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	Were You Ready for the Enron Credit Collapse? When Could You Have Known? What Could You Have Done?		
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[IMAGE]	 The fall of Enron, the fall of the Cal-PX and the fall of the first  giant, PG&E, have each been significant wake up calls to the industry.    The Power industry is an uncertain and volatile market rife with price,  regulatory and other market risks. To the unprepared it may seem that  disaster strikes unexpectedly and without warning. In reality, disaster  is never all that sudden, although our realization of it may be sudden,  and as such, unprepared.  Looking closely at the most recent fall, that of Enron, warning signs  have been present for some time indicating that all was not right with  one of the world's leading energy companies. The current clamoring of  credit agencies and financial institutions is akin to the reaction a  flock of birds has after one of their own has been killed by a predator,  too little too late.  The market participants that retain their composure are those that  can foresee events coming. There are tools and methodologies available  to the market savvy that allow for the mitigation of credit and other  risks. Still, application of these tools requires significant knowledge  and skill, but more so, the rigor, policy and corporate resolve to use  the tools available.  Access to a utility specific credit analysis analytic tool like ZE  PowerGroup's Credit Risk Manager (CRAM) application would have provided  preemptive warning signals.  As the share price dropped a score reflecting low solvency would  have prompted a reduction of Enron credit limit, ultimately flagging  the account early on, months prior to Enron's current situation. Each downgrade by an agency would have generated a lower credit  limit - ultimately flagging the account when it hits the first unacceptable  level.  Consistent downgrades would have put them on a "credit watch  list". When the financial statement was pulled/declared inadequate, corporate  credit policy could have dictated the cessation of any further trading  with ENRON without security.    The demise of Enron was months in the making; average stock prices  have been falling from the start of 2001. Interested parties watched  as credit rating agencies such as Moody's, Fitch and Standard &  Poor's decreased Enron's credit outlook. These declining credit ratings  signaled the beginning of the end for Enron as corporate debt was called  again and again. The asset light corporation was unable to stave off  the downward credit spirals that ultimately lead to bankruptcy.   At its height, Enron and its EnronOnline trading site were averaging  over $3 billion in trade transactions per day. Enron was once the country's  top buyer and seller of natural gas, and the No. 1 wholesale power marketer.  The company operated a 25,000-mile gas pipeline system, and marketed  and traded metals, paper, coal, chemicals, and fiber-optic bandwidth.  Enron's bankruptcy is recorded as the largest case in history, encompassing  $62 billion in assets and affecting 21,000 employees. Its shares went  from $85 to $0.25 in a span of 12 months. CRAM would not have been able  to predict a low of $0.25/share (nor could anybody for that matter)  but the system would have capitalized on all signs and provided the  proper warning signals.  The figure below shows an example of how the CRAM rating of Enron based  on a sample credit risk policy has changed over the last year.  [IMAGE]  What is interesting to Note is that the CRAM system, in the last year,  has never rated Enron highly. The Table below describes the CRAM scoring  and rating system. Please note that the table is only a sample as could  be derived for a small public utility. CRAM is a tool that enables the  development and implementation of a corporate credit policy; it is not  the policy.  [IMAGE] Based on this specific rating system, Enron never scored above 1850,  putting it into an N3 CRAM rating (moderate risk). The first CRAM credit  alert would have come right in the beginning of the year in January  when the rating would have been downgraded to N4 and a much higher risk  of default, i.e. market reactive. By July, and with a CRAM rating of  N6, Enron would have been rated as a high risk with insufficient financial  strength; Trade with Enron would have been severely curtailed. This  down grading would have called for possible contract adjustments and  demand for collateral, depending on whether the corporation had safeguards  in its credit policy and contracting. Before December, CRAM had rated  Enron as an NN, or a party with which no trade can occur.   By using the CRAM, transactions with Enron would have demanded caution  from throughout 2001 and there would have been severe constraints on  contract amount, type and duration. As can be seen by the scoring table,  the CRAM would have progressively, and aggressively reduced exposure  to Enron over the year to a point where the largest contract would have  been small, manageable and for short duration. The continued downgrades  would have placed Enron on the Credit Watch List and transactions would  have required manager approval and most likely collateral. Having a  rigorous credit policy, and the means to implement it, could have minimized  if not avoided any credit risk exposure to Enron, and in the best case  scenario allowed the corporation to unwind high-risk deals as credit  strength of the counter-party fell.  CRAM primarily determines counter-party credit limits as well as clients'  own credit (transactional) limitations. Through a series of rating-agency  evaluations, user defined criteria and detailed counter-party financial  profiles, the system dynamically creates and tracks counter-party credit  and transactional limits to manage and minimize clients' credit risk  exposure. CRAM utilizes these inputs to assign a client-specific credit  rating, monetary trade limits and maximum contract lengths for all counter-parties.  These limits are used to ensure corporate credit and risk tolerances  are not jeopardized prior to authorization being given to execute a  trade. As an independent tool, the application immediately enables clients  to determine their existing credit risk exposure and begin ongoing,  near real time, counter-party monitoring and assessment processes. The  application's effectiveness is further enhanced when integrated with  the full suite of ZE PowerTools applications.   [IMAGE]  ZE PowerGroup offers a variety of services to enhance client credit  analysis and credit mitigation. CRAM is only one tool that ZE PowerGroup  offers. We also develop credit policies, provide monthly market and  credit monitoring, conduct operational audits, forecast forward natural  gas and electricity prices and a host of other tools.   We encourage you to contact us to discuss your credit and portfolio  needs. We can provide you a ready fit product or develop customized  products to meet your specific requirements. Please contact:  Paul Seo, Marketing Manager    paul@ze.com   , 604-244-1469  Aiman El-Ramly, Vice President Marketing and Business Development  aiman@ze.com   , 604-244-1654  For more information on other services and products go to www.zepowertools.com         	[IMAGE]	
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	Link to www.zepowertools.com 		
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