Message-ID: <3103176.1075842194543.JavaMail.evans@thyme> Date: Fri, 25 May 2001 08:58:00 -0700 (PDT) From: roderick.nelson@enron.com To: greg.wolfe@enron.com Subject: RE: Kaiser Aluminum & Chemical Corporation - UK and US swaps Cc: carol.clair@enron.com, tracy.ngo@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=ANSI_X3.4-1968 Content-Transfer-Encoding: 7bit Bcc: carol.clair@enron.com, tracy.ngo@enron.com X-From: Roderick Nelson X-To: Greg Wolfe X-cc: Carol St Clair, Tracy Ngo X-bcc: X-Folder: \Carol_StClair_June2001\Notes Folders\All documents X-Origin: STCLAIR-C X-FileName: cstclai.nsf Hey Greg. I see no objection to amending the ISDA to cover power transactions. Also, potential credit exposure related to a prompt month power trade should be modest. You may want to ensure that Tracy has no objection, but this transaction should be fine. Rod -----Original Message----- From: Wolfe, Greg Sent: 25 May 2001 15:51 To: Nelson, Roderick Cc: St Clair, Carol; Ngo, Tracy Subject: RE: Kaiser Aluminum & Chemical Corporation - UK and US swaps Rod: We are looking at doing a June physical index power purchase today with Kaiser. however, Kaiser only wants to proceed if we can assure them that we can add electricity to the existing ISDA between Enron and Kaiser such that they could fix the price during the month of June. After reading your comment below about netting it appears that a longer term transaction would not be advisable until further legal clarification occurs. Is there any reason we can't or shouldn't pursue adding electricity to the ISDA provided we only do one month transactions (assuming we see no risk of near term bankrupcty)? Please advise immediately. -----Original Message----- From: Nelson, Roderick Sent: Friday, May 25, 2001 2:53 AM To: Ngo, Tracy Cc: St Clair, Carol; Shackleton, Sara; Pitt, Michael; Boyd, Justin; Evans, Mark; Wolfe, Greg Subject: RE: Kaiser Aluminum & Chemical Corporation - UK and US swaps Tracy, Did you have a chance to read my email response earlier this week? I believe that it is highly unlikely that we will be able to net exposures across non-defaulting (Enron) entities. Paul Simons can (and maybe has by now) given opinion to this idea. Historically, I believe the opinion has long been that such netting (set-off against affiliates of non-defaulting party) in the US should work within the case of contractual default, but outside of bankruptcy. However, in the special case of legal bankruptcy, such netting (though contractually agreed by the parties) may be challenged. Introducing the fact that one of Enron's entities is a UK entity may further cloud the likelihood. Clearly, if the relationship involves more than on Kaiser entity, netting almost certainly will not work. Has Diana not responded to your credit exposure questions regarding the form of governing confirmation and legal entity? I believe that she is in the US, but should be checking in. Perhaps you should try calling her? I think we will find that the transacting entity is a subsidiary of Kaiser Aluminum. Risk management systems for metals are still not ideal. Volumetric/CVAR type analysis may not yield such reliable results. Rod -----Original Message----- From: Ngo, Tracy Sent: 24 May 2001 22:15 To: Nelson, Roderick Cc: St Clair, Carol; Shackleton, Sara; Pitt, Michael; Boyd, Justin; Evans, Mark; Wolfe, Greg Subject: Kaiser Aluminum & Chemical Corporation - UK and US swaps Importance: High Rod, Enron North America is looking to enter into power swaps with Kaiser Aluminum & Chemical Corporation starting June 2001. I'm seeing in the credit system that MG plc has forward financial metals positions with Kaiser, however I need clarification on whether the swaps are done with Kaiser Aluminum & Chemical Corporation or Kaiser Aluminum International Inc. Secondly, is there a Master ISDA Agreement governing those swaps? In pulling the mtm monthly breakout, it appears that MG plc is OTM north of $10MM US and the liquidation of that portfolio occurs mostly in cal '02. Given Kaiser's limited credit line, I'd like to look into the potential of setting off financial exposures in the UK and US in cases of default. Kaiser is looking at other businesses with Enron and this could be quite fruitful to tap into in order to increase trading liquidity going forward. In summary, we need to answer at minimum the following: ? confirmation of which Kaiser entity is financial transacting with MG plc ? volatility of the metal positions that go out to Jan '04 to ensure how quickly this out-of-the-money position can move ? what type of paper is confirming the swaps (whether long-form confirms or Master ISDA) ? what credit/legal terms and laws may affect our efforts to establish a Netting Agreement for UK and US financial Can you help me in coordinating a meeting with London legal/credit and Portland credit/Houston legal to discuss pertinent issues associated with a Netting Agreement between Kaiser (single entity or multiple entities) and Enron entities (MG plc and ENA) as soon as possible. Please let me know your thoughts to the above and who we need to contact to get the above points addressed. In Houston legal, Carol St. Clair is available to work on the drafting of such a Netting Agreement and is speaking with Sara Shackleton about the concept as well. Please let me know as soon as possible your comments to the above and in setting up a conference call to push this forward. Thanks, Tracy