I asked Brad for a brief summary of the current status of our claims trading activities, focussing on the efforts to settle claims already purchased and with a view towards collecting cash by year end. In addition, there is a brief summary of the pipeline for 2002 that is shaping up. If all the stars align we should have a significant portion of our working capital back in by yearend and a number of transactions primed for the first quarter of 2002.

We have one small live transaction that has been caught up in Enron's financial mess. It is a deal agreed to with Pacificorp to buy a claim for $225,000 which has an expected sales value of $275-300,000. We had prepared a dash for approval to buy the claim, but changed tact to avoid processing approvals for any new claims business for the time being. Instead, we are using the option built into our JV agreement which allows our partner GRS to fund claims purchases separately if we decline a transaction. So, rather than have Enron fund the purchase and take the risk, GRS will find an alternative arrangement and share the revenue with us through the JV agreement. Not an ideal situation, especially since this mechanism was intended to handle one off large transactions they liked but we were uncomfortable with. Nevertheless, it keeps us in the business and hopefully sets up a better value for the eventual inclusion of the activity together with other parts of IRM's business for Energy Re.

Please note the larger deals in the pipeline with Equitas, KMS and Home. I want to point out that while calling this a trading business may be a stretch on our part, especially if defined in the classic sense of trading a commodity, i.e. the ability to go short first. The willingness of Equitas and others to give us a sale price to work from is essentially a free put option that creates a synthetic short for us. Overtime, their cooperation should allow us to run a book of business from both perspectives, i.e. going long first when the price is right or going short first by having the sales price agreed in advance with the Schemes.

Per


 -----Original Message-----
From: 	Blesie, Brad  
Sent:	Monday, November 26, 2001 11:07 AM
To:	Sekse, Per
Cc:	Paterniti, Jason
Subject:	Claims trading update and pipeline

Below is an update of where we are on collecting for the four claims purchased to date, and the pipeline for the rest of this year and first part of next.

Status

Janet Wood is finalizing some adjustments to the release documents for the three schemes, so that we can use the power of attorney granted to us in the assignments to sign the release on behalf of the insureds.  The documents will go to the schemes this week.

KMS has agreed to pay us $52k for their share of the four purchsed claims (Phillips, Montrose, Kaiser and Mitchell), which is just slightly (<1%) less than what we asked for.  They are ready to sign for Phillips now, once the document tweaking above is finished, and are awaiting a few more bits of paper on the other three, so we will sign Phillips as soon as the release language is agreed, and the others hopefully this week or next, so we should have the funds in by year-end.

PRO has agreed Phillips and is willing to let us sign the release document prevsiously sent to Phillips, but as noted above we need to modify the document somewhat and put GRS's name on it.  I don't know for sure how long they will take to turn docs, but next this week or next is possible, w/ funds again by the end of the year.  They have almost all the documentation for the other three, and seem to be able to turn things around quickly, so we should have the other claims accepted and documents agreed w/in two weeks.  They have said they can pay on short notice, so we should have current payouts on all four claims (total of $1.1MM) in by year-end.

As noted earlier, PRO has reversed their previous assertion that they are willing to do one-time settlements/commutations.  We are working to get this changed and understand why they have done it, since it is obviously bad news.  The existing deals look fine, even w/ this development, except Phillips, which ends up w/ a gross margin of about 10%, which is obviously unsatisfactory.  These figures are w/o the benefit of Omni's pricing, however, which has been promised for Wednesday.  There are various ways to manage around this development, but the first choice is to get the policy changed.

The administrator for OIC and E&A, two of the three companies managed by Omni, has promised pricing for Wednesday, which will go a long way towards nailing down valuations.  They have a slower processing time than the other schemes -- three to five months officially, but generally one to two in practice -- but are potentially willing to negotiate price and pay before their process is done, w/ a part of the proceeds held in escrow in case their calculation of gross settlement amount differs from ours.  We will also hear this week their proposal for how this would work, but they have said we should be able to get funds by year-end.

The administrator for Andrew Weir, the other company managed by Omni, is working on pricing also, and promised it for this week or next.  He is subject to the same time constraint as OIC/E&A noted above, but is willing to give us all or most of the current payout before Omni finishes its work, so we should have that $700k in by year-end as well.

Assuming all of the above works as planned, we should have all funds recovered by year end except the tails of PRO ($700k) and Andrew Weir ($200k), and whatever haircut or escrow amount OIC/E&A want to hold back pending final calculation of Gross Settlement Amount.

Pipeline

This is a snapshot of the pipeline/opportunities.  Unless otherwise noted, assume gross margins of 30%.  The last four items illustrate that the markets we are selling to are increasingly willing to give us a number up front on claims that they have been unable to settle, which removes much of the uncertainty regarding valuation, and makes our origination efforts more focused.

Pacificorp -- $225k price agreed
Hercules -- close to agreement on $1.2MM price
Dupont -- negotiating price of approximately $1.5MM
Owens Illinois -- negotiating price of approximately $3.75MM
Burlington / Santa Fe -- negotiating price of approximately $1.4MM
Home Insurance is working up numbers on all or part of a portfolio that we can purchase from their insureds for $75MM
Equitas has identified 6 claims for which they will pay us $12MM for the solvent piece alone -- upside would be the difference between that figure and what we can buy them for, plus everything that can be recovered from the schemes
KMS has given us numbers up front that they will pay for their piece of Foster Wheeler and PPG -- negotiating now w/ insureds
Equitas has given us a number of $100MM for Kaiser Aluminum, and KMS has given us a number of $20MM -- negotiating w/ Kaiser to try and obtain purchase price of $120MM, so all value sold to other schemes in excess of $5MM would be upside