CORPORATE AFTERSHOCK 2 PHẦN 7 pdf

244 CREDIT RISK MITIGATION AFTER ENRON Enron lenders were to deliver to the SPE “senior obligations of Enron that rank[ed] at least equal to claims against Enron for senior unsecured in- debtedness for borrowed money” having a principal balance equal to the notional amount of the CDS. The SPE was to deliver to the Enron lenders the SPE’s investments with a principal amount equal to the amount of Enron debt delivered to the SPE, plus the base amount of the subordi- nated notes. 25 When Enron failed, the Enron CLNs performed precisely as they were intended, relieving the Enron lenders of all loss with respect to the reference Enron obligations up to the notional amount of the CDS. But because of the generally unanticipated and highly suspicious nature of Enron’s bankruptcy, considerable criticism has been leveled at the Enron lenders for shifting their credit exposure to the capital markets. Citigroup has responded that “[c]redit-linked notes are well-recognized financial instruments, widely issued and traded each year The instruments were sold to the largest, and most sophisticated, institutional investors in several Rule 144A offerings. Citi promised investors that the CLNs would perform similarly to straight Enron bonds—and they have.” 26 But the issues in the litigation over the Enron CLNs do not concern the legitimacy of the Enron CLN structure or the sophistication of the purchasers. Rather, the thrust of the litigation is that the Enron lenders were willing to lend great sums of money to Enron either without con- ducting appropriate due diligence or with knowledge that Enron’s creditworthiness was not being accurately reported because they had no intention of ever being exposed to Enron’s credit risk. In other words, the key allegations in the litigation involve an assertion that the Enron lenders “lent Enron more the $2.5 billion and invested at least $25 million in Enron’s fraudulent partnerships in order to secure future investment banking business” 27 and that they were willing to do this because they intended “fraud- ulently [to] shift 100 percent of their risk of loss” to unknowing note holders. 28 Obviously, the allegations in the Hudson Soft litigation are just that—allegations. Nevertheless, they raise a serious issue concerning the use of credit derivatives. A credit provider intending to reduce or eliminate its credit risk through the use of credit derivatives may well have significantly more information about the reference entity or portfolio than the poten- tial counter party or note purchasers. The concern is that this information will not be shared either through the swap negotiation process or in the note sale disclosure documents. Certainly after Enron, counter parties to unfunded credit derivatives and investors in funded credit derivatives would do well to review carefully the representations by credit providers and all disclosures concerning the credit condition of the reference entity. CREDIT DERIVATIVES POST-ENRON 245 CREDIT DERIVATIVES OR INSURANCE Credit derivatives and insurance have a number of similarities, and, indeed, credit derivatives are often characterized as functioning, in many circumstances, as the financial equivalent of indemnity contracts and financial guarantees. But functional equivalence is one thing and legal equivalence is another. If credit derivatives were deemed to be insurance, the consequences under state insurance law would be highly adverse for this vibrant and valuable market. For example, a derivative that is found to be an insurance policy can be sold only by a licensed insurance broker. Thus, a protection seller found to have been selling an insurance contract would be acting unlaw- fully. In California, this would be a misdemeanor. 29 In Connecticut, fines, imprisonment, or both can be imposed for acting “as an insurance producer” without a license. 30 Under Delaware law, a Delaware corporation can lose its “charter” to do business 31 if it acts “as an insurer” without a “certificate of authority” 32 to conduct an insurance business. 33 In New York, insurance law violations are a misdemeanor, 34 with fines increasing for subsequent violations. 35 And in Illinois, no one can “sell, solicit, or ne- gotiate insurance” unless licensed. 36 Because the term insurance contract is separately defined by each of the 50 states and the District of Columbia, 37 it becomes important for the participants in the credit derivatives market to understand and abide by clear guidelines to ensure that credit derivatives—financial market transactions—are not treated as insurance, which are state-regulated service contracts. Activities Associated with Insurance The leading insurance treatise defines insurance as: A contract by which one party (the insurer), for a consideration that is usually paid in money, either in a lump sum or at different times during the continuance of the risk, promises to make a certain payment, usually of money, upon the destruction or injury of ‘something’ in which the other party (the insured) has an interest. [cite omitted] In other words, the purpose of insurance is to transfer risk from the insured to the insurer. Insur- ance companies act as financial intermediaries by providing a financial risk transfer service that is funded by the payment of insurance premiums that they receive from policyholders. 