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understanding. Beside the heading "Guarantor", the following
explanation appears: "Subsidiary of ABN will borrow against a
firm takeout at maturity". Considering its reliance on the
repeated participation of a small group of banks to sustain its
involvement in numerous section 453 partnerships, it is not
surprising that ABN would wish to imply, and that the investors
would be prepared to infer, that they could look to ABN for
repayment.
Generale Bank, Banco Espirito Santo, and Banco di Roma
acquired participations in Kannex's loan in amounts between
$25 million and $75 million. All participations were repaid by
July 1991. The loan from ABN Cayman Islands was ultimately
repaid out of the liquidating distribution that Kannex received
at the end of November 1991. Owing to the preferred return that
Kannex received from Southampton and appreciation of Colgate debt
as a result of the decline in interest rates, there was a
sizeable surplus remaining after repayment of the loan, as shown
on Kannex's balance sheet for the period ended November 30, 1991.
Kannex did not retain this surplus. Kannex also did not
distribute this surplus to its nominal shareholders when Kannex
was liquidated shortly thereafter.
Following the redemption, Kannex's swaps with ABN were
terminated. The benefit that Kannex had enjoyed from a fall in
interest rates for purposes of the valuation of its partnership
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