- 117 -
Colgate's Financial Exposure to Partnership Portfolio
(Based on Pohlschroeder's Projections)
( $ millions )
Base Level 200 Basis Pt.Change
Decline
Long Bonds (42.00) (51.45) (9.45)
Met Note (98.00 (104.66) (6.66)
Total liabilities (140.00) (156.11) (16.11)
Partnership interest(15%)21.00 23.42 2.42
Net liabilities (119.00) (132.69) (13.69)
LIBOR Notes 60.00 48.99 (11.01)
Partnership interest(15%)9.00 7.35 (1.65)
Net position (110.00) (125.34) (15.34)
200 Basis Pt. Change
Rise
Long Bonds (34.88) 7.12
Met Note (92.18) 5.82
Total liabilities (127.06) 12.94
Partnership interest (15%) 19.06 (1.94)
Net liabilities (108.00) 11.00
LIBOR Notes 69.90 9.90
Partnership interest (15%) 10.48 1.48
Net position (97.52) 12.48
The parentheses in the table reflect that the Long Bonds and Met
Note are liabilities for Colgate. Changes in the value of these
liabilities are offset in part by changes in the value of
Colgate's 15-percent interest in the partnership portfolio
comprising these bonds and LIBOR Notes. When interest rates
fall, Colgate's bonds appreciate, resulting in a $16.11 million
decrease in the market value of Colgate's net worth. This loss
represents the opportunity cost to Colgate of being locked into a
fixed rate liability that now exceeds the prevailing cost of
capital in the market. By virtue of its proposed 15-percent
ownership share in the partnership portfolio, Colgate realizes a
gain that offsets this loss in part: The net effect on Colgate
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