38 In evaluating which “financial risk transfer services” are insurance, five characteristics are typically identified: 246 CREDIT RISK MITIGATION AFTER ENRON 1. The insured must have an “insurable risk” (such as the risk of a financial loss on the occurrence of a disaster, theft, or credit event) with respect to a “fortuitous event” that is capable of financial estimate. 39 2. The insured must “transfer” its “risk of loss” to an insurance company (referred to as risk shifting or underwriting), under a contract that provides the insured with an “indemnity” against the loss (with the indemnity limited to the insured’s actual loss). 3. The insured must pay a “premium” to the insurance company for assuming the insured’s “insurable risk.” 4. The insurance company typically assumes the risk as part of a larger program for managing loss by holding a large pool of contracts covering similar risks. This pool is often large enough for actual losses to fall within expected statistical benchmarks (referred to as risk distribution or risk spreading). 40 5. Before it can collect on an insurance contract, the insured must demonstrate that its injury was from an “insurable risk” as the result of an “insured event.” In other words, the insured must demonstrate that it has actually suffered a loss that was covered in the contract. In general, therefore, an insurance contract covers the risk that an insured will suffer an insured loss, and payment is due under the insurance contract only if there is “proof of an insured loss,” and then only in an amount equal to the lesser of the insured’s actual loss or the maximum loss covered by the contract. Credit Derivatives Are Not Insurance New York State is a key insurance regulator with jurisdiction over most of the largest insurance companies in the United States. As a consequence, New York’s view of when a contract does and does not constitute insurance is highly influential. In New York, an insurance contract is defined as an agreement under which the insurance company is obligated “to confer a benefit of pecuniary value” on the insured or beneficiary on the “happening of a fortuitous event in which the insured has a material interest which will be adversely affected” by the happening of such event. 41 In determining whether a risk shifting contract falls within this definition or outside it, New York’s basic approach is entirely consistent with the pre- ceding discussion. The New York Insurance Department (NY ID) takes the position that derivative contracts are not insurance contracts as long as the payments CREDIT DERIVATIVES POST-ENRON 247 due under the derivatives are not dependent on the establishment of an actual loss. For example, in considering catastrophe options (Cat options) providing for payment in the event of a specified natural disaster (such as a hurricane or major storm), the NY ID stated that the Cat options were not insurance contracts because the purchaser did not need to be injured by the event or prove it had suffered a loss. In reaching this conclusion, the NY ID distinguished between derivatives products, which transfer risk without regard to a loss, and insurance, which transfers only the risk of a purchaser’s actual loss. 42 Similarly, the NY ID concluded that weather derivatives are not insurance contracts under New York law because neither the amount of the payment due nor the event triggering the payment necessarily relates to the purchaser’s loss. 43 And most recently, the NY ID concluded that because CDSs provide that the seller must pay the buyer on the occurrence of a “negative credit event” without regard for whether the buyer has “suffered a loss,” they are not insurance contracts. 44 It appears clear, therefore, at least under New York law, that if the provisions of a credit derivative contract do not tie payment to the actual loss experience of the protection buyer, the derivative product will not be deemed an insurance contract. Documentation Considerations There are, nevertheless, certain conceptual overlaps between credit derivative contracts and insurance contracts. As a consequence, care should be taken in documenting such derivative contracts to avoid any implica- tion that a party will receive a payment under the contract only for actual loss. To ensure that credit derivatives are treated as derivatives and not as insurance, the following drafting guidelines may be helpful: Ⅲ Form of contract: Unfunded credit derivatives should be documented with an