Striking a deal for a collar hedge contract can protect catalog companies against fluctuating paper prices.
Lillian Vernon Corp. signed such an agreement with Enron Corp. in 1999. But the cataloger has questioned the legitimacy of the contract in the wake of Enron’s bankruptcy filing in December 2001.
Vernon has filed a claim with the bankruptcy court declaring itself an interested party and asking to be notified of any developments in the case.
The catalog firm ultimately could be liable to Enron for about $6 million, assuming that paper prices remain low. It has not made any payments since the bankruptcy, according to Vernon CFO Dick Randall.
The bankruptcy raised the issue of whether Enron misrepresented its ability to hold up its end of the bargain. That argument would be the probable defense in any case filed by Enron against Lillian Vernon, Randall continued.
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