- 72 - New York vis-a-vis Merrill Capital. When Kannex's indirect interest in the LIBOR Notes held by the partnership changed significantly as a result of the distribution of the BFCE Notes to Southampton on December 13, 1989, the partial purchase of Kannex's partnership interest on June 27, 1991, and the redemption of its remaining interest on November 27, 1991, both legs of the hedge swaps were adjusted proportionately. At these times, the portion of the swap that was to be terminated would be marked to market, and the counterparty that would otherwise have benefitted from the change in market interest rates would receive a compensatory termination payment. The back-to-back hedge swaps satisfied complementary needs. Kannex was able to stabilize its return on $28 million of its partnership investment. Likewise, Merrill Capital was able partly to offset the interest rate exposure that it incurred in connection with its hedge swaps with BOT and BFCE. The back-to-back hedge swaps relating to the LIBOR Notes also served an additional function that can be understood only by reference to the terms of the structured transactions in which the LIBOR Notes were issued. According to the analysis of petitioner's expert, the transaction spreads implied in Merrill's pricing of the Citicorp Notes and LIBOR Notes for purposes of the contingent payment sale could be expected to result in the transfer of between $1.8 and $1.9 million of value from ACM toPage: Previous 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 Next
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