ISDA Master Agreement with the specific terms of the agreement specified in the schedule, confirmations, and any credit support documents. The offering material for funded credit derivatives (notes) should specify the terms of the notes in language as similar to that of the ISDA definitions as possible. Ⅲ Disclaimer: The documentation for both funded and unfunded credit derivatives should include a disclaimer that the transaction is not intended to be insurance, the contract is not suitable as a substitute for insurance, and the contract is not guaranteed by any “Property and Casualty Guaranty Fund or Association” under applicable state law. 248 CREDIT RISK MITIGATION AFTER ENRON Ⅲ Marketing materials: Marketing materials for a credit derivative transaction should avoid any references to similarities between the contract and insurance and should not use words such as indemnity, guarantee, and protect. ONGOING EFFORTS TO IMPROVE DOCUMENTATION The documentation of unfunded credit derivatives is generally done on ISDA-published forms. 45 Indeed, ISDA has taken the lead in standardizing the terms of credit derivatives. In 1998, it published a model “Confirma- tion of OTC Credit Swap Transaction.” In 1999, it published the “1999 ISDA Credit Derivatives Definitions,” which were followed in 2001 by three supplements that expanded and clarified the 1999 definitions. 46 As a result of Enron, Argentina, and numerous other credit defaults, ISDA worked throughout 2002 to draft and release a comprehensive set of re- vised credit definitions. ISDA’s 2003 Credit Derivatives Definitions, published on February 11, 2003, incorporate the three ISDA supplements issued in 2001 to the 1999 credit definitions, update many of the definitions, and generally bring documentation standards current with evolving market practices. As a result, we believe that the documentation practice for credit derivatives have been substantially improved. CONCLUSION As a result of the credit defaults during the early part of this century, the value of the credit derivatives market has become more apparent than ever. While representing a natural extension of the markets for products that “unbundled” risks, such as those for interest rate and foreign ex- change derivatives, the credit derivatives market has provided a unique mechanism for assuming and shedding direct exposure to a reference entity’s creditworthiness. As such, credit derivatives represent a unique and important development for the worldwide financial markets. Despite concerns about the misuse of credit derivatives (as high- lighted by the Hudson Soft litigation) and the desirability of further fine- tuning of ISDA documentation, the credit derivatives market has proven itself to be sound, effective, and vigorous through a very difficult credit period. Further, it is important to recognize that this market has developed and adapted without governmental regulation or supervision. It is also interesting to note the development of the credit derivatives markets alongside the highly regulated insurance market. Primar- ily because of tax considerations, there remain enormous incentives for CREDIT DERIVATIVES POST-ENRON 249 insurance companies to provide credit loss protection through insurance contracts. Nevertheless, we are seeing increasing intersections between the derivatives and insurance markets as the nature of the risks assumed by these markets converge. Thus, for example, more and more so-called transformer transactions are occurring whereby a financial instrument (e.g., a CDS) is transformed into an insurance contract or vice versa. 47 Insurance companies, prohibited under applicable state law from entering into credit derivatives, can often assume the same economic position as if they had “sold” protection to a derivatives counter party by issuing an insurance policy against a credit event specified in the derivative held by the insured. The insurance company thus assumes the economic results of holding the credit derivative while still complying with regulatory restrictions. The expansion and strengthening of the credit derivatives market will unquestionably contribute to a more efficient allocation of credit risk in the economy. This market will allow banks efficiently to reduce undesir- able concentrations of credit exposure by diversifying this risk beyond their customer base. This market should also lead to improved pricing information relating to both loans and credit exposures generally. In addition, this market will facilitate further specialization whereby financial institutions can fund participants in limited areas of commercial activity without having to bear the risk of excessive exposure to such limited sectors. Finally, by separating both risk from funding obligations and original risk from restructured risk, credit derivatives offer an extraordinarily important mechanism for financial market participants to play precisely the role at precisely the risk/reward level they deem prudent and appropriate. NOTES 1. It has been reported that the International Swaps and Derivatives Associa- tion (ISDA) first used the term credit derivatives in 1992. “Evolution of Credit Derivatives,” available at http://www.credit-deriv.com/evolution.htm (visited November 4, 2002). 