- 42 -
Investment Guidelines was "to preserve principal". To this end,
temporary cash balances were to be invested in a portfolio of
short-term money market instruments selected so as to achieve
both a high degree of liquidity and diversification. Upon the
liquidation of most of its investment in unregistered 5-year
notes of a single issuer, the partnership would be in a position
to implement its Investment Guidelines.
On November 27, 1989, ACM sold $175 million principal amount
of the Citicorp Notes to BOT ($125 million) and BFCE ($50
million). The aggregate consideration consisted of cash in the
amount of $140 million and eight notes requiring quarterly
payments of 3-month LIBOR for 20 quarters commencing March 1,
1990, on a notional principal amount of $97.76 million (LIBOR
notes).8 The LIBOR notes were not registered under the
Securities Act of 1933 and were not readily tradable on an
established securities market. At the time of the transaction,
Standard & Poors rated the senior debt of BOT AA and that of BFCE
AAA.
The aggregate amount of the consideration paid by the banks
included the discount, or origination cost, that Merrill
determined it would need to charge for its role in the
arrangement and intermediation of the transaction. The discount
8 The term "notional principal amount" means that the
principal amount is not actually exchanged; rather, parties agree
to exchange payments based on the notional amount.
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