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Financial arrangements for Kannex's participation were
initiated by den Baas at ABN New York. Based on information
about the proposed partnership that den Baas had received from
Taylor, ABN New York prepared a credit proposal on behalf of
Kannex, dated October 3, 1989. Since the borrower's only asset
would be an interest in a portfolio expected to consist largely
of Colgate long-term debt, ABN New York assessed Colgate's
creditworthiness. Under the terms of the proposed credit
facility, the bank would loan Kannex $170 million for 1 year at
an interest rate of LIBOR plus 30 basis points, corresponding to
the rate that the bank would have charged Colgate or a similarly
rated company for a line of credit. Colgate was listed as the
"client" on the credit proposal. This was because ABN New York
viewed the financing transaction as a means of fostering closer
banking relations with Colgate. As the credit proposal
explained:
Colgate has been an important prospect for ABN New York
Branch because of its strong financial condition and
extensive international operations. Establishing a
relationship has proven difficult because of the
company's loyalty to its line banks. ABN's past
involvement has been limited to facilities for Colgate
subsidiaries. * * * We believe that the proposed
transaction would provide an excellent entry into the
parent's banking relationship.
Although the interest rate on the loan would provide an
acceptable return commensurate with the level of the credit risk
involved, ABN New York expected that the total returns to the
bank from the loan transaction would be appreciably higher. The
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