2. Remarks by Alan Greenspan, chairman, Board of Governors of the U.S. Fed- eral Reserve System, at the Institute of International Finance, New York (via videoconference) (April 22, 2002), available at http://www.federalreserve .gov/boarddocs/speeches/2002/20020422/default.htm (visited October 16, 2002) (hereinafter “Greenspan Remarks”). 3. ISDA, News Release, “ISDA 2002 Mid-Year Market Survey Debuts Equity De- rivatives Volumes at $2.3 Trillion; Identifies Significant Increase for Credit Derivatives,” (September 25, 2002), available at http://www.isda.org/press /index.html (visited October 22, 2002) . 4. See note 3. 250 CREDIT RISK MITIGATION AFTER ENRON 5. BBA, Credit Derivatives Survey, 2001/2002, Executive Summary, available at http://www.bba.org.uk/pdf/58304.pdf (visited September 20, 2002). 6. Office of the Comptroller of the Currency, “OCC Bank Derivatives Report, Second Quarter 2002,” available at http://www.occ.treas.gov/ftp/deriv /dq202.pdf (visited October 14, 2002), 1. 7. See note 2. 8. Reference obligations are also referred to in discussions of credit derivatives as reference assets or reference credits. 9. In fact, the 1999 ISDA Credit Derivatives Definitions simply define a Credit Derivative Transaction as “any transaction that is identified in the related Con- firmation as a Credit Derivative Transaction or any transaction that incor- porates these Definitions.” 1999 Credit Definitions, at § 1.1. 10. Banking or insurance regulations may require a bank or insurance market participant to own a reference obligation, but that is not a requirement for entering into a CDS. 11. 1999 Credit Definitions 16 –18. 12. For example, if after a credit event, a reference obligation is valued at $3 million and the notional amount specified in the contract is $10 million, the protection seller must pay the protection buyer $7 million. Alternatively, the protection seller may be required to pay a predetermined sum (a binary settlement) regardless of the then-value of the reference obligation. 13. Board of Governors of the Federal Reserve System, “Supervisory Guidance for Credit Derivatives,” SR Letter 96-17 (August 12, 1996), Appendix. 14. “Depending on the performance of a specified reference credit, and the type of derivative embedded in the note, the note may not be redeemable at par value. . . . For example, the purchaser of a credit-linked note with an embedded default swap may receive only 60 percent of the original par value if a reference credit defaults” ( J.P. Morgan, 1998). 15. See note 14. 16. OCC, OCC Bulletin 96 -43, “Credit Derivatives Description: Guidelines for National Banks,” available at http://www.occ.treas.gov/fh/bulletin/96 -43.txt (visited November 26, 2002). 17. Goodman (2002), pp. 60–61. SCDOs are referred to as synthetic because the credit exposure is created by the derivative contract and not with an actual obligation of, or relationship with, the reference portfolio. 18. Gibson, Lang, “Synthetic Credit Portfolio Transactions: The Evolution of Synthetics,” available at www.gtnews.com/articles6/3918.pdf (visited Octo- ber 1, 2002). 19. See note 18. 20. Hudson Soft Co. Ltd. et al. v. Credit Suisse First Boston Corp. et al., Civil Action 02-CV-5768 (TPG) (October 8, 2002). (Amended Complaint). 21. We used the phrase structured finance transactions as it is used by Kavanagh in Chapter 8 as any transaction that makes use of an SPE or special purpose ve- hicle (SPV). 22. Newby v. Enron Corp. (In re Enron Corp., Securities Litigation), Civil Action No. H-01-3624, 206 F.R.D. 427. CREDIT DERIVATIVES POST-ENRON 251 23. Hudson Soft Class Action Amended Complaint, supra note 25, at 44–58. 24. On November 4, 1999, Yosemite Securities Trust I 8.25 percent Series 1999-A Linked Enron Obligations in the aggregate amount of $750 million were issued. On August 25, 2000, Enron Credit Linked Notes Trust issues Enron CLNs in the aggregate amount of $500 million. On May 24, 2001, three separate Enron CLNs were issued: (1) Enron Euro Credit Linked Notes Trust 6.5 percent Notes in the aggregate amount of EUR200 million, (2) Enron Sterling Credit Linked Notes Trust 7.25 percent Notes in the aggregate amount of £125 million, and (3) Enron Credit Linked Notes Trust II 7.3875 percent Notes in the aggregate amount of $500 million. On Octo- ber 18, 2001, Credit Suisse First Boston International JPY First-to-Default Credit Linked 0.85 percent Notes were issued in the aggregate amount of ¥1.7 trillion. 