- 19 -19
respectively.
In anticipation of AlliedSignal's purchase, ASA revalued its
assets at $1,093,657,933. This value included the LIBOR notes
valued at $163,964,000. The value of the LIBOR notes reflected a
$6,342,068 decrease in value since their acquisition and included
$6,375,000 attributable to the cost of selling the PPNs.
After the August 2 purchase, AlliedSignal and Merrill Lynch
entered into five swaps designed to hedge AlliedSignal's and
ASIC's combined 59.43 percent interest in the LIBOR notes. Swaps
one through four were designed to eliminate the yield curve risk
(i.e., the risk from the movement of long-term, relative to
short-term, interest rates). These swaps required AlliedSignal
to pay Merrill Lynch, on a quarterly basis, a fixed rate times
various notional principal amounts in exchange for quarterly
payments of 3-month LIBOR on those same amounts. The fifth swap
required AlliedSignal to make quarterly payments of 3-month LIBOR
times a certain notional principal amount, in exchange for
quarterly payments of a fixed rate times the same notional
principal amount.
Between August 31 and September 28, 1990, AlliedSignal
borrowed $435 million from ASA by issuing ASA $435 million of
short-term notes (AlliedSignal Short-Term Notes). These notes
had a maturity date of December 28, 1990, a money-market yield,
and put and call options exercisable at par on a monthly basis.
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