- 21 -
needed in order "to achieve the ideal Colgate liability
structure." Pohlschroeder envisioned "two possible situations
arising in the future" which would call for the disposition of
some of the LIBOR Notes. One was the exchange of long-term debt
for medium- or short-term debt. "Because a shorter term
instrument is less volatile, a smaller notional amount of the
LIBOR Note is required for hedging purposes." A second situation
was a change in the treasury risk sharing ratios. "The
partnership is overhedged when Colgate decides to take more of
the treasury risk and ABN reduces its share of the treasury risk.
Conversely, as ABN's participation goes up, it needs more of a
hedge in [the] form of the LIBOR notes."
Merrill provided Colgate with estimates of the expected
costs of the contemplated partnership transactions. The
"Perpetual Partnership Cost Component Analysis" reproduced in
modified form below was prepared based on market conditions
prevailing on September 1, 1989, and evidently assumed that the
partnership would remain in existence indefinitely after these
transactions were completed.
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