Ask the Scholar
Document scope · 1 page
Scholar
Ask about this object, its catalog metadata, its source description, or the page inventory.
For page-specific OCR and visual context, open one of the page chats.
Scholar Source Context
Document identity
localId
55280112
label
Potential Deliverables
core
doc
dtoType
document
citationUrl
pageCount
1
Source metadata
id
55280112
sourceUrl
contentType
document
title
Potential Deliverables
citationUrl
collections
Records of the Office of Policy Development (Clinton Administration)
Lisa Green's Files
imageCount
1
hasImages
yes
source
import
hasTranscription
no
Source extras
naId
55280112
levelOfDescription
fileUnit
otherTitles
42-t-26466288-20120043S-015-004-2017
recordType
description
ocrSource
nara-archive
Single page context
seq
1
pageIndex
0
type
document
mediaId
ed090e4ba1dce517
ocrText
Houston Economic Opportunity Fund
("HEOF")
IT
ENRONN
11-9-21 DATE: on INTEREST
ADMINISTRATIVE MARKING
DETERMINED TO BE AN
2012-0043-S
COMMUNITY MUNIT
CAPITAL
Confidential
Table of Contents
I.
HEOF PROGRAM OVERVIEW
A. Equity - The Missing Link
B. Objectives
C. Business Strategy
D. Partnership Strengths
E. Strong Investment Performance
F. Fund Structure Diagram
G. Overview of Fund Terms
II.
TRANSACTION APPROVAL AND ASSET MANAGEMENT PROCESS
III. RISK ASSESSMENT AND CONTROLS
IV. PROSPECTIVE INVESTMENTS
A. Community Call Center
B. HEOF Expected April Fundings
C. Transactions Under Review
V. APPENDIX:
A. HEOF Partners
a. Enron
b. Intrust USA
C. Covenant Community Capital
B. Summary of Investment Terms
C. Contact List
IT
ENRON
1
Equity - The Missing Link
Sources
Uses
Federally Mandated and
Voluntary Senior Debt
$
Identified
Community
Investment
Opportunities
Community Focused
For-Profit
Equity
"Houston Economic Opportunity Fund, L.P."
(HEOF)
IT
ENRON
2
HEOF Objectives
Develop a premier for-profit community investment vehicle, creating significant
value for investors, community partners and local entrepreneurs.
Employ community-proven, public-private partnerships that utilize a market-
based model and genuine competitive advantages.
Leverage Partners' core industry and structuring competencies with other key
competitive advantages in Houston's inner city.
IT
NORNE
3
HEOF Business Strategy
STRONG
FOCUSED
PROJECT
INDUSTRIES
PIPELINE
Focus on investments that
Strong project pipeline though alliances with:
complement Partners core
Community development corporations
industry knowledge:
BUSINESS
(CDC's)
Real Estate
STRATEGY
Financial Institutions with community-
Call Centers
based initiatives
Light Industrial
Women/minority owned business
organizations
WIN/WIN
WAR ROOM
FINANCIAL
APPROACH
STRUCTURE
Engage community support by developing
Develop integrated approach to deal
financial structures that are win/win for
structuring and risk management
investors, entrepreneurs and community
One-stop shop for equity, debt placement,
partners
management consulting and accessing
city/federal resources
IT
ENRON
4
Partnership Strengths
"PUBLIC/PRIVATE PARTNERSHIP MODEL"
"INTERMEDIARY"
"COMMUNITY PARTNER"
Significant experience in community
Market-driven community partner
development financing
Large network of community
Institutional network of community
INTRUST
COVENANT
development organizations and deal
development investors
flow
Industry experience in real estate and
Access to city, state and federal
call center development
resources
ENRON
Understands community needs and
political landscape
Board has significant experience in
small business lending
"LEAD SPONSOR
(CATALYST)"
Capital partner (lead sponsor)
Innovative/entrepreneurial culture
Considerable experience in risk
management, financial structuring and
asset management
Significant experience in private equity
investments
IT
ENRON
5
Strong Investment Performance
JEDI I
JEDI II
Closing Date:
June 1993
December 1997
Committed Capital:
$500MM
$1,000MM
Partners:
Enron/CalPERS
Enron/CalPERS
Credit Facility Size:
$500MM
$500MM
1
Total Capital Invested:
$1,600MM
$750MM
Date of Limited Partner's Exit:
November 1997
N/A
Target IRR:
15.0%
20.0%
2
3
Limited Partner's Return at Exit:
22.5%
30-34%
Comparable Market Returns:
4
E&P Equity Basket
12.8%
N/A
S&P500
22.8%
28.8%
1 Includes reinvestment of capital from dispositions during the commitment period.
2 Net of carried interest and expenses.
3 Returns for non-realized investments based on valuations as of December 31, 1998.
4 Comprised of 33 small-to-mid-cap E&P companies.
LT
ENRON
6
Fund Structure Diagram
Enron Affiliate
Investor (s)
Regular L.P.
Regular L.P.
$19.5MM
$30MM
Enron Affiliate
50% G.P.
99% L.P.
$49.5MM
1% G.P.
HEOF L.P.
Covenant
$0.5MM
$50MM
Special L.P.
Intrust
50% G.P.
INVESTMENTS
IT
ENRON
7
Overview of Fund Terms
Description:
Houston Economic Opportunity Fund, L.P. ("HEOF", the "Fund")
Delaware Limited Partnership sponsored jointly by Enron Corp.,
Intrust USA and Covenant Community Capital.
Capital Contributions:
$50 million
General Partners:
Enron and Intrust to act as Co-General Partners.
Special Limited Partner:
Covenant will be the Designated Community Partner through an
advisory relationship with the Fund.
Regular Limited
Financial institutions, federal agencies and other corporate
Partners:
entities with interest in program strategy.