25. S&P Corporate Ratings, “New Issue: Enron Credit Linked Notes Trust, $500 million Enron Credit Linked “Notes (October 9, 2000), available at http://www.standardandpoors.com (visited November 26, 2002). Senate Per- manent Subcommittee on Investigation, Appendix D, Citigroup Case His- tory. See also, Opening Statement of Rick Caplan before the Senate Permanent Subcommittee on Investigations, July 23, 2002 (Caplan Opening Statement) available at http://www.senate.gov/∼gov_affairs/072302caplan .pdf (visited October 22, 2002). 26. Statement of Rick Caplan supra note 30. 27. Hudson Soft Class Action Amended Complaint, supra note 25, at 153–156. 28. See note 27 at 157–162. 29. Cal. Ins. Code § 1633 (2001). 30. Conn. Gen. Stat. § 38a-704 (2001). The penalty for acting as an insurance producer without a license is a fine of not more than $500 or imprisonment of not more than three months or both. Ibid. An insurance producer is defined at Conn. Gen. Stat. § 38a-702(1) (2001). 31. 18 Del. C. § 505(c) (2001). 32. 18 Del. C. § 505(a) (2001). 33. 18 Del. C. § 505(b) (2001). 34. New York Ins. Law § 109(a) (2002). 35. New York Ins. Law § 1102(a) (2002). 36. 215 ILCS 5/500-15(a) (2002). 37. McCarron-Ferguson Act, 15 U.S.C. § 1011-1015. 38. 67 Fed. Reg. 64067 (October 17, 2002). 39. The insured must be able to demonstrate that it has both an economic and a legal connection to the asset or subject matter of the risk. Financial Ser- vices Authority, Discussion Paper: Cross-Sector Risk Transfers (May 2002) at Annex B1. 40. Because most business relationships involve risks and the assumption of risk, the key here is that an insurance company spreads or distributes the risks among a pool of contracts covering similar risks. See Amerco v. Comm’r, 96 T.C. 18 (1991), aff’d 979 F.2d 192 (9th Cir. 1992). See also, Comm’r v. Treganowan, 183 F.2d 288 (2nd Cir. 1950). 252 CREDIT RISK MITIGATION AFTER ENRON 41. NY Ins. Law § 1101(a)(1) (LEXIS through Ch. 221, 8/29/2001). Key to this definition is the notion that the insured will be adversely affected by the specified fortuitous event. In other words, insurances require the establishment of actual loss. 42. NY ID, “Catastrophe Options,” Office of General Counsel Informal Opinion (June 25, 1998). 43. NY ID, “Weather Financial Instruments (derivatives, hedges, etc.) “Office of General Counsel Informal Opinion” (February 15, 2000), available at http://www.ins.state.ny.us/rg000205.htm>. 44. NY ID, Letter dated June 16, 2000, addressing a credit default option facil- ity, available at http://www.ins.state.ny.us. 45. ISDA has developed standard agreements that have been widely adopted by parties to unfunded derivative contracts. The ISDA Web site is www.isda.org. Although CLNs, CDOs, and SCDOs are credit derivatives, we do not discuss their documentation in this chapter. CLNs, CDOs, and SCDOs are typically documented as privately placed notes. 46. Restructuring Supplement to the 1999 ISDA Credit Derivative Definitions (May 11, 2001); Supplement to the 1999 ISDA Credit Derivatives Defini- tions Relating to Convertible, Exchangeable or Accreting Obligations (No- vember 9, 2001); Commentary on Supplement Relating to Convertible, Exchangeable or Accreting Obligations (November 9, 2001); Supplement Relating to Successor and Credit Events to the 1999 ISDA Credit Deriva- tives Definitions, (November 28, 2001). 47. Cross-Sector Risk Transfers (U.K. May 2002), supra note 44 Annex A: Trans- formers, available at www.fsa.gov.uk/pubs/discussion/index-2002.html. Press Release, “Risk Transfer: Benefits and Drawbacks Need Careful Balancing,” May 3, 2002, available at http://www.fsa.gov.uk/pubs/press/2002/049.html cite visited September 16, 2002. 253 13 THE MARKET FOR COMPLEX CREDIT RISK P AUL P ALMER T he failure of Enron and the widely publicized losses at WorldCom, Global Crossing, Tyco, and other firms have heightened market participants’ attention to credit risk in general and to transactions that can be used to manage credit risk in particular. Recent events rein- force some fundamental structural inefficiencies that were already pres- ent in the market for structured credit assets. These inefficiencies center around the fact that banks and insurance companies that provide credit enhancement services rely extensively on rating agencies, which exercise significant power over these entities. To attract the capital required to make meaningful investments in the credit sector, banks and insurance companies need high debt and stock market ratings. In the current environment, both the rating agencies and stock market analysts loathe the credit sector; and investors in credit assets are routinely penalized. Rating agencies, in particular, are anxious to be perceived as sages of credit, providing timely advice as opposed to the lagging indicators they are often accused of being. The ratings volatility we are currently experiencing is directly related to this push by rating agencies to be leading indicators of corporate creditworthiness. Consequently, credit spreads on noninvestment-grade (NIG) and story credits, especially, have widened tremendously because of the resultant lack of investor demand. Thus, the paradox: Bank and insurance company investors that best understand complex credit risk are unable to fully capitalize on their spe- cialized credit skills. As public, regulated entities, they are compelled to minimize credit risk to comply with regulatory and market requirements. [...]