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of deposit (CD's)) maturing December 4, 1989, and bearing
interest at 8.15 to 8.20 percent. Upon maturity, these funds
became available at no transaction cost to finance the following
purchases of Colgate debt between December 4 and 8:
$100 million principal amount of the Met Note for
$99,291,000 plus accrued interest;
$1 million principal amount of Euro Notes for
$1,025,500 plus accrued interest;
$4 million principal amount of Euro Notes for
$4,102,000 plus accrued interest;
$31 million principal amount of Long Bonds for
$31,493,396 plus accrued interest.
During November, the groundwork was being laid for the
disposition of some of the LIBOR Notes that ACM would acquire in
the sale. A memorandum that Merrill prepared for Colgate
entitled "Analysis of Partnership Hedging Activity," dated
November 13, 1989, purports to demonstrate quantitatively how
either an increase in Southampton's share of the interest rate
volatility of the Colgate debt from 30 percent to 50 percent or
an exchange of the Long Bonds for a new issue of 5-year Colgate
debt would warrant a reduction in the amount of the LIBOR Note
hedge in the partnership portfolio by approximately $10 million.
Merrill reasoned that, in either case, ABN's interest rate
exposure would fall by about 30 percent, and a 30-percent
reduction in the size of the partnership's hedge would leave the
bank's net exposure unchanged. Sometime in November, Pepe
approached Neil Schickner (Schickner), head of the Capital
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