Permitted Portfolio
Defined as Investments in woman- and minority-owned
Investments:
businesses or in Project Entities located in the following:
i.) Houston Enhanced Enterprise Community
("EEC");
ii.) State enterprise zones; and
iii.) Within census tracts in which 50% or more
of households earn 80% or less than the
area median income.
IT
ENRON
8
Overview of Fund Terms
Types of Industries:
Light industrial projects, residential and commercial real estate, retail-
based businesses, call centers and women/minority-owned vendors
to Houston corporations.
Investment Structure:
Common stock, preferred and convertible preferred stock, income
participation certificates and subordinated debt.
Investment Diversification:
No single investment will exceed the greater of $5 million or 10% of
the Fund commitments, and no less than $50,000 initial funding.
Distributions:
Capitalized Gen.
Earned Interest
Partners & Reg.
Limited Partners
Enron/Co-GP
Intrust/Co-GP
Covenant/Special LP
Before a Return of Capital plus
100%
0%
0%
0%
8% Return on Capital
After a Return of Capital plus
8% Return on Capital is
80%
10%
5%
5%
Achieved by the Reg. Ltd.
Partners
IT
ENRON
9
Overview of Fund Terms
Investment Decisions:
Limited to Enron and Intrust with appropriate input from
Covenant.
Commitment Period:
Three years from the date of first closing with option to extend for
two successive one-year periods by the General Partners.
Term:
The first to occur of:
i). the third anniversary of the expiration of the
Commitment period; or
ii). the sale of the Partnership Interest resulting
in a single owner ; or
iii). withdrawal or bankruptcy of the last
remaining General Partner.
Management Fees:
2.5% per annum payable by the Regular Limited Partners based
on the total of funded and unfunded Commitments.
Formation Expenses:
2% of the Commitments for reimbursement of General Partners'
and Special Limited Partner's previously incurred organizational
expenses.
IT
ENRON
10
HEOF Transaction Approval and Asset Management Process
1
ORIGINATION
2
UNDERWRITING
@ASSET
4
FIDUCIARY
MANAGEMENT
Transaction
Deal Structuring
Asset Compliance
Financial Reporting
Identification
Legal
Covenant Compliance
Quarterly/Annual Financial
Intrust
Tax/Accounting
Project Financial Reporting
Statements
Covenant
Enron/Intrust
Operational
Portfolio Performance
Enron
Final Term Sheet
Reports/Budgets
Reporting
Final Approval
Account Management
Ongoing Monitoring of Assets
Screening of Initial
Investments
Intrust
Asset Performance
Investor Meetings
Intrust
Covenant (input)
Risk Management
Regular Investor Meetings
Covenant
Board Representation
Arbitration/Resolutions
Enron
Enron
Closing/Funding
Client Visits
Preliminary Due
Documentation
Restructuring/Liquidation
Diligence
Press Release
Market/Project Analysis
Funding
Credit Analysis
Deal Summary Report
Base Case Model
Preliminary Approval
Confidentiality/LOI
Preliminary Term Sheet
IT
ENRON
11
II
Enron Corp.
ENRON
Risk Assessment & Control
126
Risk Assessment & Control Group ("RAC")
Professionals
Enron Board of
Directors
President & COO Enron
Jeffrey K. Skilling
Chief Risk Officer
Richard B. Buy
Market Risk
Credit
Management
Risk
Resource
Underwriting
Risk
Controls
Analytics
Evaluation
Research
Management
Ted Murphy
Randy Petersen
Mark A. Ruane
Monte L. Gleason
William S. Bradford
Vince Kaminski
LT
2000
13
Evaluating Risk
Board of
Directors
Capture and
Identify,
Optimal
Protect
Risk
Performance
Understand
Monitor,
Capital
Shareholder
Senior
Controls
Measurement
Management
Risks
Analyze Risks
Allocations
Infrastructure
Value
IT
ENRON
14
Enron Corp. - Risk Assessment & Control
ENRON
Underwriting
Presented by:
Randy Petersen
Vice President
Underwriting Group
Richard B. Buy
Chief Risk Officer
Randy Petersen
Patrick Hickey
Vice President
Steve Young
Vice President
EREC; Gas & Power;
Vice President
International
Oil Field Services;
London
Telecom
Brad Larson
Karen Barbour
Director
Director
Cynthia Schneider
David Crews
Domestic Oil &
Azurix; Industrial
Director
Director, London
Gas Financing
Services; EES; EEDC
Coal; International
Olivier Herbelot
Director, London
Experienced group of financial professionals responsible
for transaction analysis, evaluation and structuring.
IT
ENRON
16
30
Underwriting & Risk Analysis Group
Professionals
Richard B. Buy
Chief Risk Officer
Mark A. Ruane
Vice President
Randy Petersen
Vice President
Gas & Power;
Tara Turk
Mark Meier
Kirk Neuner
Oil Field Services;
Sr. Analyst
Steve Young
Alex Engles
Sr Financial Analyst
Associate
Telecom
Vice President
Manager
Joseph Escobar
Martin O'Leary
Diana Profir
Patrick Hickey
Associate
Sr Financial Analyst
Associate
Vice President
David Crews
Jon Alan Page
International
Director
Manager
Mark Hobbs
Christopher Robinson
Hala Tayyarah
Associate
Sr Financial Analyst
Associate
Brad Larson
Director
Olivier Herbelot
Domestic Oil &
Director
Omar Mubtuler
Jeff Soo
Michelle Wenz
Gas Financing
Associate
Sr Financial Analyst
Associate
Cynthia Schneider
London Office
Emilio Ayanz
Suzanne Farrow
Director
Moises Woll
Analyst
Associate
Associate
Coal/International
Eliott Mainzer
Tyrell Harrison
Karen Barbour
Associate
Analyst
Director
Azurix; ISG; EEDC
Experienced group of financial professionals responsible
Lee Jackson
Stacy Neuman
for transaction analysis, evaluation and structuring.
