Louise:

We are working to value the cost of both coverages so we can compare it to the reduction in credit reserve (if any).  We should have a first look to go over with Markus tomorrow am.

Regards,
Drew

 -----Original Message-----
From: 	Fiala, Markus  
Sent:	Tuesday, March 27, 2001 3:14 AM
To:	Kitchen, Louise; William S Bradford/HOU/ECT@ENRON
Cc:	Seyfried, Bryan; Tingleaf, Drew
Subject:	Deacero, SA

Louise - some news and views for yourself on this credit.

Hedging this name for any duration past 5 years is all but impossible at present.
Insurance companies will write protection, with 10% first loss being taken by ENE; but proof of loss must exist and all covents must be adhered to otherwise payout can be made void.   Believe the offering you have from Zurich should be used to cover first 35 mil of 65 mil exposure at the front end.   This is the cheapest alternative but does come with certain hindrances; ie timeliness of payments and proof of loss.   An additional constraint here is the BB or better private rating ENE must get for Deacero.

What EnronCredit can offer is to hedge the excess exposure above the insurance coverage.   We would cover failure to pay and bankruptcy of said name.  We would offer protection in either a 2 or 3 year rolling tranche format.    Protection can either be bought for the duration (15yrs NPV) at 3.5%, cash settlement (Louise you get paid out 100- recovery (of financial assets)= payout).  Or on a rolling basis at 30 Bpts over where EnronCreit hedges itself in the market (expect to get 2 yr protection off at 2% per annum at present).    We have the ability to structure this tranche on an accreting or amortising basis to either suit the P95 or actual exposures (payment can be made digital; cost would be stated cost/(1-.35%(expected recovery)).

Louise if you want to call me today to discuss I will be in till 18:00 London time.

Bill, we would hedge out the credit exposure on a 1to1 basis and run the duration risk, require permission from yourself to run/manage this risk.

MKF