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amount ($80,779,000), equal to Kannex's 82.63 percent share of
the combined total notional principal amount of the BOT and BFCE
Notes. Likewise, in the BFCE swap, the principal amount of the
amortizing leg ($9,831,661) was equal to 50/175, or 28.5 percent
of the combined total issue price of the BOT and BFCE Notes
($34,410,814); in the ABN swap, the principal amount of the
corresponding leg was $28,433,655, an amount approximately equal
to Kannex's 82.63 percent share of the combined total issue price
of the BOT and BFCE Notes. If, as Beder concluded, the
amortizing leg was worth more than then fixed notional leg in the
BFCE swap, that asymmetry in value would necessarily have been
magnified in the larger, but structurally identical, ABN swap.
The second respect in which the swaps differed was that Merrill
Capital occupied the position of the net creditor in the BFCE
hedge swap but that of the net debtor in the ABN swap. The hedge
swap between ABN and Kannex was in all respects identical to the
hedge swap between Merrill Capital and ABN, except that ABN now
assumed the position of net debtor.
The effect of the back-to-back hedge swaps would have been
to transfer from Merrill Capital to ABN and from ABN to Kannex a
portion of the value extracted from the partnership through the
transaction spreads it was charged in the contingent payment
sale. This transfer partly indemnified Kannex for its share of
the partnership's economic loss.
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