ACM Partnership, Southampton-Hamilton Company, Tax Matters Partner - Page 111

                                       - 69 -                                         
          on March 1, 1990, when the opportunity to do so first arises:  At           
          the inception of the swap, the prospect of a decline in BFCE's              
          credit sufficient to warrant retention of the option at the large           
          cost that this would impose was highly unlikely.                            
               As in the structured transaction that Merrill designed for             
          the other two banks, Sparekassen could expect to lose money on              
          the swap; the source of its gain is the bid-side spread implied             
          in Merrill's pricing of the LIBOR Notes.  The transaction pricing           
          resulted in the transfer from Southampton to the bank of more               
          than $200,000 in value, most of which would ultimately enure to             
          the benefit of Merrill Capital.  See diagram 2 supra p. 67.                 
               By agreements among BFCE, Sparekassen and Merrill Capital,             
          the BFCE LIBOR Notes and the two hedge swaps related to them were           
          terminated during 1990.                                                     
               Merrill arranged another hedge swap for BFCE in conjunction            
          with the bank's purchase of the BOT LIBOR Notes from ACM for                
          $10,961,581 on December 17, 1991.  The structure and function of            
          this swap were for the most part identical with those of the                
          hedge swap between Merrill Capital and Sparekassen.  BFCE agreed            
          to pay Merrill Capital amounts equal to the flows it was entitled           
          to receive under the BOT Notes.  Merrill Capital agreed to make             
          12 equal quarterly payments aggregating $10,961,581, together               
          with interest on the unpaid balance at LIBOR plus 35 basis                  
          points.  The interest rate was stepped up after the first year              
          unless Merrill elected to terminate the swap and acquire the                







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