Subject: Re: Japanese ISDA Documents
From: [email-masked]
To: [email-masked], [email-masked]
Cc: [email-masked]
Date: Mon, 28 Aug 2000 17:05:00 -0700 (PDT)

Mark-

The commercial folks here are anxiously awaiting the final approval of the 
Japanese ISDA documentation for IBJ, Mitsui, and Sanwa.  There are deals on 
the horizon and we need to have our documentation in order.  

 Please respond as soon as possible.  I'll try contacting you Tuesday at  
6:00 p.m Houston time.

Susan-

Please provide your response regarding tax matters, as soon as possible.

Thanks,

John
----- Forwarded by John Viverito/Corp/Enron on 08/28/2000 11:48 PM -----

	John Viverito
	08/23/2000 05:39 AM
		
		 To: Mark Taylor/HOU/ECT@ECT, Susan Musch/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
		 cc: 
		 Subject: Re: Japanese ISDA Documents

Hi Mark,

Thanks for your response.  Sorry, I didn't provide you my number here in 
Tokyo.  For future reference, my office number is 81-3 5219-4578.  I'll try 
to give you a ring Wednesday morning (Houston time) to discuss the going 
forward strategy. 

 Attached hereto, are the draft documents, modified in accordance with your 
comments/questions and my responsive comments (which are set forth below in 
red).

Look forward to seeing you soon.

Hi Susan-

Please review the attached documents from the tax perspective.  Thanks.

Best regards,

John

	Mark Taylor@ECT
	08/22/2000 06:59 PM
		 
		 To: John Viverito/Corp/Enron@Enron
		 cc: 
		 Subject: Japanese ISDA Documents

Dear John:

So sorry for the delay.  I hope it hasn't caused too much inconvenience. No 
problem!  I would have called to apologize in person but believe it or not I 
don't have your phone number!   Here are my comments to the draft documents 
you sent:

Part 1 (b)  In our other derivatives trading, the cross default test applies 
to Enron Corp. with a Threshold of US$100,000,000.  To accomplish this in the 
schedule, Threshold Amount for the Enron party would apply to our Credit 
Support Provider if there is going to be an Enron Corp. guaranty and the 
dollar figure adjusted accordingly.  The Schedule has been revised.  Please 
advise if the equivalent change should be made to paragraph (b)(iv)(B) of 
paragraph 13 of the CSA.

Part 1 (d)  Has Baker & McKenzie recommended this?  We rely on local counsel 
advice for this provision but our preference is that the termination in a 
bankruptcy context not be automatic unless it needs to be.  The risk in the 
automatic situation is that the market moves significantly before we are even 
aware of the situation, i.e. the outstanding transactions terminate 
automatically, leaving us with an open, unhedged position which we are not 
able to protect since we are not aware of it.  In the U.S. the bankruptcy 
code allows us to terminate after the filing of a bankruptcy according to the 
terms of the agreement so we know exactly the time to rehedge.   According to 
B&M, the ability to set-off against Japanese counterparties is limited by 
certain laws relating to insolvency including the Bankruptcy Law.  These laws 
give a trustee the right to cherry pick contracts.  Accordingly, it is the 
general practice in Japan for parties to elect automatic early termination to 
ensure that close out netting takes place before the trustee's right to 
cherry pick comes into effect.  In December 1998, a netting law came into 
effect in Japan which specifically permits close out netting (notwithstanding 
the trustee's right to cherry pick).  The netting law only applies where one 
of the parties to the transaction is a financial institution (Mitsui Marine 
and Fire, Sanwa and IBJ, would all qualify).  From a legal perspective, it is 
now arguable that automatic early termination should not be adopted (for the 
same reasons as are described in you message).  However, as a matter of 
Japanese market practice, B&M has advised that most schedules with Japanese 
counterparties still specify automatic early termination.  Accordingly, the 
automatic early termination provision in place.  Please confirm that this is 
acceptable.  Please also note, that the automatic early termination provision 
will be necessary when Enron Japan deals with Japanese corporations that are 
not financial institutions.

Part 1 (e)  We usually choose Loss here as the method which gives the 
non-defaulting party the most flexibility.  Market Quotation is often 
suggested because of its apparent objective nature.  However, in many of the 
markets where we operate, quotations will not be available, where they are 
available they may well not be meaningful, and the Loss method gives 
flexibility (while still requiring commercial reasonableness).  The Schedule 
has been revised.

Part 1 (h)(ix)  This Additional Event of Default only applies when there is 
no collateral annex.   When we have the ability to ask for (or be asked for) 
collateral in the case of a downgrading, we build that event into the 
Paragraph 13 to trigger a reduction of the threshold to zero which requires 
the posting of collateral to cover any open position.  If the party fails, it 
then becomes a default allowing termination.  The Schedule has been revised.

