Should we be entrenched in this type of activity?  I'm not even sure that we 
find out about all of ESA's ideas.  Sara
---------------------- Forwarded by Sara Shackleton/HOU/ECT on 02/01/2000 
11:26 AM ---------------------------
To: Sara Shackleton@ECT
cc:  
Subject: Convertibility/Insurance trade

This is what has been discussed so far.  We looked at this once last year, 
but decided that we were not getting quotes that justified the transaction.  
This time it looks like we would "sort of" cover our exposure by both selling 
and buying and hopefully making money off of the difference.
---------------------- Forwarded by Robert H George/ENRON_DEVELOPMENT on 
02/01/2000 01:53 PM ---------------------------
   
	Enron International
	     Structuring Group
	
	From:  Bruce Harris                           01/31/2000 04:19 PM
	

To: Joe Kishkill/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Cliff 
Shedd/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Robert H 
George/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Lynn 
Aven/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Kent 
Castleman/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc: Bruce Harris/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Martin 
Sacchi/Corp/Enron@ECT 

Subject: Convertibility/Insurance trade

The trade is the following.   Enron would buy Lender's insurance from the 
insurance market on "to be named later" intercompany loans.  Enron would pay 
a fee each year for this protection.  At the same time, Enron would sell 
convertibility protection via the capital markets' so-called "credit 
derivative" products.  Enron would earn income from selling this protection.  
If there was a convertibility event, the bank would deliver to us Reais and a 
crossborder intercompany loan in Brazil.  Offshore, we would buy the 
crossborder loan and pay the bank in USD.  Enron now has an intercompany loan 
and associated R$ which it can't convert into USD.  So we would give the loan 
and R$ to the insurance company and 180 days later we would get paid in USD 
(no deval. risk).  

The arbitrage is basically that the insurance market charges less for 
protection than the capital markets.  No cash is required (but we probably 
need Corp. to stand behind it all).  Martin has priced out Lender's insurance 
at around 2% per annum for 5 years.   Convertibility protection in the credit 
derivative market might earn as much as between 3- 4% per annum (we need to 
negotiate with some of the US inv. banks).  They are essentially the same 
type of protection, so I am not sure why the differential is so large other 
than the waiting period and/or the markets sell to different customer sets.

Martin has requested docs. from AIG and I have requested docs. from CSFB.  
Assuming that legal/tax does not see any major issue (there is always some 
residual risk), we may need to move on this fast as apparently AIG has about 
$150M available right now.  So this is an FYI email that once Martin and I 
have completed an initial review, if all looks good we will want to move fast 
through due diligence/approval process.

Regards,  Bruce