- 65 -
The banks could have expected to retain approximately $300,000 of
this value. See diagram 1 infra p. 67.17
It was the understanding of BFCE that Merrill would arrange
for the resale of the Citicorp Notes after only 1 month, well in
advance of the date that the step-up in Merrill's payments took
effect. The written agreement contained no such provision, but
Merrill found a buyer, and BFCE sold its $50 million principal
amount of Citicorp Notes on December 22, 1989. At the same time,
the basis swap between Merrill Capital and BFCE was canceled. In
January 1990, the basis swap with BOT was terminated, and the
remaining $125 million principal amount of Citicorp Notes was
resold.
Merrill arranged another structured transaction to
facilitate Southampton's sale of the BFCE LIBOR Notes to
Sparekassen on December 22, 1989. Under the hedge swap between
Merrill Capital and Sparekassen, Sparekassen was obligated to
make quarterly payments equivalent to those it was entitled to
receive from BFCE under the LIBOR Notes. In return, Merrill
Capital was required to pay $9,406,180, an amount that
corresponded to the purchase price of the notes, in 20 equal
17 As will be seen hereafter, Merrill Capital did not retain
all of the remaining $1.5 to $1.6 million of value extracted from
the partnership. Some of this value was transferred back to ABNs
and Kannex through a separate set of swaps relating to the LIBOR
notes.
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