Associate
Intern
IT
ENRON
17
Transaction Approval Process
Enron Board of Directors Actively Reviews Capital Transactions
RISK ASSESSMENT
& CONTROL
DEAL
APPROVING
ORIGINATING
(RAC)
$MM
UNIT
ENTITY
BUSINESS
UNIT
TRANSACTION
$5 million
BUSINESS
REVIEW
UNIT
Capital
CONFORMING
Expenditure
RISK ANALYTICS
PORTFOLIO
Request
$75 million
CEO/COO
(>$500,000)
REVIEW
BOARD OF
PRICING
$75+ million
DIRECTORS
$25 million
CEO/COO
NON-CONFORMING
TRANSACTIONS
BOARD OF
$25+ million
DIRECTORS
IT
ENRON
18
Transaction Universe
Underwriting
Products
Domestic and International
Markets
Gas
Paper
Project Fir
Power
.
Corporate Equity
.
Metals
Oilfield/Services
IT
19
TRANSACTION
REVIEW
Transaction Review
RISK ANALYTICS
PRICING
Engineering &
Credit
Tax
Market
Legal
Accounting
Insurance
Research
Risk
Origination
Underwriting
Analytics
Portfolio of
Investments
Syndicate
Hold
IT
ENRON
20
Transaction Review
Financial Projects
Structure Review
- Evaluation of critical assumptions
- Cash flow matches debt amortization
- Realistic vis-à-vis historical
- Cash flow risk matches pricing for
- Accurate (modeling mistakes)
investment
- Risk Analytics (RAROC)
- Review of contract
- Documentation of credit provisions in
contracts
- Collateral/ Security
Character Review
Sovereign Risk
- Transaction consistent with
Enron philosophy
- Repatriation
- Management reputable
- Currency devaluation
- Value to customer and Enron
- Inflation
- Insurance
- Political Climate
- Economic environment
IT
ENRON
21
Example Transaction Approval Document
ENRON RISK ASSESSMENT AND CONTROL
NON-HEDGABLE (IDIOSYNCRATIC) RISKS
DEAL APPROVAL SHEET
RISK
DESCRIPTION
MITIGATION/COMMENTS
DEAL NAME:
EXAMPLE TRANSACTION Date DASH Completed:
12/18/98
Construction Cost Overruns and
Counterparty:
RAC Analyst:
Business Unit:
Azurix
Investment Type:
Delays
Business Unit Originator:
J. Paul Oxer
Capital Funding Source(s):
Management Risk
Public
X
rivate
Expected Closing Date:
Heat Rate Risk
Merchant
X
Strategic
Operator Risk
Expected Funding Date:
Operating Expense Risk
X
Conforming
Nonconforming
Board Approval: X Pending
Received
N/A
Trapped Cash Risk
Bid Bond Risk
DEAL DESCRIPTION
Equity Syndication Risk
Strategic Interest is a water and sewage company in a South American Country (SAC).
Country Risk
Acquire an interest from the SAC government of between 39.8% and 50% of the Strategic
HEDGABLE OR MARKET RISKS
Interest, and through a Shareholders' Agreement be granted control over all but a limited number
of corporate matters. It serves a population of 2.0 million and has approximately 400,000 water
Foreign Exchange
Include curves used. description of hedges in place. functional currency of the
customers and 300,000 wastewater customers. All customers are metered with a collection rate at
Risk
transaction.
approximately 95%. Average water losses of 40% can be reduced to 30% in five years.
Interest Rate Risk
include interest rate basis of outstanding or projected debt. Describe hedges in
Azurix requests approval to acquire the Strategic Interest for cash consideration of up to $150 million.
place at transaction level. Does not include issues related to Enron's funding of
the transaction. Note that all transactions carry interest rate exposure through
TRANSACTION SOURCES AND USES OF FUNDS ($ Thousands)
the discount rate.
Sources
Uses
Enron Equity
$140,000
Acquisition
$140,000
Equity Risk
Include for all non-structured credit transactions. Include discussion of
Total
$140,000
$140,000
adjustments to value made for lack of liquidity. Note that equity market risk is
reflected as a component both of the exit multiple and the discount rate. Market
comparables are required for all private merchant transactions. List comps and
SUMMARY (note - each instrument must be shown- options must be shown separately)
the associated multiples used if applicable.
($000)
Credit Risk
Include for all structured credits. Describe rating (implied or otherwise) for the
Capital Commitment:
$140,000
Weighted Average Life (yrs.):
19.00
counterparty. Include discussion of how credit risk is modeled. Note that credit
Bid Bond Amount:
$10,000
risk is reflected as a component of the discount rate.
PV @
Cumulative
Inflation Risk
Discuss impact of inflation on cash flows
Return Components:
Capital Price
IRR
Capital Price Components
Commodity Risk
Include commodity volumes, base curves. source of curves, relative market
Cash Outflows
148,737
N/A
Risk free rate (%):
5.50
liquidity, hedges in place at transaction level. Include attachments if necessary.
Fees
0
0.00%
Equity/Credit premium (%):
5.00
Intermed. Cash Flows
140,014
11.95%
Country Premium (%):
3 50
SYNDICATION (ECM):
Terminal Value
54,983
18.50%
Other (%):
3 00
Immediately syndicatable at current capital price
Total NPV
66,169
18.50%
RAC CAPITAL PRICE:
17.00%
Syndication within one year at current capital price
Not syndicatable at current capital price
N/A
EXISTING EXPOSURE
NPV @ Risk-Pree Rate
Adjusted for Sovereign Premium
APPROVALS:
Name
Signature
Date
160%
RAC Management
John Hopley
140%
John Hoply
1-21-99
120%
Enron Capital Management
Andy Fastow/Jeff McMahon
Texto
1-21-99
100%
Business Unit Originator
J. Paul Oxer
JP Oxen
1-21-99
80%
60%
Business Unit Legal
Sheila Tweed
Shesta Juad
1-21-99
40%
20%
Portfolio Manager
Jere Overdyke/Cliff Shedd
Inc
1-21-99
00%
Business Unit Mgmt
Joe Sutton
the S.