Part 1 (h)(x)  Wouldn't the cross default be triggered before this could 
happen?  B&M has advised that although the cross default provisions may well 
be triggered before this clause applies, the clause is standard in Japan and 
is not detrimental to Enron, therefore the clause has been left in place.

Part 2  Have our internal Tax people approved this?  I have copied Susan 
Musch on this e-mail, so that she may review the documents for tax purposes.

Part 3  I am not familiar with the Representative Director concept or some of 
the corporate documents referred to.  Since Enron Corp. will be a Credit 
Support Provider, does it have a Representative Director, etc.?  The clause 
has been modified to allow different documents to be specified in connection 
with the Enron Corp. guarantee.  Please fill in the blanks to specify the 
appropriate documents.  Sorry for the oversight.

The legal opinion requirement is one that we can waive if local counsel does 
not think it necessary.  In many non-US jurisdictions, local counsel have 
advised that an opinion be obtained - in some cases derivatives transactions 
are so uncommon that they might be outside the ordinary course of business 
and therefore require special board approval; in others, derivatives would 
not be permissible activities for a company unless express provision is made 
in the corporate documents, etc.  B&M has stated that in practice they have 
never been given or asked to review a Japanese law opinion in relation to a 
specific ISDA schedule entered into by a Japanese counterparty and would 
expect Japanese counterparties to be reluctant to provide such opinions.

Part 5 (b) (g)&(h) These representations originate with CFTC rules in mind 
(although they may be helpful for other reasons as well).  If neither party 
is in the US, the CFTC reason may go away.  On the other hand, since we are 
choosing New York law to apply the argument might be made that US federal law 
applies as well.  If that is our theory, there are additional representations 
(the Eligible Swap Participant reps) that we should think about putting back 
in.   These representations were tailored with the Japanese prohibition on 
gambling in mind. I was not able to find the "eligible swap participant" 
representation in the Enron US ISDA Form (although there is a reference to 
this in the opinion).  Please inform me as to the wording that needs to be 
added for New York purposes.

Part 5 (d)  We are currently evaluating whether we should revise this section 
to make reference to the ISDA 2000 definitions.  While I think we will get 
there, we haven't actually made the decision yet.  So far I guess we leave it 
the way it is.  OK

Part 5 (j)  My only concern here is with the value of the Enron Corp. 
guaranty as a form for a guaranty from a Japanese entity.  Any differences in 
Japan from US practice we should be worried about?  For the swap 
counterparties currently being considered by Enron (Mitsui Marine, IBJ and 
Sanwa) no guarantees are being required.  B&M has advised, the form of the 
Enron Corp. guarantee would generally be acceptable for guaranteeing the 
obligations of Japanese counterparties.  However, there are a number of 
changes that may be considered including switching the governing law and 
jurisdiction provisions to Japan for ease of enforcement against parties 
whose principal assets are located in Japan.  It is recommended that the 
guarantee be reviewed in further detail before it is actually proposed to 
counterparties.

Paragraph 13  I have to admit I'm not as familiar with the Paragraph 13 
provisions as the Schedule.  My only concern here is with the MAC clause and 
it looks like there's a glitch in the form.  It seems to me that if the 
counterparty is only rated by one of the 2 major agencies we shouldn't be 
pegged with a MAC if only one of our agencies stops rating us.  The way it is 
drafted now if either S&P or Moody's stops rating us, even if the remaining 
rating is very high we will have a MAC occur.  The counterparty doesn't have 
to worry about Moody's at all.  Just a thought.  The suggested change has 
been made.  Additionally, the provision has been modified to provide that a 
MAC will occur with respect to Enron, only if both rating agencies downgrade 
Enron Corp.  Please confirm this is OK.

On the guaranty, you will need to run the choice of law and jurisdiction 
changes past Clement Abrams at Corp. Legal.  My only comment is that we would 
usually have a cap that is a bit higher (in this case maybe an extra 
$5,000,000) than the threshold in the CSA - that gives the counterparty a 
little wiggle room if we fail to post collateral after the threshold is 
exceeded.  I will separately forward the guaranty to Clement Abrams for his 
approval. The cap has been increased to US$20,000,000.

Tana is preparing a red-line for me that hopefully will show all of the 
changes between the US form and the Japan form.  I may have a few more 
comments after I see how that comes out but don't expect many.  I apologize 
that the red-line was not fully made against the US form. 

I hope this is helpful.  Mark-  This has been very helpful! Please feel free 
to call and we can walk through these over the phone if that would be 
useful.  We should also talk about the most efficient way to prepare these 
going forward.  It might make sense for Credit to send their worksheets to 
the paralegals here for a first draft which would then go to you for review 
before going to the counterparty.  It may slow things down by a day or two 
but it would free you up to work on other things.  All excellent ideas.

We're looking forward to having you back.  Looking forward to seeing you 
soon.  Thanks again.