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Poor's rated Mitsubishi AA+ and BFCE AAA. In exchange for the
PPNs, ASA received $681,300,000 and 11 LIBOR notes. ASA used the
$681,300,000 to purchase time deposits and 30-day commercial
paper.
The LIBOR notes had a total notional principal amount of
$434,749,000. Each of the 11 LIBOR notes required 20 quarterly
payments of an amount equal to 3-month LIBOR (i.e., determined at
the beginning of each payment period) multiplied by approximately
25 percent of the note's notional principal amount. Payments
were to commence on August 31, 1990, and end on May 31, 1995.
ABN entered into a complex series of Merrill Lynch-designed
swap transactions involving itself, Barber, Dominguito, and
Merrill Lynch. These swaps fully hedged ABN's interest rate risk
relating to the LIBOR notes. Merrill Lynch also structured and
entered into swap transactions with Mitsubishi and BFCE to induce
their participation in the venture.
1. Cost of Selling the PPNs
Merrill Lynch initially told AlliedSignal that the sale of
the PPNs would cost between $1,060,000 and $2,130,000. On April
13, 1990, 3 days before the executive committee meeting, Merrill
Lynch told AlliedSignal that the PPN sale would cost
approximately $4,250,000. Merrill Lynch ultimately imposed a
cost of $6,375,000 on the PPN sale. This cost was imposed
through a reduction in the value of the consideration received by
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