ACM Partnership, Southampton-Hamilton Company, Tax Matters Partner - Page 30

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          is a $13.69 million loss.  But the partnership also holds LIBOR             
          Notes, which decrease in value when interest rates fall.  The               
          effect of holding a 15-percent share of the LIBOR Notes through             
          the partnership is to magnify the net effect of a fall in                   
          interest rates:  If the partnership did not hold LIBOR Notes the            
          market value of Colgate's net worth would decline by $13.69                 
          million; the LIBOR Notes increase this loss to $15.34 million.              
               Now consider the effects of an increase in interest rates on           
          Colgate's net worth.  The Colgate bonds decrease in value by                
          $12.94 million.  The benefit to Colgate of having lower financing           
          costs than the prevailing market rates is partially offset by               
          Colgate's 15-percent share of the capital loss experienced by the           
          partnership.  But the net effect for Colgate is a gain.  Colgate            
          also benefits from the appreciation of the LIBOR Notes:  If the             
          partnership did not hold LIBOR Notes, the market value of                   
          Colgate's net worth would increase by $11 million; the LIBOR                
          Notes increase Colgate's gain to $12.48 million.  Thus, once                
          again, the effect of the LIBOR Notes is to magnify Colgate's                
          exposure to interest rates.  From the perspective of Colgate's              
          overall financial position, the LIBOR Notes do not function as a            
          hedge at all.                                                               
               There is a curious inconsistency in Pohlschroeder's                    
          memorandum between his discussion of how the partnership will               
          serve Colgate's liability management objectives and his                     






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