1-21-99
$8.551
$44,868
286
705
SUN
$205.123
123
542
960
$151
$205
$268
1111
$165,179
1418 797
$472.216
$525.635
$579.051
$632,472
5685,890
601 6825
601
$792.727
727
3
$792
ENE Management
Jeffrey Skilling
Iff Alling
1-21-99
IT
ENRON
22
Underwriting Summary
Assurance that returns are evaluated relative to the risks assumed and
provide independent quantitative and qualitative feedback to senior
management.
Mitigate risks in transactions where appropriate.
Provide input to enhance the quality of the transaction.
Coordinate other internal resources (tax, legal, accounting, insurance,
trading, etc.) for transaction evaluation and capital allocation.
Participate in negotiations with origination as necessary.
Assist in syndication efforts when appropriate.
IT
FROMON
23
Enron Corp. - Risk Assessment & Control
ENRON
Risk Analytics
Presented by:
Mark Ruane
Vice President
Risk Analytics Process
Review
Deterministic
Understand
Analyze
of models and
1 E
it
Transaction
Transaction,
Risks and
methodologies
Model
Audit Model
Assumptions
Probabilistic
analysis
Apply
Simulate
Evaluate
for private
Distributions
Possible
Probabilistic
investments
to Capture Risks
Outcomes
Results
Documentation
Deal
Documentation
of investments
Ongoing
Approval
value and risks
Revaluation
of Changes
Documents
in Value
IT
ENRON
25
Audit of Models and Methodologies
Identification transaction risks
Review of transaction models to insure
integrity of assumptions and analysis
Fundamental Analysis
Provide valuation and modeling standards for
all capital transactions
- Third party review (research, auditors,
consultants)
- Modeling policies documented and
distributed
- Training provided for analysts
IT
ENRON
26
Probabilistic Analysis
Recognizes the uncertainty inherent in non-traded asset values
Equivalent to running numerous cases for every transaction
Allows determination of embedded option value
("real option" valuation)
Enables estimation of probabilities associated with different outcomes
Frequency
Deal B
P5
P95
$ Return
Expected
Example of two transactions which have the same expected return, and the
probabilistic analysis shows that Deal B is risker than Deal A.
IT
NOHNE
27
Deterministic VS. Probabilistic Analysis
$ Return
Frequency
Low
P5
Expected
"Base
P95
High
Case
Case"
Case
NPV
P5 - The point on the distribution below which 5% of the occurrences lie. An approximation of
transaction downside potential
Expected - The average NPV for the distribution
P95 - The point on the NPV distribution below which 95% of the values lie; an approximation of
transaction upside potential.
IT
ENRON
28
Documentation of Investment Value and Risks
Market
Probabilistic
Comps
Results
Deal Approval
Sheet
Capital
Documentation
Price
of Risks
IT
END
ENRON
29
Conclusion
Enron has invested in the people, tools, and systems necessary for
effective risk management.
Enron highly values an independent group focused on controls.
Integration of multiple disciplines in Risk Management Controls Group
enhances overall effort.
The Board of Directors' involvement indicative of Enron's focus and
commitment to monitor risk.
Commitment includes applying sophisticated concepts (relative to
financial securities industry) that are appropriate for Enron's unique
markets and risks.
IT
ENRON
30
Houston Economic Opportunity Fund, L.P. - Funded
Transactions
Type of
Investment
Summary
Investment
Size
Community Call Centers, L.P.
Startup call center in partnership with Fifth
Equity
$2.7 MM
Ward and AAMA. Creates approximately 400
jobs with duplication potential to other
communities.
MFR Group, Inc.
Acquisition of equity ownership in Mir, Fox,
Equity
$2.0 MM
Rodriguez parent company. Capital to be used
for development of educational software and
internet access business.
International Commerce, Inc.
Second round financing for MFR lead
Equity
$1.0 MM
development of internet access for Hispanic
and Latin American communities.
IT
ENRON
31
Transactions Under Review
Type of
Investment
Summary
Investment
Size
Limousine Service
Working capital for eight-year-old limousine
Equity
$300,000
service.
Restaurant
Expansion capital for positive earnings
Equity
$300,000
downtown Houston.
Network Cable Installation Co.
Expansion/working capital for five-year-old
Equity
$300,000
network cable installation firm.
to
$500,000
Restaurant
Startup capital for community backed
Equity/
$500,000
restaurant entrepreneur.
Sub-Debt
IT
ENRON
32
APPENDIX
33
ENRONNE
Total Assets:
$30 Billion
Total Revenues:
$31
Billion
Wholesale
Exploration
Transportation
Retail
and
Energy
New
and
Operations
Energy
Businesses
Production
Distribution
and Services
Services
Enron Oil & Gas
Gas Pipeline Group
ECT North America
Enron Energy
Renewable Energy
Operate Enron's interstate
Commodity & Trade Services
Services
Leading low-cost supplier of
Company
Responsible for conducting trading and
pipelines
risk management transactions involving
Develop Enron's retail
renewable energy utilizing solar
One of the largest
One of the largest natural
domestic natural gas and electricity
business in deregulating
and wind hydroelectric &
independent oil and gas
gas transmission systems
Responsible for global risk management
markets offer energy
geothermal power resources
companies in U.S.
overseeing Enron's commodity and Interest
commodities & services to
- Majority owned by Enron
in the world
rate positions worldwide
end users
Acquired Zond Corp., wind
-
2.8 Tcfe Reserves
turbine generator in 1997
Portland General
Energy & Finance Services
Targeting commercial &
Increasing international
Focused on developing physical &
light industrial customers
Enron
activity:
Electric
financial products and services and
developing long-term relationships with
Pactel
Communications
Trinidad
Portland General Electric
domestic customers
- University of California
Includes:
Focused on delivering high
Venezuela
& California State
(PGE) is Enron's electric
Upstream Finance
quality, high bandwidth
Qatar
utility that provides electricity
ECT Canada
University
Mozambique
Utility Solutions
- Federal Cable
applications to businesses
to nearly 700,000 customers
- Transportation Services
(video) - screen to screen.
