ACM Partnership, Southampton-Hamilton Company, Tax Matters Partner - Page 88

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               hedging provided by the Installment Purchase Agreements                
               executed by the Partnership on November 27, 1989 would                 
               be economically advisable.  He noted that this                         
               reduction would not adversely affect Kannex because of                 
               the adjustment of sharing of Yield Component effected                  
               by the notice dated December 12, 1989, from Southampton                
               to the Partnership Committee.                                          
               It was decided that the BFCE Notes would be distributed to             
          Southampton as a partial return of capital.  ACM assigned the               
          BFCE Notes to Southampton as of December 13.  By Assignment                 
          Agreements dated December 22, 1989, Southampton agreed to assign            
          the notes to Sparekassen for aggregate consideration of                     
          $9,406,180.  The discrepancy between the issue price at which the           
          Notes had been acquired ($9,831,661) and the price that                     
          Southampton received on their sale ($9,406,180) was largely                 
          attributable to a bid-ask spread of $390,000.  The bid-ask spread           
          reflected the margins above and below mid-market value that                 
          Merrill deemed necessary in order to originate and sell the                 
          Notes.  Estimating cash flows under the Notes from ask-side swap            
          rates and discounting at a spread below LIBOR in its valuation of           
          the Notes at issuance, Merrill was able to create an attractively           
          priced liability for BFCE.  Estimating cash flows under the Notes           
          from bid-side swap rates and discounting at a spread above LIBOR            
          in its valuation of the Notes for purposes of the assignment                
          transaction, Merrill was able to create an attractively priced              
          asset for Sparekassen.  The remaining portion of the discrepancy,           
          $35,481, was due to a decline in market interest rates over the             






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