... much of the recent growth fueled by general credit quality concerns and expectations of increased default rates in the corporate bond markets during the next 12 months Indeed, the BBA believes that credit derivatives volume was $1.9 trillion in 20 02 and will be $4.8 trillion by year-end 20 04 While credit derivatives continue to evolve and gain sophistication, significant segmentation has occurred and... and represented, in 20 00, $900 billion in global trading volume (according to the British Bankers Association), or 50 percent of the market Insurance covers are best suited to meet the needs of less sophisticated companies that have not yet invested in appropriate risk measurement tools and, therefore, seek blanket risk protection; insurers, including financial guarantors, represent 20 percent of the... rules, are already in place In summary, while success in this sector will be measured in abovenormal returns, that success will in turn be premised on the investor’s THE MARK ET FOR COMPLEX CREDIT RISK 25 7 ability to be multidimensional—to function as an investor but also to simultaneously provide value-added solutions to address the following macro industry trends and phenomena affecting protection buyers:... derivatives market Significantly, however, bank activity is increasingly THE MARK ET FOR COMPLEX CREDIT RISK 25 9 focused on the demand side: Whereas banks still account for 81 percent of credit derivative purchases (i.e., as buyers of protection), their share in credit derivative sales has fallen to 47 percent, with insurance companies and other entities picking up the slack (again, according to the BBA)... equity investors and rating agencies, some companies are starting to quantify and reduce their mountains of trade debt [customer credit risk]” (Michael Peterson, “The Accidental Credit Investor,” August 20 01) Institutional investors tend to be better repositories of complex credit exposures because they are not subject to the regulatory capital requirements or earnings-consistency pressure of publicly... transfer activity is centered on relatively vanilla (standardized) risks A ready market does not currently exist for complex and NIG credit risks, as is ref lected in the current state of the high-yield 25 6 CREDIT RISK MITIGATION AFTER ENRON market Banks and other protection buyers that have sought to access institutional investors directly by issuing CDOs have had to retain the equity and, increasingly,... by investment bankers The causes are twofold: 1 The signif icant information asymmetry and skills mismatch between the investment banks that broker these products and the investors that retain the risk 2 The fact that the investment banks themselves are not necessarily best equipped to analyze and repackage these risks Again, trading-driven institutions tend to have neither the inclination nor the patience.. .25 4 CREDIT RISK MITIGATION AFTER ENRON In particular, f inancial guaranty insurance companies, the natural investors in complex credit assets, are effectively prohibited from doing so by the rating agencies,... where they might otherwise find the risk-adjusted return attractive To the extent these institutions retain any such exposure, it is usually due to (1) relationship pressures from the origination client, (2) market requirements to successfully facilitate syndication of the majority of the related transaction, or (3) a lack of sufficient buyers of NIG risk and, to a lesser degree, more complicated or “story”... proposal by the Bank for International Settlements (BIS) and the Federal Reserve to require banks to mark to market their loan portfolios will significantly increase THE MARK ET FOR COMPLEX CREDIT RISK 25 5 banks’ profit and loss (P&L) volatility and will serve to further hasten their retreat from credit risk Banks are, now more than ever, clearly ill-suited to a “buy and hold” strategy as to credit risk . Investigations, July 23 , 20 02 (Caplan Opening Statement) available at http://www.senate.gov/∼gov_affairs/0 72 3 02caplan .pdf (visited October 22 , 20 02) . 26 . Statement of Rick Caplan supra note 30. 27 . Hudson. 979 F.2d 1 92 (9th Cir. 19 92) . See also, Comm’r v. Treganowan, 183 F.2d 28 8 (2nd Cir. 1950). 25 2 CREDIT RISK MITIGATION AFTER ENRON 41. NY Ins. Law § 1101(a)(1) (LEXIS through Ch. 22 1, 8 /29 /20 01) 38a -7 02( 1) (20 01). 31. 18 Del. C. § 505(c) (20 01). 32. 18 Del. C. § 505(a) (20 01). 33. 18 Del. C. § 505(b) (20 01). 34. New York Ins. Law § 109(a) (20 02) . 35. New York Ins. Law § 11 02( a) (20 02) . 36.