China
-
Industrial Services
(1.4 million people in Oregon)
Bentley Group
Created the first network solely
Emerging Opportunities
for, and capable of, delivering
Charged with developing new business
these business applications
opportunities such as coal, pulp & paper,
plastics and weather derivatives
today.
National Capability
ECT Europe
Pure IPSM
Responsible for Enron's business in the UK
Low Cost
and Europe as energy markets open
Azurix
Enron International
Poised to Become the Major
Leading developer and provider of
Global Water Company in a
merchant
$300 Billion Market Wessex:
and finance services for integrated energy
projects in Europe, Asia, Latin America
1.1 Million Water Customers
Premier energy company in S. America
2.5 Million Wastewater
Bolivia to Brazil Pipeline
Electra-Elec. Utility in Brazil
Customers
Agro-Elec. Utility in Venezuela
Regarded as Most Efficient
- Largest foreign investor in India
Operator in England
2,470 MW Dabhol Power Project
Enron Engineering & Construction
Enron Economic
-
Enron Global Power &
Development Corp
Pipelines
Charged with providing Equity
Owns and manages power plants and
and Mezzanine Capital, initially
natural gas pipelines in developing markets
34
in Houston's underserved
markets
1999 Fortune's
America's Most Admired Companies (476 Companies Ranked)
INNOVATIVENESS
Rank
Score
Rank
Score
1. Enron
9.18
1. Enron
8.93
2 Intel
8.66
2. Mirage
8.50
Resorts
3. Nike
8.54
3. Herman
8.43
4 Years In a Row!
Miller
March 1998
March 1999
Rank
Score
Rank
Score
1. Enron
9.01
1. Enron
9.16
2. Mirage
8.87
2 Rubbermaid 9.06
Resorts
3.
Intel
9.04
3. Intel
8.90
Source: Fortune, March 1999
March 1997
[
March 1996
IT
ENRON
35
Enron Core Competencies
Provides wholesale
commodity services
Cash/Physical
Backed by gas, power
and liquids assets
Asset management and
operation
Natural Gas
Asset Development
and Construction
Electricity
Risk Management
Other Energy
Project development
Commodities
and construction
Structures long-term,
integrated transactions
Finance
Provides debt and equity
capital to producers and
other energy companies
IT
ENRON
36
Finance
ECT has provided approximately $4 billion in debt and equity to our customers
and suppliers since 1991
Relationships with producers and end users of energy and increasing open
access leads to energy-based finance opportunities
--
Oil and gas producers
-
Oil field services
Independent power producers
-
Industrials (aluminum, paper, chemicals)
Utilities (municipal & investor owned)
IT
ENRON
37
HEOF Partners . Intrust USA
Intrust USA, founded in 1985 by James F. Mingey, President and CEO.
Collective experience includes over 70 years in banking, real estate, asset
management, finance, marketing and community development.
Certified by the U.S. Treasury as a Community Development Financial
Institution (CDFI).
Principal office in Wilmington, Delaware
Since inception, raised approximately $200 million in private equity for
investments in more than 85 projects nationwide.
Currently managing partnerships totaling over $30 million for projects located in
New York, New Jersey and Pennsylvania.
Clients include Chase Manhattan Bank, J.P Morgan Community Development
Corporation, Bank of New York, Texas Housing Finance Corp. and the 5th Ward
Community Development Corporation.
IT
ENRON
38
HEOF Partners - Covenant Community Capital
Nonprofit organization founded in 1997 by Stephan Fairfield, Founder and
President.
Mission: To enhance the beauty, safety and economic vitality of low-income
communities through the development of affordable housing, growing business
enterprises and the building of community assets.
Current Board Members include the follow:
Marlon Mitchell, Executive Director of the Houston Small Business
Development Corp.;
Tina Moore, Executive Director of Pyramid Community Development Corp;
John Cochran, a Houston lawyer and longtime supporter of community
development activities;
Marshall Tyndall, Senior Program Director of Houston's Local Initiative
Support Corporation ("LISC").
Collectively the Board of Directors has extensive experience in banking, small
business lending, real estate, taxation and law.
IT
ENRON
39
HOUSTON ECONOMIC OPPORTUNITY FUND, L.P.
SUMMARY OF INVESTMENT TERMS
FOR
HOUSTON ECONOMIC OPPORTUNITY FUND, L.P.
January 26, 1999
Investment Entity:
Houston Economic Opportunity Fund, L.P., a Delaware limited
partnership ("HEOF" or the "Fund"), sponsored jointly by
Enron Corp. ("Enron"), Intrust USA ("Intrust"), and Covenant
Community Capital Corporation ("Covenant").
Investment Objective:
To achieve long-term capital appreciation through investments
in economically viable projects in Houston's underserviced and
economically disadvantaged communities. The Fund will target
investments with entities (a "Project Entity") that will achieve
compensatory returns for the risks undertaken through
investments in equity and mezzanine securities and/or loans
with equity features.
Partners:
An affiliate of Enron Corp. (the "Enron General Partner") and
Intrust will act as the Fund's general partners (the "General
Partners"). Covenant will act as the Fund's Designated
Community Partner through an advisory relationship with the
Fund and a holder of a special limited partnership interest (in
such capacity, the "Special Limited Partner").
