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partner's, fiscal year).
IV. ASA's Transactions
A. Purchase of PPNs
On April 25, 1990, ASA purchased $850 million of 5-year PPNs
with put options exercisable on November 20, 1991. Of these
PPNs, $350 million were issued by the Long Term Credit Bank of
Japan (LTCB) and rated AA by Standard and Poor's. The remaining
$500 million of PPNs was issued by Sumitomo Bank Capital Markets,
Inc. (Sumitomo), and rated AA+ by Standard & Poor's.
Merrill Lynch induced LTCB to issue the PPNs by arranging
basis swaps (i.e., the exchange of payments based on one variable
interest rate for payments based on another variable interest
rate) that converted LTCB's cost of capital for issuing the PPNs
to an attractive sub-LIBOR interest rate. These swaps provided
that Merrill Lynch would pay LTCB an amount equal to the coupon
rate of the LTCB PPNs. In exchange, LTCB paid Merrill Lynch a
sub-LIBOR rate on the face amount of the PPNs.
B. Sale of PPNs and Acquisition of LIBOR Notes
On May 8, 1990, the ASA partnership committee met in Bermuda
and adopted a resolution authorizing and directing the sale of
the PPNs for consideration consisting of approximately 80 percent
cash and 20 percent LIBOR notes. Between May 17 and 24, 1990,
ASA sold the PPNs to Mitsubishi Bank, Ltd. (Mitsubishi) and
Banque Francaise du Commerce Exterieur (BFCE). Standard and
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