral.  Without getting into detail, a security interest in an 
"instrument" can be perfected by possession under the Personal Property 
Security Act, and an "instrument" includes a bank draft.  If counterparties 
were to provide bank drafts on the same terms as they provide LCs we could 
rely on perfection by possession.  Is this something we should investigate 
further?  Peter.