Enron and a number of institutional investors will invest in the
Fund through their purchase of regular partnership interests
(the "Regular Limited Partners" and, together with the Special
Limited Partner, the "Limited Partners"). The General Partners
and the Limited Partners are hereinafter collectively referred to
as the "Partners."
Under certain circumstances to be set forth in the Limited
Partnership Agreement, a General Partner may convert its
General Partnership Interest into a Limited Partnership Interest.
Capital Commitments:
The Fund is seeking aggregate capital commitments (the
"Commitments") from Accredited Investors as Regular
Limited Partners of $50 million. The Fund will be capped at a
maximum of $50 million in aggregate Commitments. Enron is
expected to provide an initial Commitment of approximately
1
Term.Sheet.16
HOUSTON ECONOMIC OPPORTUNITY FUND, L.P.
$20 million. At the initial Closing, each General Partner will
commit its proportionate share for its 0.5% General Partnership
Interest. In addition to their capital commitments, Regular
Limited Partners shall pay a formation fee equal to 2.0% of
their respective capital commitments.
Closing:
The initial closing will occur at the election of the General
Partners, but not earlier than the commitment of $50 million or
April 30, 1999. Notwithstanding the foregoing, the General
Partners may elect to have several closings.
Commitment Period:
From the date of initial Closing through the third anniversary
thereafter (the "Commitment Period"). The General Partners
shall have the right, upon 90 days notice to the Partners, to
extend the Commitment Period for up to two (2) successive
one-year periods. Upon expiration of the Commitment Period
(including any extensions thereof, if any), Regular Limited
Partners will have no further obligation with respect to their
unfunded Commitments, except to the extent necessary to: (i)
pay the expenses of the Fund and (ii) complete investments by
the Fund in transactions which were in process as of the end of
the Commitment Period.
Term:
The Fund shall begin an orderly liquidation of its investments
with the first to occur of the following:
(i) the third anniversary of the expiration of the Commitment
Period;
(ii) the closing of a sale, merger or exchange of the
Partnership Interests that results in a single person owning
all of the Partnership Interests; or
(iii) removal, bankruptcy or withdrawal of the last remaining
General Partner unless a substitute General Partner is
elected as provided by law.
Drawdowns:
It is anticipated that the Commitments will be drawn pro rata
during the Commitment Period on an as-needed basis upon ten
business days' prior written notice to the Regular Limited
Partners.
Commitments Made
Subsequent to the Initial
Closing:
Regular Limited Partners may be admitted at any time in the
one-year period subsequent to the initial closing. Any such
2
Term.Sheet.16
HOUSTON ECONOMIC OPPORTUNITY FUND, L.P.
additional Regular Limited Partners will be required to fund:
(i) their proportionate share of any legal, other organizational,
and Fund expenses to date plus interest at Prime plus 2%, and
(ii) their proportionate share of the original cost of any
Portfolio Investment made prior to their admission plus interest
at Prime plus 2%. For purposes of this provision, Portfolio
Investments generally will be valued at original cost, unless
there has been a material change or significant event relating to
the portfolio company which would justify a different
valuation.
Leverage:
The Fund may elect to enter into a credit facility (the "Credit
Facility") with a group of financial institutions subject to the
approval of the General Partners. If required by the financial
institutions providing the Credit Facility, the Regular Limited
Partners' commitments may be pledged to secure the Credit
Facility.
Permitted Portfolio
Investments:
Any business investment involving a Project Entity located in
Houston's Enhanced Enterprise Community ("EEC"), state
enterprise zones, or within census tracts in which 50% or more
of the households earn 80% or less than the Area median
income. Area shall be defined as the Greater Houston Standard
Metropolitan Statistical Area.
Permitted Portfolio Investments will include commercial and
residential real estate, financial services institutions, light
industrial projects, call centers, retail-based businesses and
women/minority-owned businesses which supply goods and
services to Houston corporations, including the Partners. A
Project Entity must not be primarily engaged in the sale of
pornography, firearms, liquor, or gaming. Investment structures
will include, but are not limited to, common stock, preferred
and convertible preferred stock, income participation
certificates, limited liability company membership interests,
partnership interests, warrants, subordinated debt, and loans
with equity features.
Any business investment which involves the displacement of
households earning less than 50% of the area median income
will require the project company to prepare a relocation plan
for approval by the General Partners with advice from
Covenant.
3
Term.Sheet.16
HOUSTON ECONOMIC OPPORTUNITY FUND, L.P.
Social Objectives:
The social objectives of the Fund include:
(a) creating or expanding profitable business enterprises in the
targeted areas;
(b) creating living-wage job opportunities within targeted
areas; and
(c) expanding the availability of retail services and affordable
housing within the targeted area.
The Fund will give additional consideration for investments in
enterprises owned and managed by minorities and women.
Investment Size;
Targeted Small
Investments:
No single investment may exceed the greater of $5 million or
20% of total funded and unfunded Commitments (including
any amounts that may be raised under the Credit Facility), nor
less than $500,000 in investment size. However, approximately
10% of the Fund's committed capital, or $5 million, will be
earmarked for investments of less than $500,000, of which no
more that 20% (i.e., $1 million) may be investments of
between $50,000 to $100,000.
Origination:
Intrust shall be responsible for identifying Permitted Portfolio
Investments for the Fund. Intrust will grant the Fund a right of
first refusal to fund any investment originated or sourced by
Intrust which satisfies the definition of a Permitted Portfolio
Investment. Intrust will conduct origination, due diligence and
deal structuring functions for the Fund with appropriate input
from the Enron General Partner. Intrust will be responsible for
initiating and coordinating meetings with prospective
businesses, performing preliminary due diligence analysis and
coordinating meetings with financial institutions, including
meetings with funding sources from city and state
organizations. Intrust will also coordinate any deal flow that
may originate through Covenant or the Enron General Partner.
