RE: Heartland Industrial Partners ,
 Heartland Industrial Partners is one issue we did not discuss this morning.=
  These e-mails summarize the situation.  I have not been able to get resol=
ution yet on who provides the home for this investment.  It doesn't fit ENA=
.  Bowen doesn't want it in EIM.  EES does not want to invest this kind of =
capital (although Delainey did ask for some additional information).
---------------------- Forwarded by Richard Lydecker/Corp/Enron on 02/13/20=
01 03:39 PM ---------------------------


Richard Lydecker
02/12/2001 01:42 PM
To:=09David W Delainey/HOU/ECT@ECT
cc:=09Brian Redmond/HOU/ECT@ECT=20

Subject:=09RE: Heartland Industrial Partners

With respect to your questions concerning the Heartland Industrial Partners=
 fund and current investments:

Heartland is a private equity buyout fund with $1.2 billion in commitments.=
  The targeted size of the fund is $2 billion.  The fund is headed by David=
 Stockman, former managing director at The Blackstone group.  Stockman was =
director of OMB under Reagan.

Heartland's objective is an IRR of 30% gross (26% to the limited partners).=
  The limiteds get an 8% preferred return after which the GP gets a 20% car=
ried return.  The GP also receives a 1.5% management fee.   In my experienc=
e these terms are consistent with most private equity funds.

The fund's objective is to acquire and expand industrial companies "in sect=
ors ripe for consolidation and growth."  These "industrial platform scaleup=
s" are targeted to be in sectors such as aerospace components and materials=
, automotive suppliers, capital goods, chemicals, plastics conversion, meta=
l working, etc.

The fund has two investments currently:

MascoTech is a merger of three fund companies.  It is a leading global desi=
gner and supplier of high quality, low-cost metal formed components, assemb=
lies and modules for the transportation industry.  Products include noise v=
ibration and harshness products, transmission and transfer case components,=
 engine components, wheel end and suspension components, axle driveline com=
ponents.  Estimated revenues were $1.9 billion in 2001.  The company has 50=
 facilities in 11 countries.  9,500 employees.

An agreement to purchase Collins & Aikman Corporation was signed in January=
 2001.  C & A is a leader in automotive floor and acoustic ceilings and a l=
eading supplier of automotive fabric, interior trim and convertible top sys=
tems with 2000 sales of $1.9 billion.

The original DASH in April 2000 predicated that "ENA will receive the exclu=
sive right to provide all energy-related products and services to each plat=
form company owned by the fund...ENA will submit a comprehensive, long-term=
, energy managment plan for each platform company.  HIP will be obligated t=
o accept and implement the plan as long as the plan provides a cost benefit=
 relative to the platform company's current practices after accounting for =
switching costs.  The expected value of this business to ENA is about $20 -=
 50 MM."




---------------------- Forwarded by Richard Lydecker/Corp/Enron on 02/12/20=
01 01:04 PM ---------------------------
From:=09Raymond Bowen/ENRON@enronXgate on 02/09/2001 07:04 PM
To:=09David W Delainey/HOU/ECT@ECT, Richard Lydecker/Corp/Enron@Enron
cc:=09Brian Redmond/HOU/ECT@ECT, Wes Colwell/HOU/ECT@ECT, Raymond Bowen/HOU=
/ECT@ENRON, Jeffrey McMahon/ENRON@enronXgate=20

Subject:=09RE: Heartland Industrial Partners

Dave,

Congrats on your new role.  Heartland Industrial Partners was an investment=
 pursued solely for the purpose of providing deal flow for energy outsourci=
ng opportunities when ENA's Industrial Group was following a broad based en=
ergy outsourcing business plan.  It has zero relevance to EIM's business.  =
In fact, Heartland has been reflected on ENA's balance sheet ever since the=
 creation of EIM last August.  Brad Dunn has administered the relationship =
as a transitional matter in the intervening months.  Brad has attempted to =
get EES to take on the transaction, but they have expressed no interest in =
the capital commitment.  However, EES wants the option to look at the energ=
y outsourcing opportunities in the transaction.  If I thought I could get a=
 free option, I would take the same position.  If Enron is to get anything =
out of Heartland Industrial Partners beyond the return on our invested doll=
ars, that value will come to EES.  Since there is no paper or steel aspect =
to Heartland, it doesn't belong in EIM and I don't want it.  I would be hap=
py to discuss.

