Message-ID: <28503094.1075844574612.JavaMail.evans@thyme> Date: Wed, 8 Nov 2000 01:48:00 -0800 (PST) From: sara.shackleton@enron.com To: jane.mcbride@enron.com Subject: Re: IBJ ISDA MASTER AGREEMENT - 1. Credit matrix and 2. Threshold amount Cc: john.suttle@enron.com, alan.aronowitz@enron.com, mark.taylor@enron.com, john.viverito@enron.com, jonathan.whitehead@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: john.suttle@enron.com, alan.aronowitz@enron.com, mark.taylor@enron.com, john.viverito@enron.com, jonathan.whitehead@enron.com X-From: Sara Shackleton X-To: Jane McBride X-cc: John Suttle, Alan Aronowitz, Mark Taylor, John Viverito, Jonathan Whitehead X-bcc: X-Folder: \Sara_Shackleton_Dec2000_June2001_1\Notes Folders\Sent X-Origin: SHACKLETON-S X-FileName: sshackle.nsf Jane: If you have time in the morning (Nov. 9 Tokyo), I would like to discuss ENA's view of the CSA/Schedule relationship. In a nutshell, we provide that a ratings downgrade is an Additional Event of Default in the Schedule (normally a MAC in the CSA). John's preferance, of course, would be a unilateral event triggering an IBJ default (which I am sure would be difficult to negotiate). I am not certain of the time difference but perhaps you could call me at the office after 4 pm (Nov.8 in Houston) and I could then conference in John. Alternatively, please feel free to contact me at home (after 7 pm Houston time on Nov. 8) at 713-664-3207. I look forward to hearing from you. Regards. Sara Jane McBride@ENRON 11/07/2000 04:03 AM To: John Suttle/HOU/ECT@ECT, Alan Aronowitz/HOU/ECT@ECT cc: John Viverito/Corp/Enron@Enron, Jonathan Whitehead/AP/Enron@Enron, Mark Taylor/HOU/ECT@ECT, Sara Shackleton/HOU/ECT@ECT Subject: IBJ ISDA MASTER AGREEMENT - 1. Credit matrix and 2. Threshold amount Dear John, Jonathan and I met with IBJ today to try and push our negotiations through to the end. They are still unwilling to do a CSA with us but very significantly their back / mid office is currently looking at getting systems support in place which would permit them to do a CSA with us in due course. They acknowledged to us of their own volition that the market trend is towards CSAs even in transactions where the counter party is not a bank. They did say though that it would be a few months before they would be set up to do so. Pls note that they did not agree to do a CSA with us as soon as they are set up to do so but they now know we will come knocking at some stage to ask them to do it so I think we have gone as far as we can on this for now. We will therefore move forward on the credit matrix in the meantime, if you are still willing to do so. The bank has a credit rating of A, so I guess this means US$15 million credit limit. On the assumption that it is possible to draft these terms into a contract without a full CSA, I wonder who is best to do this drafting. I should be able to do the negotiations but I am not sure that I am able to do the drafting .... Alan, do you have any suggestions? Most of the other issues are sorted now but they still want to change the "Threshold Amount" definition to US$10 million. Is there any flexibility on this? Thanks. Jane McBride John Suttle@ECT 09/27/2000 12:39 AM To: Jonathan Whitehead/AP/Enron@ENRON cc: Jane McBride/AP/Enron@Enron, John Viverito/Corp/Enron@Enron, Kevin Cordesman/HOU/ECT@ECT, Mark Taylor/HOU/ECT@ECT, Morten E Pettersen/AP/Enron@Enron, Steven Kleege/HOU/ECT@ECT, Tom Bruce-Jones/LON/ECT@ECT Subject: Re: Fw: IBJ ISDA MASTER AGREEMENT Jonathan, One thing we might be able to propose is a "Credit Matrix" which prescribes a Credit Line under which each counterparty can transact - with collateral rights and collateral thresholds tied to the credit rating of each counterparty. We have used credit matrixes in several contracts here and they are appealing in that there are no Material Adverse Change (MAC) clauses. This is appealing to the counterparty in that we cannot automatically drop their collateral threshold to zero when a MAC occurs. We are comfortable because as the counterparty's credit quality deteriorates, the amount of exposure to which we are subject decreases. I would propose to IBJ something like the following in lieu of a full CSA. Jane and John - is it possible to draft these collateral/credit terms into the contract without using a full CSA? (I think every matrix I have used here has been part of a CSA). Rating (S&P) Credit Line AA or above $20MM BBB+ to AA- $15MM BBB $10MM BBB- $7MM BB- to BB+ $5MM Below BB- $1MM These terms are subject to negotiation. Once again, the matrix removes MAC clauses and the stress counterparties associate with such, but effectively reduces the potential exposure we have (or THEY have) to a counterparty with diminishing credit quality. What do you all think? John Jonathan Whitehead @ ENRON 09/25/2000 08:18 PM To: John Suttle/HOU/ECT@ECT cc: Jane McBride/AP/Enron@Enron, John Viverito/Corp/Enron@Enron, Kevin Cordesman/HOU/ECT@ECT, Mark Taylor/HOU/ECT@ECT, Morten E Pettersen/AP/Enron@Enron, Steven Kleege/HOU/ECT@ECT, Tom Bruce-Jones/LON/ECT@ECT Subject: Re: Fw: IBJ ISDA MASTER AGREEMENT Sorry, Pressed send too early: John, Have had a conversation with IBJ re the CSA, and they have asked us to consider proposing a solution that does not involve a CSA. I propose to meet with them again to try and explore why, but I would like to be prepared to offer them a solution whereby we don't enter into a CSA, and we would limit the types of trades that we could enter into with IBJ. My feeling is that we would be unlikely to enter into any long term transactions (over 2 years) at this stage anyway, and would prefer to get the relationship going, as I am not sure they are going to budge on this issue yet. They appear to be quite willing to discuss all the other points. We can always press for a renegotiation at a later stage if we do want to enter into longer term deals. I also want to keep the loan facility completely separate. What are your thoughts on this, and what limitations would you want to put on trades if we do not have a CSA? Thanks, Jonathan John Viverito 09/22/2000 12:04 PM To: John Suttle/HOU/ECT@ECT cc: Jane McBride/AP/Enron@Enron@ECT, John Viverito/Corp/Enron@ENRON@ECT, Jonathan.Whitehead@enron.com, Kevin Cordesman/HOU/ECT@ECT, Mark Taylor/HOU/ECT@ECT, Morten E Pettersen/AP/Enron@Enron@ECT, Steven Kleege/HOU/ECT@ECT, Tom Bruce-Jones/LON/ECT@ECT Subject: Re: Fw: IBJ ISDA MASTER AGREEMENT John- During our last meeting with IBJ, we pushed hard for the implementation of the CSA. I believe that they have the systems capability to handle the requisite activities relating to the CSA, as we understand that they utilize same with certain financial institution counterparties. We expressed our view on these matters and also raised other issues that we had discussed in our recent conference call. IBJ informed us that they have never entered into a CSA with a non-financial institution counterparty and my response was that Enron can then be the first. We requested that they raise this issue with their respective superiors. As you know, their response to our discussions relating to this issue was "In terms of CSA, as we are not ready for running collateral operations, we still do not prefer to use the CSA." The legitimacy of this statement is certainly debatable and the underlying reason may actually be something entirely different, including the possibility that they merely do not want to enter into a CSA with a non-financial institution. We will continue to attempt to persuade IBJ to enter into the CSA with Enron, however it is uncertain if this is achievable.