Covenant will be responsible for confirming that transactions
identified by the Fund have community support and
participation. Covenant will pre-select neighborhood
entrepreneurs with viable business plans. Viable projects
identified by Covenant will be submitted to the Fund for
analysis and evaluation. However, the Fund shall not be
obligated to fund any such projects identified by Covenant.
Any pre-development expenses incurred by Covenant with
4
Term.Sheet.16
HOUSTON ECONOMIC OPPORTUNITY FUND, L.P.
respect to a potential investment will be reimbursed only to the
extent that such investment is funded by the Fund and thus
meets the Fund's underwriting guidelines.
Transaction Structuring and
Final Due Diligence:
The Enron General Partner will provide transaction-structuring
support and perform final due diligence analysis on all
investments submitted to the Fund. Transaction structuring
support will include the negotiation of investment terms,
valuation, negotiation of documents, structuring for tax
purposes, and other duties in connection with underwriting
activities. Due diligence analysis by the Enron General Partner
will include, but not be limited to (a) the evaluation of the
Project Entity's management team; (b) assessment of project
viability; (c) identification and mitigation of risk factors; (d)
capital pricing; and (e) pro-forma financial analysis. The Fund
will not make any investment that has not been approved
through the Enron General Partner's due diligence process.
Asset Management:
Asset Management functions will be provided by Intrust and
overseen by the Enron General Partner. Intrust will be
responsible for monitoring all investments made by HEOF.
Asset management functions will include monitoring the
performance of the asset by reviewing financial and operational
reports, covenant compliance, attending board meetings, and
conducting visits to the client company. Within 15 days after
the end of each fiscal quarter, Intrust will prepare or cause to
be prepared a financial report showing a comparison of actual
to projected cash flow on a Project-by-Project basis as well as
on a Program basis. Within 30 days of the end of each fiscal
year, Intrust will calculate the portfolio rate of return for each
investment (provided, however, that formal property valuations
or appraisals will not be required in most cases). Intrust will
also be responsible for providing the Enron General Partner
and the Regular Limited Partners with a Management
Discussion and Analysis of significant events occurring in the
current quarter for each Fund portfolio investment.
Investor Relations:
The Enron General Partner will be responsible for investor
relations and for coordinating any meetings with Regular
Limited Partners.
Reporting:
Intrust will be responsible for financial reporting of the Fund,
overseen by the Enron General Partner. Reporting functions of
5
Term.Sheet.16
HOUSTON ECONOMIC OPPORTUNITY FUND, L.P.
the Fund will include furnishing the Regular Limited Partners
with quarterly and audited (except for Targeted Small
Investments) annual financial statements concerning the
Project Entities in which the Fund has made investments as
well as providing quarterly reports on the overall performance
of the Fund.
Investment Decisions:
Investment decisions with respect to Permitted Portfolio
Investments as defined herein will be made by the General
Partners, based upon the advice from Covenant as to the
community and social aspects of any Permitted Portfolio
Investment.
Fund Administration:
The Enron General Partner shall have veto rights over all
functions which include: (a) any final decisions involving the
initial outlay of capital by the Fund to make a Permitted
Portfolio Investment; (b) decisions regarding the establishment
of both asset management and financial reporting systems
(including working capital accounts); and (c) the disposition of
Fund Investments.
Management Fee:
During the Commitment Period, the General Partners shall be
paid a management fee equal to 2.5% per annum payable
quarterly in advance based on the total of funded and unfunded
Commitments. Management fees will be shared equally
between the Intrust and the Enron General Partner. After the
Commitment Period, the management fee will equal 2.5% per
annum of the amount of funded Commitments, reduced by
distributions constituting return of capital, payable quarterly in
advance.
Operational Expenses:
The Fund will pay all third party costs and expenses relating to
the Fund's on-going activities (to the extent not reimbursed by
a Project Entity), including legal, auditing, consulting and
accounting expenses (including expenses associated with the
preparation of the Fund's financial statements, tax returns, and
K-1's), expenses of the meetings of the Fund, insurance, other
expenses associated with the acquisition, holding and
disposition of Portfolio Investments, all third party expenses in
connection with transactions not consummated, and
extraordinary expenses (such as litigation).
Distributions:
The Fund will not make distributions during the Commitment
Period. The Fund may retain net proceeds from the disposition
6
Term.Sheet.16
HOUSTON ECONOMIC OPPORTUNITY FUND, L.P.
of Portfolio Investments during the Commitment Period for
reinvestment in Portfolio Investments, to repay any Fund debt
obligations, or to meet other obligations or expenses of the
Fund.
After the Commitment Period expires, the Partners will receive
distributions out of the proceeds from Investments (which shall
include all proceeds from dispositions, less expenses, as well as
any dividends, distributions or interest income received from
investments), net of debt service requirements and any reserves
that the General Partners deem necessary to meet obligations of
the Fund.
Investment distributions and allocations will be distributed in
the following order of priority; first, 99% to the Regular
Limited Partners until such owners have received return of
capital (including formation and management fees) and a
preferential return on capital of 8.00%. Thereafter, all
distributions and allocations will be made in accordance with
the following "Sharing Ratios":
Reg. Ltd. Partners Intrust Covenant Enron Gen. Partner
After return of capital
plus 8.00% return on
capital is achieved by
80%
5%
5%
10%
the Regular Limited
Partners
Allocation of Income
and Losses:
Net profits or losses of the Fund will generally be allocated
among the Members in a manner consistent with the
distribution of proceeds described above.
Investment Limitation:
Intrust may not form any new entity whose primary purpose is
making Permitted Portfolio Investments in the Greater
Standard Metropolitan Statistical Area (SMSA) until the
earliest of:
i) the date on which 75% of the aggregate Commitments has
been invested or committed for investment in Portfolio
Investments; or
ii) the expiration of the Commitment Period.
