Footnote 8

prepay transactions, the circular obligations built into Alberta removed all commodity risk from thetransactions, making them effectively loans. As the ENA Examiner concluded: “In essence, RBCpaid Can$147 million to Enron Canada up front and ENA was obligated to pay quarterly interest andprincipal on that amount. The floating cash flow went from Enron Canada to RBC to Chase toENA. Hence, the Alberta prepay transaction was effectively a loan from RBC to Enron.” ENAExam. at 117.681. Of course, RBC knew – because it had created the structure – that Alberta was ineconomic substance a loan. RBC understood the circular nature of the Alberta prepay, and it alsounderstood that because the prepay transactions transferred the price risk of the underlyingcommodity in a circle, none of RBC, the Enron affiliate or the other financial institutions involvedhad any commodity price risk as part of the transaction.682. However, RBC designed its final Alberta structure in a way that would hide thetransaction’s true economic substance. RBC proposed concealing the debt with a circle ofcommodity swap agreements fully guaranteed by Enron. RBC proposed concealing cross-defaultsamong the swaps. RBC proposed concealing the nature of the swaps by placing loan-relatedcovenants in the Enron guarantee rather than in the swaps. RBC proposed using gas commodityswaps, which better concealed the swaps from scrutiny. RBC proposed including another bank(Chase) in the circle of swaps, which better concealed the swaps’ effect. See ENA Exam. at 142.RBC knew its ability to unwind the entire transaction meant that it actually faced no commodityprice risk, but it also knew that it had to conceal that fact so the Insiders could obtain their desiredaccounting treatment. An RBC executive explained in an e-mail: “We will have the right toterminate any of the Swaps at our option. The reason for this is that Enron will have the ability toterminate Swap 1 . . . and as soon as there is one termination we obviously have to unwind the whole604041v1/007457-236-