FYI


 -----Original Message-----
From: 	Dewar, Donette  
Sent:	Friday, September 28, 2001 2:54 PM
To:	Locklear, Essie
Cc:	Vasconcellos, Brent
Subject:	Raptor unwind tax accounting

Essie:

The purpose of this message is to communicate to you, for co-ordination with the appropriate "MARC" personnel, the relevant facts of the transactions that closed on Friday, September 28, to unwind the Raptor structures.  As I likely will not return to the office until just at the time of September close, I thought it might make sense for you, with Brent's assistance, to make sure that the appropriate reporting personnel are notified of the tax adjustments that should be made to book these transactions.

Each of the "top tier" Raptor entities (Harrier, Roadrunner, Pronghorn, and Grizzly) "purchased" from LJM the membership interest that LJM owned in the "bottom tier" Raptor entities (Talon, Bobcat, Porcupine, and Timberwlf, respectively).  Harrier paid $6 mil, Roadrunner and Grizzly each paid $15 mil, and Pronghorn paid $1,000.  As a result of these transactions, the purchased entities became book consolidated with Enron. Also as a result of these transactions, a total book loss of around $600 mil was recorded (divided among the books of each one of the four structures).  

For tax purposes, the purchasing and purchased entities are all disregarded entities of Enron Corp. (or EES, in the case of Pronghorn and Porcupine).  The repurchases are to be treated as merely a final payment made by Enron Corp. (or EES, as the case may be) on a contingent debt instrument.  Accordingly, the entire book loss should be reversed for tax, and instead an interest deduction recorded on the tax books of each purchasing entity for the amount that was paid to purchase the bottom tier entity.  For examply, Harrier will record an interest expense deduction for $6 mil.  

We have not been told yet exactly how the book loss will be spread among the four structures, and whether it will be booked on the top tier or bottom tier entities' books.  Ron Baker likely will have an answer on this issue by the time you see this message.  

Please leave me a voice mail if you need assistance before I return to the office on October 10.  Thanks! 

DMD