Related Party Interest:
Enron and its affiliates may choose to negotiate with Project
Entities to supply fuel, electrical power and other energy-
related services. All Enron related services would be provided
to projects identified by the Fund on an arms-length basis.
7
Term.Sheet.16
HOUSTON ECONOMIC OPPORTUNITY FUND, L.P.
Structuring and Related
Fees:
Intrust and the Enron General Partner (or an affiliate) will be
entitled to receive structuring fees from the Project Entities
customary for underwriting equity and equity-like transactions
as compensation for their efforts in analyzing, structuring and
successfully closing each Fund Investment. Services include,
but are not limited to, investment selection, negotiation of
investment terms, valuation, due diligence, negotiation of
documents, structuring for tax purposes, and other duties in
connection with investment activities. Structuring fees will be
shared equally between Intrust and the Enron General Partner.
Intrust and the Enron General Partner may elect to provide debt
placement services to projects identified by the Fund. Fees
associated with debt placement advisory services will also be
shared by Intrust and the Enron General Partner.
Removal of Intrust as
General Partner and the
Designated Community:
In the event of (i) a breach by Intrust or Covenant of any of
their respective material obligations under the Limited
Partnership Agreement that has not been cured within 60 days
after notice of such breach from a majority in interest of the
Regular Limited Partnership interests, or (ii) the occurrence of
any action, omission or course of conduct by Intrust or
Covenant in the performance of their duties that constitutes
gross negligence, willful misconduct, fraud or criminal activity
(other than activity resulting in immaterial fines and penalties),
Intrust may be removed in its capacity as General Partner and
Covenant removed in its capacity as Special Limited Partner by
a vote of the Regular Limited Partners holding at least two-
thirds of the Regular Limited Partnership Interests.
Removal of the Enron
General Partner:
In the event of (i) a breach by the Enron General Partner of any
its material obligations under the Limited Partnership
Agreement that has not been cured within 60 days after notice
of such breach from Intrust and the Regular Limited Partners
(excluding Enron) or (ii) the occurrence of any action,
omission or course of conduct by the Enron General Partner in
the performance of its duties that constitutes gross negligence,
willful misconduct, fraud or criminal activity (other than
activity resulting in immaterial fines and penalties), the Enron
General Partner may be removed by a vote of the Regular
Limited Partners holding at least two-thirds of the Regular
8
Term.Sheet.16
HOUSTON ECONOMIC OPPORTUNITY FUND, L.P.
Limited Partnership Interests (excluding Enron). However, if
the Enron General Partner is removed, Intrust shall be required
to purchase all of the Interests held by the Enron both as a
General Partner and a Regular Limited Partner at an amount to
be determined in accordance with the provision of the Limited
Partnership Agreement.
Withdrawal and Transfer:
Regular Limited Partners may not sell, assign or transfer their
Interests without the prior written consent of the General
Partners. In addition, Regular Limited Partners may not
withdraw from the Fund prior to its termination without the
written consent of the General Partners. Intrust may not
withdraw from the Fund without the consent of the Enron
General Partner.
The General Partnership Interests will be subject to certain
buy/sell obligations between the General Partners, and any
transfer of a General Partnership Interest from one General
Partner to the other pursuant to such provisions shall not be
subject to the consent or approval of the Regular Limited
Partners.
Reports and Meetings:
Each Partner will receive (i) audited annual financial reports of
the Fund; (ii) quarterly unaudited financial reports of the Fund;
and (iii) a quarterly report on the Portfolio Investments.
The Fund will provide for annual meetings of the Regular
Limited Partners.
Indemnification:
Intrust, Covenant and the Enron General Partner will not be
liable to the Fund or the Regular Limited Partners for any act
or omission in the absence of gross negligence, willful
misconduct, fraud or criminal activity, or for losses due to any
of the foregoing by brokers or other agents of the Fund. The
Fund will indemnify Intrust, Covenant and the Enron General
Partner for any loss or damage incurred by them acting on
behalf of the Fund or in furtherance of the objectives of the
Fund or arising out of or in connection with the Fund, except
for losses incurred by any of Intrust, Covenant and the Enron
General Partner arising from their own gross negligence,
willful misconduct, fraud or criminal activity.
ERISA Considerations:
Partners subject to the Employee Retirement Income Security
Act of 1974 ("ERISA"), or Partners that constitute plans within
the meaning of Section 4975(e)(1) of the Internal Revenue
9
Term.Sheet.16
HOUSTON ECONOMIC OPPORTUNITY FUND, L.P.
Code of 1986, as amended (the Code") should consult their
own advisors as to the effect of the fiduciary responsibility
rules of ERISA and/or the prohibited transaction rules under
Section 4975 of the Code. The Fund may require certain
representations or assurances from investors subject to ERISA
to determine compliance with ERISA provisions.
Tax Considerations:
Members should consult their advisors concerning the U.S.
Federal, state, local tax consequences of an investment in the
Fund.
10
Term.Sheet.16
HEOF Contact List
Inquiries Regarding this Transaction should be directed to:
Enron Economic Development Corp.
1400 Smith Street 47th Floor
Houston, TX 77002-7361
Gene Humphrey, President, CEO
(713) 853-6215
Mark Lay, Vice President
(713) 853-7408
Jim Timmins, Director
(713) 853-6501
Domingo Drakes, Associate
(713) 853-9646
Fax
(713) 345-7412
INTRUST USA
Three Mill Road Suite 105
Wilmington, DE 19806
James F. Mingey, President
Wilmington
(302) 521-8100
Houston
(713) 223-1270
Fax
(302)-571-8120, (713) 223-0737
COVENANT COMMUNITY CAPITAL
P.O Box 130914
Houston, TX 77219
Stephan Fairfield, Founder, President
(713)-674-0175
Fax
(713) 674-0176
IT
ENRON
50