ACM Partnership, Southampton-Hamilton Company, Tax Matters Partner - Page 68

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          bank would also earn sizeable profits off the bid-ask spread on             
          swaps necessary to stabilize Kannex's return from the assets in             
          the partnership portfolio so that it could repay the loan.5                 
          Because of the size of the loan, approval was required at                   
          three levels within the bank:  The credit committee at ABN New              
          York, the North American Credit Committee (NACC) in Chicago, and            
          the Risk Management Dept. (RMD) in Amsterdam.                               
               After approval by ABN New York, NACC reviewed the proposal             
          together with a memorandum describing the partnership.  On                  
          October 11, 1989, sent an advice to RMD recommending approval               
          subject to a number of conditions, of which three are noteworthy:           
               1)   The timing of the purchases and sales of the                      
                    various securities be adhered to as proposed                      
                    such that the credit risk is no greater than                      
                    as outlined in partnership memo.                                  
               2)   Interest rate risk is fully hedged.                               
               3)   Colgate's obligation to purchase Kannex's                         
                    interest in the partnership by 11/30/89 [sic]                     
                    is unconditional (will those proceeds be                          
                    assigned to ABN?)                                                 
               RMD advised NACC and ABN New York of its decision:  "We                
          agree on the condition that Merrill again verbally states to the            
          partners that they will buy the MTN's at par on November 29,                
          1989."  The reference to "MTN's", or medium-term notes, evidently           
          denotes the private placement notes in which the partnership was            

               5 A bid-ask spread is the spread between the price at which            
          an instrument is bought and sold.  The bid price is the price at            
          which dealers buy the instrument, and the ask price is the price            
          at which dealers sell the instrument.                                       




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