- 15 -
by the partnership for newly issued Colgate
debt of different maturity. Such exchanges
may be effected as often and rapidly as
Colgate deems appropriate. If Colgate
attempted to refinance existing debt within a
short time frame by repurchasing it and
issuing new debt, transactions costs would
rise dramatically. * * *
* * * * * * *
The Partnership also allows Colgate to
effectively retire its debt, while leaving
the debt outstanding for accounting purposes,
and to take a position on rates by adjusting
the relative sharing of Treasury risk by the
partners. As Colgate bears a relatively
greater share of the Treasury risk (i.e.,
losses in value of the Colgate debt
attributable to interest rate increases) with
respect to its debt, it has economically
retired an increasing percentage of such debt
and effectively changed its position with
respect to interest rates.
The partnership's fulfillment of the liability management
purposes for which it was designed would depend on the identity
of Colgate's partners. Merrill undertook to procure them.
During the summer of 1989, Taylor approached Hans den Baas (den
Baas), the head of the Financial Engineering Group at ABN Bank
New York (ABN New York),4 concerning the possibility of ABN's
participation in a partnership with Colgate. Taylor explained
that the partnership would be used to acquire Colgate long-term
4 During the period at issue, ABN New York was a subsidiary
of Algemene Bank Nederland, N.V., one of the Netherlands' largest
financial institutions. ABN Trust Co., Curacao, N.V., was
another subsidiary. For purposes of this Opinion, the name "ABN"
refers to Algemene Bank Nederland, N.V., or any one of its
subsidiaries, affiliates or branches.
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