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superfluous and deleterious effects of the volatile LIBOR Notes.
However, that is not what the minutes of the third partnership
meeting on December 12, 1989, suggest. According to the minutes,
Taylor recommended that the partnership dispose of 20 percent of
the LIBOR Notes because the planned exchange of some of the Long
Bonds for new Colgate debt of shorter maturity would reduce the
partners' interest rate exposure. "He further noted that such
reduction would not adversely affect Kannex because of the
Adjustment of sharing of Yield Component effected by the notice
dated December 12, 1989, from Southampton-Hamilton Company",
which lowered Kannex's share of the Yield Component. One would
not gather from Taylor's explanation that, 2 weeks before the
meeting, Kannex, ABN, and Merrill entered into the back-to-back
hedge swaps that rendered the LIBOR Notes utterly ineffectual as
a risk management instrument for Kannex, or that Kannex and ABN
were also hedging Kannex's exposure to the Colgate debt so that
Kannex would not be affected by Southampton's adjustments of the
Yield Component.
The explanation for the decision to dispose of the BOT Notes
provided in the minutes of the twelfth partnership meeting in
December 1991 is likewise misleading. Pepe is reported to have
said:
[A]s Colgate and a subsidiary Southampton, owned 99.4%
of the Partnership, the principal Partners' net
economic exposure to the risk of interest rate
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