As I mentioned at the Mgmt meeting yesterday  8-9 MTM plus 5 million likely 
13-14 million worst case. I have accrued this amount below the line at 
present and will await further meetings before taking any other actions. 
Because of our presence in Spain and our role with GM , Vitol ,Veba and KPC 
are meeting with Chris this week as they would like us to continue to supply 
to them in Spain. We would also like to do this as it continues to give us 
the outlet we wanted when we entered the GM deal but with better partners. It 
also allows us to make money while we sort through the GM situation.
---------------------- Forwarded by John L Nowlan/HOU/ECT on 01/23/2001 07:22 
AM ---------------------------


Robert Quick
01/22/2001 12:33 PM
To: John L Nowlan/HOU/ECT@ECT
cc: Chris Mahoney/LON/ECT@ECT, Adam Nye/LON/ECT@ECT, Mark 
Evans/Legal/LON/ECT@ECT, Justin Boyd/LON/ECT@ECT, Ted Murphy/LON/ECT@ECT 
Subject: GM - private and confidential - attorney/client privilege


---------------------- Forwarded by Robert Quick/LON/ECT on 22/01/2001 18:36 
---------------------------


Robert Quick
22/01/2001 16:13
To: John L Nowlan/HOU/ECT@ECT
cc: Chris Mahoney/LON/ECT@ECT, Adam Nye/LON/ECT@ECT, Mark 
Evans/Legal/LON/ECT@ECT, Justin Boyd/LON/ECT@ECT, Ted Murphy/LON/ECT@ECT 

Subject: GM

Chris, Adam and I met with the Spanish lawyers last Thursday night regarding 
GM. We then met up with GM on the Friday.

Basically GM Petroleos (the main GM company) has entered into the Spanish 
equivalent of U.S. Ch.11. We have still not seen a copy of the petition 
presented to the Court, but this shd be forthcoming in the next day or so. 
The idea behind the petition for suspension of payments is to help companies 
that are facing liquidity problems. GM wd certainly fit that bill, although 
it remains doubtful as to whether GM can claim that its assets exceed its 
liabilities. The effect of the petition is to provide a moratorium on the 
repayment of any unsecured creditors, and on any judgments which those 
creditors obtain. The petition does not however prevent any preferred or 
secured creditors from enforcing their debts (in the latter case, to the 
extent of their security). 

The judge to whom the petition is presented appoints 3 administrators. 2 are 
appointed from a list of accountants that the court maintains, and the third 
(also appointed by the court) is a representative of one of the top third of 
the list of creditors.

Once the administrators are appointed, the financial control of GMP will be 
their responsibility. They will authorize any future transactions, draw up 
the definitive list of creditors, and examine the solvency or otherwise of 
the company. In due course they will submit a report to the judge advising as 
to whether the company is insolvent or not. If insolvent, the Court will 
request that GMP provide a warranty for the difference between the amount 
owed and the assets. If this is not met within 14 days, subsidiary 
proceedings may be started to examine any personal liability of the 
management. 

Parallel with this, the administrators will be speaking to all the creditors 
with a view to reaching an inter creditor arrangement on repayment of an 
agreed level of debt. Even though secured creditors are not precluded in 
enforcing their security during the suspension of payments procedure, it is 
usual for them too to take part in these discussions.

The outside lawyers seemed to think that the amount contained in the petition 
is equivalent to USD 85 million. We have no real idea how this is broken 
down, but the following shd be a rough guide:

VAT authority - USD 25 million
Veba - USD 15 million
Enron - USD 5 million
Total - USD 3million
Bank debt - USD 22 million
? - balance USD15 million

The Spanish lawyers confirmed our suspicion that the mark to market exposure 
may be difficult to prove as a debt. This exposure arises from the market 
difference we agreed to sell Dec. shipments to GMP (which then cd not put up 
the agreed purchase price to ensure delivery) and the current market price. 
Chris can confirm what these losses are today. We wd have to sue on those 
agreements (English arbitration), and then present to the administrators the 
arbitration judgments. However, as the administrators report is usually ready 
within 2-3months, I suspect that leaving aside any other factors there may be 
a timing problem here. 

The Spanish lawyers said that GMP Board may have some personal liability 
issues. The Board is supposed to call a shareholders meeting if the company 
is in financial difficulties. Moreover, if there has been stripping out of 
assets from GMP, then those responsible may face criminal sanction

On the issue of preferences, it wd appear that Spanish law is somewhat 
inconsistent. On the one hand there is old jurisprudence to the effect that 
any and all transactions entered into by the debtor before its insolvency can 
be challenged by the administrators, irrespective of whether those 
transactions wd constitute a preference. On the other hand there is 
jurisprudence of equivalent weight which states that this is not the case, 
and that only preferences may be challenged. The Spanish lawyers were not 
able to say which system wd apply in the current scenario, but their 
insolvency lawyer made the following points:

there was no immediate threat from anyone against Enron or ECTRIC Spain. The 
whole issue about preferences is not dealt with until the report by the 
administrators is made to the judge. There is no chance of any nasty shocks 
like injunctions on Arcos etc.
the payment to Enron of USD50 million at the same time as the VAT authorities 
were not being paid shd not overly worry Enron at the moment, as such 
payments are unlikely to be seen as a preference.
most companies (even those judged insolvent) end up being dissolved 
voluntarily, probably as a result of the uncertainty of Spanish insolvency 
law. If a voluntary arrangement is reached it is unlikely to provide for 
anything but the most obvious preference (and the transfer of the strategic 
oil from GM to ECTRIC Spain wd not fall within this category)
The VAT authorities (probably the main creditor) are not pro active in these 
sorts of proceedings and tend to take a back seat   

For what t is worth, GM made the following points:

GM's banks' inability to fund further prompted GMP management to make the 
petition (this despite the fact that GM had previously assured Enron that the 
GMP bank debt was minimal)
petition is for Pta 10 billion
GM lawyer said shd have made decision earlier to present the petition
GM lawyer also said that GMP had made what he called "third party financing" 
of Pta 6 billion, and accepted my suggestion that the administrators wd be 
asking for such funds back 
GMP wd be willing to put up Don Antonio's assets to secure Enron's continuing 
supplies to it (we have heard that many times before). Without such supplies 
GM stated that GMP was insolvent. They were not able to provide a reason as 
to why such assets cd not be pledged beforehand
GMP sees Enron as the "key", namely that the supplies if resumed wd trigger 
the payment to GM of its outstanding receivables.  
GM wants Enron to meet with the administrators next week.

It is early days but I wd suggest the following:

unlikely the old man's assets will be forthcoming
likley the company will go into insolvency
likley the creditors will reach a voluntary arrangement
therefore unlikely there will be any clawback of earlier payments/strategic 
storage oil
equally, unlikely Enron will receive any recognition of its MTM debt 

Chris, let me know if there is anything you wd like to add/clarify. otherwise 
once we get the petition we will advise further. tks