On a different note, there are lots of opportunities for EES and EIM to wor=
k together on (i) energy opportunities in EIM's pulp & paper and steel cust=
omer base and on (ii) paper or steel opportunities in EES' client base.  Je=
remy Blachman and I had agreed on a revenue sharing plan to incent the grou=
ps to cooperate, but I assume you will want to understand it now.  Janet an=
d I talked about it today and she was going to follow up with Jeremy. =20

Take Care,

Ray
 -----Original Message-----
From: =09Delainey, David =20
Sent:=09Friday, February 09, 2001 6:01 PM
To:=09Lydecker, Richard
Cc:=09Redmond, Brian; Colwell, Wes; Raymond Bowen/HOU/ECT@ENRON
Subject:=09Heartland Industrial Partners

Richard, it is my understanding that this investment is currently in Ray Bo=
wen's business.  In my ENA shoes, I would say we would have no interest in =
taking on that responsibility.  In my EES shoes, I would like to take a clo=
ser look at the possible connections.  Please send me some info on the inve=
stment fund and their current investments portfolio.

I have also heard that Tom White has been talking to you about EES taking o=
n the Catalytica investment.  With my EES shoes on, no way!!!!

Regards
Delainey
---------------------- Forwarded by David W Delainey/HOU/ECT on 02/09/2001 =
05:56 PM ---------------------------

=20
Richard Lydecker@ENRON
02/07/2001 09:01 AM
To:=09David W Delainey/HOU/ECT@ECT
cc:=09Brian Redmond/HOU/ECT@ECT, Wes Colwell/HOU/ECT@ECT=20
Subject:=09Heartland Industrial Partners

Dave, in May 2000 Enron North America committed to invest up to $30 million=
 in Heartland Industrial Partners L.P., a private equity fund.  The terms o=
f the fund investment are fairly typical (and not particularly exciting for=
 a limited partner such as we).  The deal was "sold" on the basis of ENA ge=
tting exclusive rights to provide energy management services to companies o=
wned by the fund if these were cost effective.  The claimed benefits for th=
e energy management tie were calculated at $20 - 50 million.  The deal was =
originated by Brad Dunn who now is in EIM.   Ownership of this commitment h=
ad been assigned to Jim Ajello.

The kinds of energy management services associated with this deal are now p=
rovided by EES.  While they are happy to exploit any opportunity, their bus=
iness plan does not contemplate investment substantial capital in this kind=
 of deal.  In short, they have no interest in picking up the commitment (an=
d capital employed) via an intercompany transfer.

Private equity funds such as this are highly illiquid by design and the nor=
mal investment cycle is at least 5 - 7 years.  The Heartland partnership ha=
s a 10-year life,  Enron did negotiate the right to sell its LP interest af=
ter 3 years.  As a practical matter, that right guarantees neither a fair p=
rice or even a market.

There is no logical home for this investment that I know of in ENA except i=
n my portfolio.  Question: is this an ENA responsibility or would it move t=
o EIM's balance sheet?  If we (ENA) have no choice but to retain the invest=
ment, my group will take responsibility for it and do our best to monetize =
funds invested to-date (about $6 million) and sell the remaining commitment=
.  Since the fund itself is still marketing limited partnership interests, =
however, it will be extremely difficult to get out of our investment/commit=
ment in the foreseeable future.  Under any circumstances finding a buyer wi=
ll be time-consuming and expensive.  (This is a poster child for "patient" =
investment capital).

I want to ensure that you are aware of the situation in case your view is t=
hat the obligation should be transferred to EIM which I believe has assumed=
 the charter of the ENA group that formerly managed this investment.  Dick.=
 =20







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