Subject: Credit GTC
From: [email-masked]
To: [email-masked], [email-masked], [email-masked], [email-masked]
Cc: [email-masked]
Date: Thu, 17 Feb 2000 19:14:00 -0800 (PST)

All,

I have looked over the U.S. credit GTC and the long descriptions. I see we 
have decided to go with quarterly billing, rather than monthly. Will the 
payment/collections cycle cause any heartburn for the back office?

I didn't spot any problems with the long descriptions.

A few relatively minor comments on the GTC's - which you may or may not want 
to consider:

- Clause 2.(e) (i) (1) - Does this clause preclude us from doing business 
with banks or other financial institutions? Could we append: "with regard to 
the Transaction"?

- What happens if a Rep or Warranty is broken? Does that constitute 
sufficient breach to terminate the contract? I'm thinking specifically about 
sleeving, which is perhaps covered by Clause 2(e)(ii)(1)? I still think that 
sleeving is one of the most significant commercial risks faced by online 
trading of derivatives. If I were working for a third party, I'd immediately 
look for ways to set up a sleeving service to sell credit protection to the 
Reference Entities where the Reference Entity or its affiliate views its own 
risk differently from Enron. If I were the Reference Entity in question, I'd 
consider:
 a) Buying a load of protection via sleeving and then declaring bankruptcy - 
then do a Phoenix (in the UK at least)
 b) Buy a load of protection via sleeving, then take the Credit Derivatives 
to another third party financial institution and using the credit derivatives 
as collateral to increase my line of credit - I'm no expert, but I suspect 
there might be an interesting leverage effect here, which might actually 
cause a significant increase in Enron's risk exposure.
 c) Like (b), only the financial institution could buy the credit derivative 
with or without the need for sleeving - we probably need a restriction on 
this? (I know financial institutions are not our preferred counterparts up 
front, but if I were a financial insitution, I'd quickly find a way around 
this limitation - Affiliates or Sleevers.

-  Do you think it would beneficial to strengthen our protection against 
sleeving by adding something to Clause 2, like: "It is not entering into a 
Transaction for the purpose of concluding a similar transaction with the 
party (or any Affiliate of such party) which is the Reference Entity in the 
Transaction".

- Should Def'n of "Contract Currency" be "Contractual Currency"? 
("Contractual" is also used in the Long Descriptions)

- Def'n of "Credit Product" - after "Entity", should we insert "which is"?

- Are we being a bit too nasty by defining the Determination Agent as 
"Enron"? As the reference to Determination Agent in the contract is in a 
context similar to that of an arbitrator, it seems a bit cheeky to then 
define ourselves as the arbitrator - would this be enforceable if we were in 
court?

I'm assuming the other GTC's are very similar to the U.S. one and I have not 
read them.

Dave