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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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