ACM Partnership, Southampton-Hamilton Company, Tax Matters Partner - Page 108

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          quarterly installments, together with interest on the unpaid                
          balance at a rate of LIBOR plus 35 basis points.  The spread over           
          LIBOR increased to 85 basis points after March 1, 1990, if                  
          Merrill did not first exercise its right to call the notes at a             
          price equal to the unpaid principal balance and terminate the               
          swap.  From Sparekassen's perspective, the structured transaction           
          was similar to investing in an amortizing loan that paid a margin           
          over LIBOR, rather than in volatile LIBOR Notes.  From Merrill              
          Capital's perspective, the transaction provided an asset whose              
          volatility matched and offset the volatility of its liability               
          under the hedge swap with BFCE or BOT.  The step-up in Merrill              
          Capital's payment obligations provided it a financial incentive             
          to exercise its call right and cancel the swap.  Petitioner's               
          expert, Beder, concluded that as of the time of its acquisition             
          of the BFCE Notes, Sparekassen could have expected a net present            
          value benefit of $7,208, equivalent to a return on its investment           
          of 41 basis points more than that available in the direct                   
          interbank market.                                                           
















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