Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: Mark Adams who wrote (136658)	12/2/2001 1:55:39 PM
From: Mark Adams	Respond to of 436258

On ENE Derivative netting; Bilateral Netting and Risk Reduction Enron bondholders are subject to principal risk. In contrast, Enron’s derivative counterparties are subject only to the market value of the contracts outstanding. Importantly, for a given counterparty, credit exposure to Enron is significantly reduced with bilateral netting agreements. Briefly, bilateral netting is a legal agreement between two counterparties that creates a single obligation covering all individual contrast. Hence, in the event of an insolvency of one of the parties, the obligation would be the net sum of all positive and negative fair values of the contracts included in the netting agreement. Counterparty risk can be significantly reduced by bilateral netting. The best example of this is the amount of risk Commercial Banks reduce via the practice. The Office of the Comptroller of the Currency (OCC) reports quarterly figures on the amount of gross exposure eliminated by bilateral netting. Most recently (Q2), banks reduced gross exposures by by 71.2%. While in aggregate it is impossible to know how much risk will be reduced as the result of Bilateral netting, and there are some very important limitations for its use, for individual counterparties net risk to the credit will clearly lower than gross amount of contracts outstanding. In sum, we do not view Enron’s insolvency as a systemwide problem due to counterparty risk. It is more a case of several entities having a loss, but a manageable one. Most of the recent reports written by Banks, Utilities and Oil and Gas companies suggest that this is the case. Furthermore, Dynegy’s bid gave many counterparties time to reduce risk to Enron by either raising collateral on in-the-money position or entereing into offseting posistion. From a Merril Lynch report on Bonds. No link available...